Q3 2019 Earnings Call
Good morning, and thank you for standing by welcome to the Q3 2019 Pete.
Hi, <unk> earnings conference call.
At this time all participants are in a listen only mode.
Later, well conduct a question and answer session and instructions will follow at that time.
Anyone <expletive> require assistance during the conference. Please press star zero on your Touchtone phone.
I would now like to turn the conference over to your host Mr. Christopher ROI. Please go ahead sorry.
Thank you Tiffany and good morning, everyone has Tiffany just said I'm, Christopher ROI, Chief Financial Officer of SP plus.
Welcome to our conference call following the release of our third quarter 2019 or age.
Or implied due to a variety of risks uncertainties or other factors, including those described in the company's earnings release issued yesterday.
Which is incorporated by reference for purposes of this call is available on the SP plus website under risk factors and the company's annual report on Form 10-K in quarterly reports on Form 10-Q , and other filings with the FCC.
In addition management will discuss non-GAAP financial information during the call management believes the presentation of non-GAAP results provides investors with useful information.
They are provided for informational purposes, only a full reconciliation of non-GAAP financial measures to comparable GAAP financial measures were presented in the tables accompanying last night's press release, which is incorporated by reference for purposes of this call.
To the extent other non-GAAP financial measures are discussed on the call reconciliations to the comparable GAAP measure will be posted under the regulation G. tab in the Investor Relations section of the SP plus website.
Please note this call is being broadcast live over the Internet and that a replay will be available on the SP plus website for 30 days from today.
I'll now turn the call to Marc Baumann, Chief Executive Officer.
Thanks, Chris and good morning, everyone and thank you for participating in today's call to review, our third quarter and nine month 2019 results and discuss our business outlook I'll begin our call today with a brief overview and then Chris will discuss our financial performance in a little more detail.
Come back to share our thinking on the business outlook after that as Tiffany said, we'll open up the call for acuity session.
By all measures. This was a very strong quarter for SP plus.
Gross profit increased 30% year on year in third quarter, representing 9% organic growth with the remainder attributable to bags gross profit from existing business or same operating locations increased by 3.4% in the third quarter and was up 4.6% year to date.
This year on year growth was broad based across most key verticals and was led by our airports and municipal groups. Additionally, it represented overall positive year on year performance across the geographies we serve.
Given the large number of services, we provide and variations in contract typing client profile, it's often difficult to focus on one or two overarching trends that are driving our growth well. We can say however is that we believe our value propositions are resonating with clients and are enabling us to both selling additional services to existing clients.
And to add new names to our roster.
This is largely the case, because our services not only address important issues facing our clients, but we provide these services in ways that significantly improve their and customers experience as a result, our clients generally see improved bottom line results, which can come about either because our services generated additional revenue and or because of service.
One common theme, we hear from clients is around congestion and how often it results in lost revenues and can lead to operating inefficiencies.
SP plus has a proven track record of playing a key role alleviating congestion airports hotels parking garage as hospitals events and other large venues, we deploy a well trained courteous workforce, coupled with innovative technology to efficiently move vehicles people and their belongings.
For example, SP plus is dynamic weight finding solutions utilize the latest technology to allow parkers defined empty spaces as they become available in real time. They also provide partners the ability to find a parking space pay for parking and be directed and how to exit a facility optimizing ingress and egress times are critical consider rate.
Since for operations, where thousands of people come and go within a very short period of time.
Development of technology tools that improve efficiency as well as generate incremental revenue has been a key focus that SP plus it continues to be an important differentiator for us in the marketplace. Some examples including parking dot com, our proprietary online distribution channel that enables consumers to locate in purchase parking online income.
Sacrificing customer service.
By providing highly relevant business solutions to our clients the leverage technology and well trained staff to deliver superior service SP plus is an important partner to marquee clients in a broad range of industries.
First we are targeting penetration in higher value verticals, namely hospitality health care and municipal markets, We're where we are already well known provider, but have the opportunity to significantly increased market penetration.
Second we're leveraging our brand by continuing to develop national account relationships. We believe this strengthens our position within existing client organizations as well as open the door for us to work with new ones.
In this regard I'm pleased to report that we've been awarded four contracts and are in advanced negotiations with additional hospitals under our group purchasing agreement with Premier Inc. and alliance up approximately 4000 hospitals and 165000 other health care providers. One of the recent wins was at the age fleet Moffitt Cancer Center.
Her in Tampa, Florida, where we will be providing valley and enforcement services at three garage is at four valley ramps serving over 1500 vehicles per day, making this one is the largest health care belly operations in the country.
If you recall, we in this group purchasing agreement with Premier last quarter. So we're very pleased with the progress we've made over the last several months and believe there are more opportunities ahead.
In September we were named a national preferred service provider to Jones Lang Lasalle large property in facilities management firm with over 4.6 billion square feet of commercial real estate under management, we've already been awarded three contracts as a result of this national level relationship, including the capital one campus in Mclean, Virginia.
We're also actively working on national accounts, and the hospitality vertical and hope to be able to announce progress on this initiative soon.
When exciting recent development is that Boston's Logan Airport, where the airport authority as centralizing all rights your traffic into the central parking garage in order to alleviate congestion at the airport curved and roadways, starting in December bags will provide remote check in and wheelchair services at the centralized rideshare location after being dropped off by.
Our luggage.
We're also actively pursuing cross selling opportunities by introducing bags services to our existing airport clients and have recently had two notable successes in this regard.
We're now providing remote check in services at Portland International Airport in Oregon, where SP plus has managed to parking shuttle operations in Texas and rideshare dispatching for several years the remote check in services are exclusively for parking customers with domestic flights. We use the goal key curbside valley at the airport Veli customers now in check.
We'll also provide remote tuck in services that Louis Armstrong, New Orleans International Airport, and other longstanding SP plus clients where passengers parking in the New Park I Miss why express economy parking garage, we'll be able to utilize bags airline baggage checking service from the comfort of their vehicles, then self park and head to the tune.
Permanent unencumbered by their luggage. This win demonstrates another use case for bags remote airline check in service, which can be deployed anywhere within internet connection whether it be at a centralized to remote parking facility consolidated karbinal facility, curbside portside or at hotels and venues.
To sum up we're quite pleased with the progress we've made in our long term growth initiatives. So far this year and are looking forward to having more positive news to report in the coming periods I'd now like to turn the call to Chris will provide more detail on our third quarter and nine months 2019th financial performance, Chris. Thanks, Mark we'll focus our comments today on adjusted.
Results as we usually do a full reconciliation of all non-GAAP measures to their nearest GAAP measures are in the tables accompanying last nights earnings release.
Third quarter 2019, adjusted gross profit increased 13.7 million to 58.7 million growth of 30% year over year or 9% on an organic basis.
Adjusted Gionee for the third quarter 2019 was 26 million an increase of 7.9 million compared to the third quarter of 2018, reflecting increased costs from the backs acquisition and a step up in accruals for proposal for poor performance based compensation programs.
Adjusted EPS was 77 cents for the third quarter of 2019 as compared to 69 cents for the same period of 2018, an increase of 12% year over year, our adjusted earnings per share for both periods exclude amortization of intangible assets from the backs acquisition as well as all.
Issuance.
A year over year increase in adjusted EPS was primarily due to the acquisition of bags and share repurchases offset by higher interest expense, resulting from the acquisition as well as higher DNA from capital lease investments.
Lower share count due to the share repurchases had a two cents to the third quarter adjusted EPS.
For the first nine months of 2019, reflecting improved performance from our existing business as well as strong net new business.
In addition to DNA related to the acquired backs business. There was also a nonrecurrence of 1.7 million cost recovery that reduce last year's DNA.
Adjusted EBITDA of 92.1 billion for the first nine months of 2019 increased 18.8 million or 26% from the same period of 2018.
Adjusted EPS was $2.17 for the first nine months of 2019, an increase of 28 cents or 15% compared to the same period 2018.
We generated 40 $44.3 billion of free cash flow during the first nine months of 2019, which marked an increase of 52% over the same period of 2018, but was largely inline with expectations.
This gives us confidence to expect the full year free cash flow will be toward the upper end of the current range of 40 to 50 million.
$4.34 per share as a result $34 million remains available under our current share repurchase authorization, which we will use opportunistically.
Based on the results to date, we are reaffirming our full year 2019 guidance for reported and adjusted net income EPS EBITDA and free cash flow.
Our first nine months.
Results for our first nine months.
Our first nine month results position us to achieve toward the upper end of these ranges I will now turn the call back over to Mark.
Hey, Thanks, Chris.
Year to date results have positioned 2019, as the year strong growth for SP, plus and as we are heading into 2020, we have confidence that continuing to execute against our strategies will result in continued growth. Our service offerings are resonating with clients, we're expanding our footprint and we have focused business development programs that are showing positive.
Results, while revenue synergies can take time to materialize, particularly in the aviation vertical we're pleased with the progress we made together with bags and look forward to continued cross selling success. These developments support the guidance, we provided last quarter, namely for a sustained full gross profit growth of 3% to 4%.
Over time, which represents a 50% to 100% improvement from our recent historical gross profit growth rate.
Finally, our ability to generate significant free cash flow enables us to invest in growth generating initiatives as well as return value to shareholders.
Operator, I'd like to open the call up for questions.
Ladies and gentlemen, if you have a question at this time. Please press Star then the number one on your Touchtone telephone. If your question have been answered or do you wish to remove yourself from the Q. Please press the pound key.
Your first question comes from the line of Daniel Moore with CJS.
One morning, Mark morning, Chris Thanks for taking the questions.
Yes.
Start with 9% organic gross profit growth among the fastest we've seen in some time.
Chris you may have touched on this and if I missed it I apologize any favorable variances in health care or other items.
Yeah I would this is mark would say.
We know that our gross profit can fluctuate up and down during the quarter from quarter to quarter because of some of the items you're mentioning Dan I think the nice thing about our business. This year is that it really has not been propelled by those unusual items. It's really just the underlying business I think obviously, we've we've grown at 6% on a year to date.
Basis, and and in that is that early lease termination that we talked about earlier in the year. So I'd just say our underlying business growth in 2019 on year to date basis is more like 5% growth. So we're very pleased to have 9% in a quarter, but I just want to make sure that we put that in the context of little longer trend line and just one quarters.
Results.
Well, there's there's a lot of things going on I think what we're pleased to see is that our location count for our commercial group has has picked up a bit this year and I think as I've talked on prior calls you know getting ourselves.
Quarter on quarter year on year location growth is an important element to a long term growth strategy and we we didnt have that story to tell you know in the past couple of years and I think that probably contributed to our slower growth. So we've been working hard to add net new locations to the business, we're having a strong year on new business.
Yeah.
But as you well no were primarily a management contract business contracts come up for renewal all the time, we have a lot of leases in our portfolio. Many of them are coming up in summer good leases in summer and that's a good leases and so there's always going to be.
You know some volatility around our numbers, but I think the fact that we are adding net locations and seeing growth there and the commercial group and having a strong new business a year sets US you know in a good place for continued growth in 2020 beyond.
Is that.
Fair enough opportunities additional M&A opportunities, which you might not have otherwise thought about and you know just talk about your increased confidence in executing additional M&A over time.
Well I think it does.
For us.
The the the opportunity with bags is really to bring a broader array of services to the existing SP plus client base and particularly in the airports space, where we're SP operates at 70 airports and some of bags proprietary technology.
Used in resorts and and cruise lines and the like but not so much at airports. So we see a lot of growth opportunity. There. So I think as we think about what does M&A look like for US I think it's looking at how to bring more value to our existing client base and how to attract new clients, who who might want to have a one stop shop.
For a broad array of services that's been a strategy of the company for a long time. So I think as we continue to kiss feelers out and make a what make ourselves aware of what's out there in the marketplace.
Looking for those kinds of things that doesn't mean that we wouldn't pursue an acquisition in the parking space. If we could if we could get it at the right value and that's always a an important consideration because were as you can see with all of our share buybacks or focuses on driving shareholder value, So doing an acquisition and drive value.
Our Montrose, we must grow we must accelerate our growth and if M&A can help us do that we'll pursue it but only if we can help us create sustained faster growth than we've been delivering over the past few years.
Good morning, Mark.
Good morning, Your EPS guide looks a little conservative even at the higher end of the range and implies a decline I think year over year or are there any seasonal effects, we should be taken into account with respect to eat yes, or any other reason, we might see I'm, assuming a material sequential decline from third quarter to the.
Fourth quarter.
Yeah, I think what I would say is a couple of things to that Tim. One is you know last year, we hit a very very strong fourth quarter in part because we had some large favorable insurance reserve adjustments to the casualty programs and and that really you know in effect.
Reverse maybe it was something that we were seeing in the third quarter last year third quarter was not as strong last years. It was this year. So as we've talked before we never can really anticipate when those insurance reserve adjustments are going to happen I think we have talked many times about the fact, we set up and administer our safety programs to drive down our total.
Cost of risk and so over an extended period of time, we expect.
Insurance reserve adjustments to be favorable to us, but it's very hard for us to predict when they're going to occur so.
Our practice for long on time.
Is that we give annual guidance and we think about on a quarterly basis, whether there should be some revision to that guidance and generally speaking it's been a very rare case over these 15 years of being public that we've ever adjusted guidance and that's really because there is volatility in our business. We don't always know what any one quarter's performance is going to be exactly like.
There's so many factors that go into it so I think as long as we're comfortable that our guidance measures are broadly you reflective of what we expect for our performance recognizing that it's possible for us to go above one of them you know or for fall outside the range. When we get our final results that's happened a few times.
We just didn't feel like there was a material reason to change our guidance at this time.
I understand that's that's helpful. That's good color thanks Mark.
Switching gears a little bit.
The second quarter.
It was a large health care system now you are the preferred provider of a large commercial real estate firm, that's too big wins two quarters in a row. So I guess first maybe.
How does the penetration with the large healthcare provider that you signed in <unk> that you signed on the second quarter and then second is there anyway to quantify for us.
Or maybe just describe in more detail.
What the pipeline looks like for more of these large enterprise wins.
Well I think there we have sort of a two prong approach I mean, one is to try to secure more of these types of agreements I think we talked earlier in the year and may be last year about our national growth strategy is really to try to secure national relationships to supplement what we've always done which is to try to cultivate.
Local relationships, we are each geography based business and we deploy an outstanding team of people in all the major markets and they have the job of delivering for our existing client base and also looking to create new relationships and get new wins in those local geographies and that will continue that has been important or underpinning to our business for a long.
On time, but we recognize that more and more theres some consolidation in the decision making around whether its commercial real estate hospitality.
Management companies in the in the hotel space and in healthcare and that Theres real value and that's trying to cultivate national relationships with these organizations and there's an incentive for them as well because our SP plus insightive analytics dashboard enables us to put on their desktop or on their mobile device.
Picture of individual locations in aggregated performance for all the facilities that we manage and so when we go in to do a quarterly business review with those people, we can show them the things and the information and talk about our plans for growth for them for the locations, we manage but obviously, we don't have any visibility into the things we do.
Can't manage we also able to.
Offer them incentives to give us more and more facilities I mean that there was obviously if we have one client at one place we try to be and our competitive in the marketplace, but if somebody is offering a portfolio to us we can offer them more attractive financial terms and so there's a financial incentive for people to give us stuff too. So that is just I'd say an income.
Precinct focus of our efforts at now that being said once we win or or or enter into those agreements that we've been talking about now we've talked about two and we have more that we are working on.
We now have to go get new new opportunities, it's not a guarantee that we're going to get anything do it but it does what it does do is it gives us credibility and it gives us access to the decision makers, which are sometimes hard to get to and large organizations. So you know when our when our local operating leadership goes into a.
Let's just call it a hospital and their tone or for a hotel in their tone.
Or or a large commercial real estate development, they may or may not be able to actually get a meeting with somebody who is a decision maker.
But if we have if we have if you if you want to call. It's like the good housekeeping seal of approval is kind of how I think of it.
From a group purchasing organization or from the property management company.
We're going in with some credibility and they also know that they're going to get attractive financial terms from us as well and so that helps a lot. So all I can really say is these organizations in the two we've mentioned our are really large these are very big leading successful companies and we're really pleased to have.
Those relationships with them and we feel that overtime, we will continue to add locations. So we're at the early stages, we've announced a few things in this call we've indicated that theres more coming.
We are aggressively working on the third prong of this national strategy, which is hospitality and hope to have some things to talk about in the coming months in terms of the along these same lines.
Okay, I mean, but is it fair to say I have to think that being the preferred provider for Jones Lang Lasalle is going to put you at the table.
For some of those properties a lot more often than you were previously right.
Yes, I did so that's our belief and but we have to deliver value for their clients. I mean it. This is one of those every day you got to prove yourself kind of business and so if we if we get to the table and we can talk about our capabilities, we can listen carefully and understand their needs and every property and facility.
Is different so they're not this isn't a one size fits all that we deliver customized solutions for clients and so if we are able to get some wins like the ones, we've talked about and deliver exceptional value to those clients, that's going to feedback through and become kind of a virtuous circle, that's going to create more opportunities. Thank you.
If case studies that can be talked about with other prospective clients within their portfolio.
Okay. Thanks, Mark maybe maybe my last question you mentioned that some locations to the previous analysts you mentioned that some locations are coming up for renewal are there an outsized amount of leases.
Coming up for renewal in the near term or was that just more of a general comment no to general comment we always have stuff coming up for renewal, but I think we've talked before you know were primarily management contract business and in those contracts. Many cases are terminable sort of at any time, that's why our focus isn't get a bunch of contracts and sit back with their feet up art.
Our focus is on gives Patrick and then deliver exceptional value and B b. So appreciate it and so valued by the clients that they keep us for years and years, that's our approach.
Understood Congrats on a nice quarter guys, thanks and activities.
And again, ladies and gentlemen, if you would like to ask your question. Please press Star then the number one on your telephone keypad again that Ashar wine.
Next question comes from the line of Marc Riddick, let's put it out.
Good morning, good morning.
Good morning, ordering I wanted to touch a little bit on just sort of following up on under this thread I guess, a little bit you wanted to get sort of give us a bit of an update as to.
Ill, maybe percentage of revenue that national accounts.
Currently sits at this point and what you think the capacity is currently and then maybe if there's there's additional hiring needs that would be necessary to too to get to the goals that you're looking at thanks.
Yeah, that's a really difficult question to answer and not and not because.
We don't want to tell you. It's more that we you know what is a national account, we have our own definition.
And in some of it is arbitrary we're just looking at organizations that have you know a reach of certain size and scope for our initial efforts to create these national relationships, but as we have success with some of these organizations are probably brought in our our definition of a national account. So I don't think it'll be hopeful I think could put it.
What I would say is that we've given you some indication of the size and scale of these organizations that we're forming these relationships with and they literally thousands of properties that they are involved with and and I think it would be safe to say that.
Our uptil now involvement with them is can we can be counted on one or two hands talking about very low penetration and so I think what we really see as if theres no practical foundry one how much business that we can generate in this area there will be limited really by our own ability to deliver exceptional value.
Okay, and then certainly you've had.
Earlier initial activity into service in the hospitality vertical and this particular front I was wondering if you could touch a little bit on maybe some of the.
The markets, where you're looking at either geographically or or or customer vertical was that you think.
Good offered in the greatest near term upside for wall for your services thinking yes, well I think you know look we we've said for many years that people are most likely going to need us when they have large complex operations when movement of traffic and people.
It's really important when service standards are important and and so we have a major metropolitan area based strategy for our business and that doesn't mean that we're not interested in something thats not in major metropolitan area. We recently started up managing all of the.
Transportation football for football for Penn State University during the season and that is away from some of the major metropolitan areas, but our focus is on the major cities because we can deploy a really talented organization there on the ground depth of management expertise across all the verticals and so we can put ourselves in a position where we can say.
If you're in one of the top 20 or 30 markets in North America. We've got an 18 with people on the ground, who can really deliver value for you. So in that sense. You know we it at the local level. We're focused on what are all the opportunities for us to deliver value to clients who are looking for.
Help with their solving complex problems in the application of technology to the movement of people in vehicles and their belongs now that being said we've talked about from a national point of view there our property management firms.
Like Jones Lang Lasalle that we just announced and there there are others that we have relationships with too there are national group purchasing organizations like Premier and there are others out there too and there are many hotel management companies have varying sizes from a dozen hotels too many hundreds of hotels in there or.
So you know a hotel companies that manage that run their own properties and and that but have multiple locations throughout North America. So our goal is to really focus on those three verticals as being as areas, where we have a nice base of business, we are well recognized as having a strong brand and capability.
But where the size of the opportunity is very large relative to our existing portfolio and then obviously the one other one and you know is around municipal and we'll have some things to talk about in terms of new municipal deals fairly soon as well. So that's another one where we have I think I don't know 90, 90 cities, maybe where we operate.
We collect the money out of on street parking meters and there's 3000 cities in North America that you have on street meters. So again, it's you know we've targeted these verticals for the last couple of years, because we feel that they are our penetration is low relative to the opportunity. What we have not done until recently is to really bring on additional resources to actually.
Up our game in terms of our ability to get in front of some of these organizations and institutions to try to show them. What we're capable of doing so we've had the strategy for a while we're adding resources to be to enable us to go affectuate that strategy more successfully and we are now starting just starting to bear fruit, we're able to share some of the successes.
With you.
Okay. That's it that's great color. Thank you very much thanks Mark.
Do you do have a follow up question from the line of can do more CJ, yes.
Hi, Dan. Thanks, Thank you again, Mark just quickly on Gionee.
I recognize it's it's higher year over year and you didn't.
Incur some incremental.
Incentive related compensation expense, but.
That said, it's still actually down sequentially is 26 million.
Reasonable run rate should we how do we expect a little bit incur a little bit more incentive comp given the strong performance in Q4, how should we think about you know.
Going forward.
Yes. This is Chris I would say that if you look at kind of what we had for Q3 and you peg a little bit of an increase on that I think that would be a reasonable assumption that kind of bacon, especially given the performance based compensation and the performance that we've had for 2019 year to date and what we expect the rest of year to end up.
Yes.
That's helpful. Thank you.
At this time I currently showing no further questions in queue I will now turn the call back over to Mr. Marc Baumann.
Hey, Thanks, Tiffany and thank everyone for joining us today, we really appreciate your interest in following SP, plus and speaking with US today and I look forward to joining you again, when we give our Q4 results early next year take care now.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation have a wonderful day you may now disconnect.