Q4 2019 Earnings Call
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Ladies and gentlemen, and welcome to work force when do you 19, SP Plus Corporation earnings Conference call.
This time all participants are in listen only mode. Later, we will conduct a question and answer session and instructions will be given at that site.
I would like to turn the call or with the Christopher <unk>, Chief Financial Officer else SP, plus Sir you may begin.
Thank you Ponty.
Good afternoon, everyone as far as he just said I'm, Christopher ROI, Chief Financial Officer of SP, plus welcome to our conference call. Following the release of our fourth quarter 2019 already.
During the call today management will make remarks that maybe considered forward looking statements, including statements adds to 2020 outlook guidance and statements regarding the company's strategies plans intentions future operations and expected financial performance actual result.
Performance and achievements could differ materially from those expressed or implied due to a variety of risks uncertainties or other factors, including those described in the company's earnings release issued earlier earlier this afternoon.
Which is incorporated by reference for purposes of this call in available on the S.P. plus website.
And the risk factors and the company's annual report on form 10-K, and 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 the with useful supplemental information concerning the company's ongoing operations in an appropriate way to evaluate the company's performance.
They are provided for informational purposes, only a full reconciliation of non-GAAP financial measures to comparable GAAP measures were presented them. The tables accompanying the earnings release to the extent other non-GAAP financial measures are discussed on the call reconciliations to the comparable GAAP measure will be posted under the regular.
Patient GE tab in the Investor Relations section of the SP plus website.
Please note this call is being broadcast live over the Internet and is being recorded a replay will be available on U.S.P. plus website. Shortly after the end of the call and will be available for 30 days from today.
Well now turn the call over to Marc Baumann, our Chief Executive Officer.
Thank you Chris and thank you all for joining us today to review, our fourth quarter and full year 2019 results and to discuss our business outlook for 2020.
Fourth quarter results Mark the strong finish to a year of exceptional growth for us P. plus our bags acquisition performed well our organic programs gain traction and we saw success from our cross selling activities all leading to record performance for our company.
Full year performance was in line with or exceeded our expectations with adjusted earnings per share coming in ahead of the high end of our guidance range gross profit increased 24% for the year, reflecting organic growth of 5%.
And the benefit of the bags acquisition.
Gross profit from existing business or same operating locations increased by 4% for the full year 2019. This growth was broad based reflecting year over year improvement in most key verticals. Additionally, it represented positive year on year performance across the majority of geographies we serve.
Adjusted EBITDA kept pace with gross profit growth, increasing 20% for the full year. Despite higher <unk> expenses, primarily due to the banks acquisition higher performance based compensation and resource investments to drive and support the company's growth.
These full year 29, <unk> financial results recent account wins and the strength of our business development pipeline indicates that our expanded portfolio of services is resonating with clients I.
I want to give you an update on the progress we made in 2019 against our multi pronged growth strategy. The bags acquisition has been transformational in terms of providing us with growth opportunities where in the early innings of converting those opportunities but are pleased with the success of our cross selling efforts to date.
Most notable or SP, plus his ability to leverage our longstanding client relationship to bring bags remote airline chicken services to both New Orleans International Airport, where we've been providing parking and transportation services since 1995, and two gold key valet passengers at the Portland International Airport in Oregon.
Well, we've been serving travelers since 2006. These wins are noteworthy in that selling in new services at airports has a long sales cycle and we're pleased to be able to gain these new contracts within the first year of our bags acquisition.
And SP plus is able to deploys transportation capabilities at the Orlando International Airport, where banks has enjoyed a 15 year working relationship with a greater Orlando Aviation authority.
We're very pleased with these wins as we've been able to effectively execute on a land and expand strategy, which means that once we were awarded a contract for specific service. We're often asked by our clients to provide additional or ancillary services.
Additionally, there has been successful in building in developing a pipeline of standalone opportunities in fourth quarter of 29 team. Thanks was awarded a contract to provide remote airline checking services that Boston's Logan International Airport takes now operates the check and go remote check in at Logan Central parking garage, where a right here.
Rob books are now required to take place.
The service enables travelers to check their luggage with the banks agent and receive boarding passes before taking an elevated walkway to their flights without their luggage.
This service, which is complementary to passengers helps ease curbside congestion and moves travelers between destinations as efficiently comfortably as possible.
We believe there's significant runway ahead for bags to provide remote airline checking services at other major airports across the country.
We recently commissioned market research at one of the airports, where bags is well established in order to gain further insight into end consumer sentiment from those already using bags remote airline check in service.
The data indicate that users are very happy with the service and would use it again. They also indicated that they were more likely to utilize the parking option at an airport where the services provided the data also supports our premise that remote airline checking users get to the secured area faster and generally spend more money in the airport.
This is the first of several studies, we plan to undertake to better understand consumer sentiment and behaviors to demonstrate the economic benefits of remote airline check in services to potential airport sponsors.
The 2019, we also made progress on growing our national accounts business and increasing penetration in higher growth verticals, such as hospitality health care and municipal one recent win that reflects success of both of these initiatives was our selection has the national provider to Loews hotels.
We will provide parking valley and door management services for the majority of Loews hotels because locations across the United States. This is a great example of how we've leveraged the excellent reputation that SP plus developed over the five years that we've been at the lowest property in Chicago and turning it into a national account comprised of 21 location.
Ones.
We've already begun operations at 12, new lows properties and plan to rollout operations at the remaining of the properties by May of this year.
Additionally, we've made progress and gaining new healthcare locations as part of the group purchasing agreement with Premier Inc. to provide parking management patient transport Valley shuttle and other mobility services.
Since mid 2019, when we executed the agreement with Premier We've added six health care contracts and continue to target other opportunities in this growing vertical market.
Similarly, our preferred provider agreement with Jones Lang Lasalle has resulted in the award of 12 new contracts.
We've achieved these new business successes in addition to increasing the number of commercial locations, we serve and expanding our commercial division location retention rate to 93% from 88% last year. It's now at the highest rated spending over five years.
To sum up 2900, with an excellent year for SP, plus one which has laid the foundation for organic gross profit growth of 3% to 4% over the long term the target we set last year.
Now I'd like to turn the call to Chris to provide more detail on our fourth quarter full year 2019 financial performance Chris.
Thank you Mark when discussing the fourth quarter and full year results, we'll focus our comments today on adjusted results.
You can find a full reconciliation of all non-GAAP measures to the nearest GAAP measure and in the tables accompanying today's earnings release.
Fourth quarter 2019, adjusted gross profit increased 5.8 million or 12% to 54.3 million.
This growth was mainly attributable to the backs acquisition. We completed in December 2018, as was the growth from existing business add new business that outpaced the impact of contract terminations.
On an organic basis adjusted gross profit grew 1%.
Adjusted DNA for the fourth quarter 2019 was 28.2 million, an increase of 5.1 billion or 22% compared to the fourth quarter of 2018. This year on year increase was primarily due to the due to gionee related to the acquired backs business and higher compensation and benefit costs, including costs.
Costs related to the company's performance performance based compensation programs.
Adjusted EBITDA of 25.4 million for the fourth quarter of 2019 was an increase of 800000 or 3% from 24.6 million in the fourth quarter of 2018.
Excluding amortization of intangible assets from the bags acquisition as well as all prior acquisitions adjusted EPS was 55 cents for the fourth quarter of 2019.
As compared to 65 cents for the same period of 2018.
This performance reflected.
Higher interest expense to the backs acquisition and share repurchases as well as higher DNA from capital investment and a higher effective tax rate.
The lower share count.
The share repurchases added three cents to the fourth quarter 2019 adjusted EPS.
Moving onto our full year results adjusted gross profit and 2019 increased 44 million or 24% to 228 million 228.1 billion in 2019.
While the bags acquisition was the primary driver of this grow our organic gross profit was up 5% year over year. This was boosted by the favorable impact from the wind down of a lease when excluding this lease wind down organic gross profit growth for the year would have then 4%.
Adjusted DNA in 2019 was one of those 7.7 million 24.7 billion EUR, 30% above the 2018 level.
As it as it included DNA related to they acquired backs business as well as the non recurrence of a 1.7 million cost recovery that reduced last year's DNA.
In addition, overall compensation benefit costs were higher in 2019, including costs related to the company's performance based compensation programs.
Adjusted EBITDA of 117, and a half million in 2019 increased 19.6 million or 20% from 97.9 million in 2018.
Full year 2019, adjusted EPS was $2.73 up 18 cents or 7% when compared to $2.55 per share and 2018.
Share repurchases this year reduced our weighted average share count by roughly 2%, increasing adjusted EPS by six cents.
We exceeded our free cash flow guidance for 2019, generating 60.3 million, our free cash flow and 2019.
Thanks to our strong business performance, coupled with our working capital improvements.
This compares to 62.2 million of free cash flow generation and 2018.
Finally during the fourth quarter, we used 15 and a half million for stock repurchases. During calendar year 2019, we were purchased shares totaling 47.8 million at an average price of $35 in 80 cents per share as a result at the end of the year 2019 25 million remained available.
Under our current share repurchase authorization, which we expect to use opportunistically.
Mark will provide our guidance for 2020, but some of our underlying assumptions that informed our outlook include the following.
And effective and effective book income tax rate of approximately 27% to 28% and a cash tax rate of approximately 22% to 24%.
Approximately $10 million to $15 million of capital investments for equipment leasehold improvements and cost of contract purchases.
And approximately 21 and a half million weighted average diluted shares outstanding for 2020.
With that I will turn the call back over to Mark. Thanks, Chris. We're looking ahead to another year progress in 2020, we believe that SP plus with the addition of bags has the broadest portfolio of services in tools to help clients manage their congestion and mobility issues and SP plus the services are performed in.
That significantly improve the end consumers experience, while being accretive to our clients bottom lines.
We continue to invest in programs that enable us to maintain the high level of customer service that is become synonymous with the SP plus brand.
Complementing a well trained and motivated workforce, our technology solutions, we brought to the industry such as parking dot com, our proprietary online distribution channel that enables consumers to located in purchase daily or monthly parking from their mobile devices and insight delay our proprietary valley management tool.
We believe tools like these as well as the utilization of our remote management capabilities are becoming increasingly important declines and then consumers and serve as a market differentiator for SP plus.
This value proposition along with our greater scale in our current pipeline of business development opportunities supports our expectation for adjusted earnings per share of $2 to 95 cents to $3.05 in 2020, representing 10% growth over 2019 at the midpoint.
Approximately one half of the growth will be generated from operating performance as we expect gross profit growth to be inline with our long term targets of 3% to 4%. The remainder is the result of a lower diluted share count, resulting from the share repurchases that we've already made in 2019.
This guidance takes into account continued investments in people and technology to support expansion, but does not consider potential acquisitions or additional share buybacks in 2020.
We continue to focus our efforts on driving increased free cash flow in 2019, we exceeded our internal expectation by generating just over 60 million free cash flow in 2020, we expect free cash flow to increase at a double digit rate to be in the range of 65 million to 70 million in terms of capital allocate.
And we'll continue to prioritize organic growth projects acquisitions, and returning capital stock holders in the form of share buybacks.
Finally, I want to acknowledge the total dedication and commitment of our 23000 plus employees for what we've been able to achieve thus far thanks to their continued hard work. We can look forward to another successful year at SP plus.
I'd now like to turn the call over to the operator for the Q and a session.
Ladies and gentlemen, if you have any questions at this time.
Sorry.
Gotcha.
If your question has been answered.
Thank you please.
Your first question comes from Mr. Daniel.
CJ Securities. Your line is open to.
Thank you Mark Chris Good afternoon, Congrats on a strong finish to the year.
Thank you. Thank you again.
You gave good color mark, but I always hungry for more on the National accounts you mentioned both premiere in Lasalle gave some pretty good stats in terms of.
Some of the wins you've had since signing those.
I would say contracts, but those agreements or relationships.
Is that it does that run rate that.
In line with your expectations do you how should we think about the cadence for potential contract wins as we look out into 2020.
And just any any additional color on both of those agreements would be really helpful.
Sure because I did do that I think with regard the agreement we have with Jones Lang Lasalle, it's a little bit easier because a lot of the properties that they manage and that we get the opportunities to look at our commercial office buildings in the decision making process around a parking management provider.
Some of the other services that we provide is fairly simple to evaluate when you move over to healthcare. These are complex decisions. They often involve a multitude of services. Many times, it's the shuttle bus operations alongside.
Parking and of course, you have the often will be doing valley at the front door like we're doing is moffitt cancer Center, which is one of our newer operations, where we are evaluating over 2000 cars. A day. So these are complex and so the decision making process takes a bit longer.
So I would say, we're really pleased with the progress and in some ways I was probably surprised at the numbers where that big so quickly, but I think it's like anything it will ebb and flow on both of these are really opening the door to give us opportunities and would still incumbent upon us to go convince someone at a local.
The level that we have the right solution for them. So I expect we'll be announcing more wins, but.
We could sort of say well in the time period that to lay ups will just extrapolate that and that's a runway to thing is probably premature. The other thing I should mention is that we continuously look for other opportunities to become preferred providers. Both with people that are like Jones Lang Lasalle or other group purchasing organizations that serve healthcare and other Oregon.
Other industries so.
We're not sort of saying we've we've got these to send out we'll just focus on them you know our goal is to try to exploit.
The opportunity that these arrangements give us but at the same type to try to find other opportunities to do something similar with other organizations.
Very helpful.
Switching gears a little in terms of capital allocation you laid out some of your priorities once again.
Are you on the M&A front are you seeing opportunities that are realistic.
Or given current trading multiples.
Debt pay down and more share repurchases the the likely default at least based on you see the world today.
Yeah. It it's.
You might imagine.
Theres a number of things that we look at when we're looking at a potential acquisition and it probably makes senses to highlight those a little bit first of all in foremost we're looking at the services that are clients are buying in the marketplace and obviously with the acquisition of bags, we have a new array of clients, we sort of 17 Airlines now as P. never had any.
Airline clients. So we're trying to look at the services that those clients by that might fall within the expertise that we have and so first and foremost our net is broad so that includes parking companies, but it could include companies that provide other types of services that we are already.
Might consider ancillary in our business like shuttle bus operations and other things like that.
Then we're also looking to say does their company have a talent pool and maybe an additional client base that can help SP plus grow at a faster rate. We don't we're not interested and just being a larger version of ourselves that doesnt grow we're looking at acquisitions that can help us accelerate our growth.
And finally up at the one that you mentioned, which is really can you buy something at the right price and clearly we know what the value creation is for our shareholders. If we buy back around stock when we explain a potential acquisition to investors, we want them to look at what we've done and the place that we paid and say yeah that was really a good thing to do so when.
You add all that together I'd say, we've kept the net wide we're looking at a lot of things continuously.
Because we haven't announced anything at least at this point means that we haven't found something yet that meets all those criteria, but we're very actively looking at things all the time trying to make sure that we're we're not leaving any stone unturned for the opportunity to grow in that way in the absence of that we've talked before.
It's important that we're always looking at ways to create value for shareholders and at this time, we feel that buying back our stock has been bus way to do that.
Got it lastly from me ill hand it over.
I think I come back into this but 3% to 4% adjusted gross profit growth guide.
And given the tax rate et cetera implies some somewhere in the mid single digits adjusted EBITDA growth does that sound right Chris.
In terms of for 19 compared to 18 for 20 compared to 19 correct yes.
Yeah, I think you're in a year in the ballpark in terms of what we would expect from a growth perspective.
Very good any follow ups I'll circle back thank you.
Thanks.
Your next question comes from Mr. Tim.
William Blair Your line is open.
Hi, Tim.
Good afternoon marketing Krish.
Good afternoon.
So gross profit gross in the fourth quarter was 1% I believe but how would that look like if you excluded the impact from prior year insurance loss reserves. It if I remember correctly I think fourth quarter of 2018 had some favorable insurance reserve adjustments.
Yeah, I would say Tim that that number would be larger if you were to think about it on a year over year basis, or I guess a quarter over quarter basis.
We did have some favorable insurance reserve adjustments in Q4 of 18 so.
Certainly would be larger than the 1%.
Significantly larger Chris or a point or two.
Thank you actually.
Yeah, I'd say, it's not more than two points I'd, probably say closer to one.
Okay. Thank you and.
It sounds like you expect 3% to 4% gross profit growth in 2020 is this inclusive of any expected impacts from insurance loss reserves and does your guidance contemplate loss reserve adjustments being a headwind or tailwind in 2020.
Yeah, if only we had a real crystal ball to answer all of them [laughter].
I would say is that you know, we we have a long track record of managing our insurance programs. The way that we do and so it gives us some ability to anticipate what we think might happen and so we clearly build that into our numbers because as we've talked many times over the long time period about these programs.
We try to set our rates at levels that make it more likely than not that we will have favorable adjustments as opposed to unfavorable adjustment. So our expectation is that we'll have some favorable ones and that's factored into our when we gave our target I gave our target list here three to four we're anticipating some of that in our three to four now.
What will really have been in 2020 is anybody's guess that will be a function of our continued vigilance on our safety programs that we believe we're very very good is dead, but.
We have 2 million transactions that day, and thousands and thousands of people out there.
In various weather conditions and various scenarios. So we'll just have to see how it plays out but I would say if if 2020 is like most years you know it should be something that we don't have to talk about too much and we aren't going to be calling out a big you know surprising adjustment one way or the other.
Okay, all right Thats helpful. Thanks shifting gears your net locations I notice I think you're you're up 27 facilities for the full year 2019. That's the first time seems to central merger I think that you've seen positive net locations for a full year I think.
I know you don't have a crystal ball mark but.
Based on the operating environment, you're in the recent partnerships you're developing to cross sell the bag. How do you think about your location count in 2020 or asked another way what do you have baked into your guidance.
Right, well, you're absolutely right and what you're saying and it's been something that's come up on a number of our calls over the past few years is how can you grow on a sustained basis. If your location count on your commercial business is declining.
And obviously as you know, we don't give location count info on our aviation vertical because it's just it's not really a meaningful way to look at that business, but you know it. So we were really pleased I was specialty pleased to see us tick up at the ended the year I can tell you that quite a lot of pressure to the organization to find ways.
Add locations because the kind we want to add to the look kind of where we go into a location and we provide a service and we can.
Land and expand to use that term and we'll use that as a way to build a business relationship with a client overtime and so it's a may have been a major focus in 2019 to go get more locations and maybe not necessarily be is concerned about how much are we going to make at the beginning and look it is a long.
Term value building proposition, so I'm really happy about that you know, it's obviously very pleasing also to see that our commercial division location retention rate was 93%, which is we said in his comments that it's the highest in five years, it's really the highest since prior to the merger with central.
So it's a huge accomplishment and again our operating leadership team is focused very very hard on sharing that we deliver for clients that were keeping them happy that we understand their expectation that we're introducing innovative new ideas and technologies and keeping them happy and so I hope.
Hoping that we can keep that retention rate up and and obviously with the new business in the pipeline you know my expectation for 2020 is that we'll continue to see a net add in locations and one more.
Talk in a year from now the location count will be up once again now whether it's up another 35 or 40 or more.
I don't know, but I guess, it's a it's a major focus for us and I think we're confident that we have the ability to grow our location count on an ongoing basis over the years ahead.
That's great to hear market Bill.
How much.
The 93% number is is very good how much do you think that you're in you technology.
Enabled solutions inside analytics, a remote management capabilities, how much do you think that that has contributed to that improvement in retention rate.
I think it's contributing a lot, but I think.
One of the things that we didn't talk about on this call, but it's an important thing that we do with major clients, where we operate multiple locations is that we have a whole suite of client dashboards, where we can give the client visibility into what's going on whether it's on revenue or the elements of revenue monthly parking transient parking.
Online sales.
Or the cost structure at the location.
Labour costs and scheduling or volumes of activity you know all of this is available with beautiful graphs in charts in an online environment and what we say to a portfolio client is look we'll give you this tool and not only can you look in have visibility into individual locations that we operate on your behalf but.
You can see it rolled up in any way that you want including aggregated across all your locations and we conduct quarterly business reviews with some of our.
National account relationships and we shows in this tool and sometimes we're showing it to more senior people at the first time and they're like well I want to see the rest of my business I don't want to see what SP does and were like well that's no problem give us some additional locations. So I think those are the those are the kind of things that we've been investing in there there's some other tech.
Analogy companies out there, they're trying to penetrate our industry and the pitch our clients with their own sort of dashboards and tools, but those tools aren't as comprehensive as the things that we can provide because we have all of the information that comes out of the parking equipment that we can present to a client, but we have all the stuff that comes out of our back office systems like the.
Costs that were incurring I'd be have declined to pay for things like uniforms, and the like payroll costs and payroll labor hours and how much overtime is being run. So we can give a comprehensive picture and this is a tool that we really only injured started introducing to clients in the last 12 to 18 months. So I do think the things like that are really.
Critical and of course in a world, where you have ride sharing congestion.
Increased complexity.
Clients are saying, Hey, I need somebody to help you figure all of this out and I think that plays to the strength of a company like us because there really is no situation that we haven't seen many many times and so we don't have to look at a clients opportunity for improvement and try to figure out what to do we can apply proven.
Technologies, improving management techniques to.
To a situation that we've applied many times for other clients and I think that helps us compete very effectively especially against smaller operators, who can't do all of that.
Gotcha, Okay. Thank thank you very much.
Thanks, Tim.
Again, if you would like to ask the question.
All right.
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Your next question comes from Mr., Kevin sang.
Research.
<unk>.
Hey, good afternoon.
I think Kevin good afternoon.
So.
You know you said that a gross profit growth target of 3% to 4% I. Just think ended July 2019 and.
Here you achieve that in 2019, and now you're guiding to that and 2020. So you know obviously, that's it's clearly a favorable development and I guess reflective of the.
Momentum you're seeing in the business was but is that something.
Getting to that growth rate happening even faster than you expected or is it kinda in line with how you thought things might play out I know you've talked about the fact that a lot of your growth opportunities are multiyear pursuit. So maybe just kind of the speed at how things are coming together relative to your expectations.
Yeah, I would say you know the.
The there's probably if the distinguish between the short term and the long term and the goal of three or 4% is a long term goal and the idea. There is that we could grow it is.
Sort of as far out as we can see which is a multiyear view at that kind of sustained rate and we're trying to put in place the talent to the technology the business practices. The focus on certain verticals that can enable that and that's what I really in setting a target I really was aiming to say too.
Investors into our own organization, we need to grow on a sustained basis at that rate now in any one year, we can do better than that as we did in 2019, and we might not make not that might not be in that range. Because there are lot of variables and so.
So when we gave that target we were growing you know at the top end of that range in the first half of the year in 19, we knew that and so but I didn't want to get myself too excited about six months growth at a faster rate when in the prior years, we did not that we've been in the sort of 2% range for I think four years in a row.
So I would say, we certainly felt pretty confident that we could we would get into three to four range for 2019, given that we were halfway through the year and we were at the top end, but I think.
The idea that we would then be able to be pretty confident of being in that range and trading that expectation for all of you for 2020 is something that you know it didn't really have a good perspective on until we started to pull it put together our growth plans and our focus areas for 2020. So im pleased that you know.
On top of having a stronger growth in 19 that we have confidence we're going to continue that in 2020.
Okay, that's great and I think you mentioned in your prepared comments Oh that your guidance includes continued investments in people and technology can you maybe just talk about some of the areas where you're looking to invest.
And maybe the impact that has.
On on the 2020 guidance.
Well I think you know if you go.
Take the second part one.
No I think Chris was asking earlier question, you know what sort of the implied EBITDA growth for 20, and that's clearly illustrating that genie is going to growing 20 at about the same rate is as gross profit in place that's our expectation and clearly on a long term basis, we believe that we can grow.
Gross profit at a faster rate than Gionee and the fact that were indicating by our remarks that we're expecting them to both go about the same rate. This year is a sign that we are making an increased investment.
So I think if you want to say well if you could probably throttle that growth rate in genie back a little bit and that's sort of the value of the investment that we're making.
But I would would I would say that we're adding more people in 2020 than in any one year that we've added before and they are really focused around either business development activity supporting growth in our organization trying to position ourselves to take advantage of some of the growth opportunities that we're identifying for.
People on the technology side, because where we're looking to try to work with data create increasing data analytics capabilities, where we were doing a lot of stuff with pricing and.
Revenue management, now and we want to be able to continue to grow and expand what we view there I think our.
Terminal kind of technology strategy, we discuss all the time is that we want to have it demonstrated set of capabilities that are superior to anybody else in the marketplace and of course. Other people are always point trying to catch up into new thing. So we even if we reach that point, we have to continue to look for ways to be better and so that only happens if we invest.
And talent and in some cases.
Tools to enable us to be able to do that.
Okay got it what you mentioned the revenue management there I know that's been a focus for you. The last couple of years here at least I mean.
And you had done a pilot or to what's kind of the.
Maybe an update on the state of that effort and you know.
Expand to get more broadly a cross your location portfolio.
Played to talk about that I think when you think about.
Right when we talk about revenue management, we're really talking about one of the many services that we provide an has parking and the question is can you get can you optimize revenue at a parking facility by using data.
To identify pricing options for for consumers and then put those options in front of the consumer at a point, where they can make a decision.
As to whether they're going to park, there or not.
And so if you didn't say well, okay. We have different types of decision, making it takes place there's decision, making where somebody plans ahead and then there's decision, making where somebody doesn't play ahead and the planning ahead decision, making might be I want to arrange for monthly parking and there and I want to find to a good offerings that.
Convenient place to go and Thats, well run and all those sort of things and the other type of plan ahead is not for monthly parking, but I don't want to just drive around I want to know where I'm going and I want to potentially have a.
And electronic credential that I can use to exit the facility and I don't have to wait in line.
You know at a pace station and all of that well as you might imagine if you look at the airline industry or the hotel industry. Most of their businesses plan ahead business.
And so the tools of revenue management that had been developed over decades and those industries are really geared at the plan ahead customer and parking up until a couple of years ago, maybe 1% of the total revenue was planned ahead revenue I mean, especially if you're talking about the transient drive up dry.
And that's growing that and what we're finding is there more and more people want to plan ahead. They want to have it a frictionless experience when they are traveling in so they want to know where they're going they want to be routed there and they want to have a very easy ingress and egress the facility.
So Hart our pilot in our tests have shown us that we need to have certain tools and we need to do have certain data analytics capabilities in place, we need to be able to put recommendations for pricing in front of people who are in effect shopping online and are planning ahead, and what we have learned.
Is that we can influence their decision making.
And that that is like a huge a useful thing to know because the question. We had when we started all this a couple of years ago was you know would it would with the plan ahead market for parking really be that large I mean in airports and hotels, it's probably 98% you know in our in parking even in our company.
Now, it's probably 5% most although at certain facilities, it's now come growing to maybe 20% or more so people are planning ahead more and more we think they will plant had more more and the tools that we develop we are able to use those anywhere really in the country.
For the plan had customer the part that is proving to be difficult is to influence the person who doesnt plan ahead, because it's how do you get that information to them and so the person is driving round there in traffic they shouldn't be looking at their phone and so.
Having a more challenges in trying to use data.
And to get information to a nonplanar had customer and I, just don't know whether or not we'll be able to do that effectively we haven't seen anyone else do it effectively as well, but I think given that most of these tools and techniques have been designed for the online environment and the opportunity to influence people as proven by.
Every now and the fact that more and more people want to plan ahead, I think bodes very very well for these techniques and and then this is another sort of differentiator for us because it's a smaller player regional maybe or or local player. They can't make the kind of investments in talent and technology to be able to do those sort of things.
Okay. That's that's a great update thanks very helpful and if I could ask a also about you mentioned in your prepared comments.
You are doing some studies on the benefits of remote check in.
Yeah. Okay can you talk about just the motivation behind that is that something you feel is necessary to maybe get some.
<unk> convert.
Some other airports to clients or you know they want to see data or was it just.
Just maybe what what's obviously I guess it'd be one of the benefits of doing that's those studies, but maybe just expand on.
Your efforts there and what do you hope to gain.
Well and of course as you know we've talked about this big remote airline Chuck in tool is has a proprietary capability. That's the only tool that can check you win for any one of seven airlines, which represent 90% of the domestic and placements in the United States. So it is a unique deferred.
Rent shader and the people in the cruise industry, when I say that the cruise lines themselves ports.
Large resorts, where there are leisure travelers they have all embraced as tool and it's got a lot of penetration and they see the economic benefit along with the qualitative benefit of just a better consumer travel experience. So everybody you know is buying for.
People to choose to travel it there and do business with them versus a competitor and if you can offer a qualitative.
Better experience and that's a huge that's going to generate more revenue for you in a quantitative sense, but if you can also potentially free people up from the burden of dealing with their luggage. There. They are free to spend money and that again has been proven in those other industries in the airport space you know we.
We spent the first year after the acquisition.
Essentially introducing this capability to all of SPS 70, plus airport clients and I went on a number of these meetings myself and the enthusiasm for it as a as a way of reducing friction for the traveler, reducing congestion at the curb reducing the dwell time for.
Buses loading and unloading getting the less congestion in the in the check in areas in the lobby and getting people through security and able to spend money in restaurants in stores.
It's kind of intuitive that that would all those would all be the benefits and so certainly on a conceptual level the airports really like it.
The airlines really like it too because it it makes things more efficient for them and they may be don't have to staff is heavily in certain areas for handling baggage and of course.
You know the traveling public likes it you know because it does it just makes their quality of life. So much easier when they're traveling well one of these things you have in life is if if theres like three different parties that benefit from something and it has a cost who pays you know as always comes down to that and what we wanted to.
Do with the survey research is to say aside from the intuitive qualitative benefit that you've got to believe is going to be there by adopting this tool.
In your remote parking garage or or other places.
To to reduce their congestion if we can demonstrate.
Real value in terms of the quantitative benefit and the people that don't have their luggage are going to spend more money in the terminal and airports are generally on some sort of percentage of revenue arrangements you know with the with the restaurants in the stores. Then it gives you a quantitative argument to go along with the qualitative to embrace it.
And so well, while we have had some wins already and we have others in the pipeline that are moving in the direction of adopting this I really do believe because we've shown this research now to a few of the people that are have expressed the most interest and I think it's going to accelerate the pace of adoption over the next couple of years.
Of this tool.
Okay, that's fantastic and then.
Lastly.
Can you just like the Chris talked maybe about it if you have the numbers just the the impact of.
For wrench compensation, you said I think you know it was higher.
In the fourth quarter, maybe a full year just you know how much. It was have an impact it was in terms of Gionee fourth quarter full year. If you have those numbers.
Yes, I think I kind of touched kind of briefly as it relates to Q4, which would maybe be a point or so in terms of full year impact. We don't typically give that a level of detail, but it was it was probably fairly meaningful in terms of the overall impact from 19 compared to 18.
Okay, I assume it maybe like up or percentage point higher in terms of she is expense as a percent of gross profit in the fourth quarter.
I don't know if I could would say that I certainly.
Yeah, I mean, it's it was meaningful for 19 in terms of kind of the increase over 18, certainly this year was a high performance here. So.
Well, we don't typically give those types of details on performance based comp I mean, a welcome to remember to covenant is that we have two types of performance based compensation. So we have our annual.
You know bonus program, which has driven off of.
The company's attainment of its budgeted EBITDA for the year and and we try to estimate as best we can during the year, how the years going it turned out and we then you know or make booking the cost of that along the way and when we can get to the ended the year, we find out how the year really.
We ended up and.
And that ended up exactly like we forecast and that's not going to be meaningful number in Q4. Other therapies are similar to the other quarters. If we end up the you're doing a little better than we thought that there will be higher in Q4 is what the true up for the year.
Our other compensation plan, our performance shares and there were on a three year free cash flow cycle and so we hit to project out three years, what we think the free cash flow of the company is going to be and that's challenging to say the least and so we have we do the best we can in and of course over.
The three years, we are making estimates of where the free cash flow will end up and sometimes our view becomes more optimistic and we increased the cost sometimes our view is less optimistic and we reduced the cost and then when we get to the end of the three years, which happens in Q4 every year. We then go okay. How did we do.
Do and I think as Chris said in his prepared remarks, we actually did better on free cash flow than we expected in fact, if you recall a year ago. When we gave out our guidance for free cash flow.
We said it would actually be lower in 2019, because we had some adverse timing issues around the end of 18 and into 19 that affected us and so eighteens free cash flow of 62 million was actually better than than you might think because of that and 19 was going to be worse and so we were guiding people to like 40 to 50.
He or something like that.
29 for 2019, well in the end we came in at six little over 60 million and so how did that have been well that happened because we worked really hard on the performance of the company, which did well, but we also worked hard on a lot of other things on the balance sheet that affect free cash flow and so consequently, you.
Got you imagine that when we got to Q4, our calculation for how we did on on that through your free cash flow came in quite a bit better than we might have thought you know a year earlier or six months earlier and so there then we get to Q4, we at the close it we've got a true all that up.
So does fairly big number so I I don't I know, neither Chris right you have to sort of that 1% of course, probably but you know we ticked up a lot in Q4, because we trued up because with the because we generated an amazingly good amount of free cash flow for the year way more than what we had guided everybody to expect.
I see I see okay. That's helpful explanation a great. Thanks for taking my questions.
Hi, Kevin Thank you.
Your next question comes from.
From Sidoti.
Okay.
Hi, good morning.
Good afternoon.
So first of all thanks for all the color that you've given because you've already happened a lot of questions that I had so one of the things I did want to just sort of clarify on the premier and JLL.
Numbers that were given was that as year end or are today.
No. This as of yearend, we're talking about does have been.
Yeah, I mean, just.
But just to be just to have full disclosure you know on the loads. You know we took over all those properties at noon on new year's Eve so.
The the effect of the 12 lows and the rest of those that are going to come along are all going to be 2020 effect.
Okay. That's helpful. And then thanks, I did want to touch on a little bit just to sort of.
Clarify on one of your earlier comments around some locations, which I guess I was one of the once asked about locations.
Yes, I just wanted to get a sense of whether or not.
Implies that maybe you're kind of through the process.
Having renewals come up.
One is what you have a lot of locations that aren't as profitable as you would like right.
Those over the years given your.
Comments made on potential of having location forward is that a fair way to think about it and characterize it.
Largely some real if that completely through that part of the process at this point.
Yeah, I, obviously cant keep everything in my head.
I'm certainly not aware of any sort of.
Contracts, where we have a large number of locations that we make a low amount of profit. So I'd say, probably largely true what you're saying, but I think I think the important thing is if you look at the location count that's in the in the.
The release, what you see that we still are seeing a downward drift in lease location counts and that's the for a couple of reasons. One is that in our industry. There is a long term trend away from leases.
And so.
Yes that wouldn't surprise me to see that in of itself continue but we still have a fair number of loser leases in our portfolio that we acquired as part of the Central acquisition seven years ago, and clearly when those leases come up for renewal you know, we're either going to get a new lease on.
Better terms, so that we can make money or we're going to walk away and so that will continue for awhile, but those are generally one for one so if you're more specific question you know I don't imagine if theres any.
Anything like that but the reality is is that there could be sometimes a municipal deal or a larger port might have multiple locations, but generally they're fairly profitable deals and so if we were to lose one of those we might see lots of more locations than we'd like but you know I don't think it will.
The the same kind of scenario is that when you described.
Okay. That's great. Thank you very much for all color.
Thanks.
Your next question.
Securities Your line is open.
Yes. Thank you again, just quick follow up.
Just as far as cadence is concerned of gross profit growth remind us any material items that Mike.
It might have occurred in Q1 last year Q1, 19 that might push gross profit growth. This Q1, either above or below that kind of 3% to 4% range.
Well, we did in Q1 this year have fairly.
I think large.
We talked about casualty insurance reserve adjustments and it was fairly big in Q1 last year, which is like we wouldn't normally expect that I mean, it could happen, but I would say, we kind of got all the bulk of the favorable reserve adjustment that we expected for the year in Q1 right.
Got it helpful. Appreciate it.
For me Thanks again.
Alright, and things like that.
That concludes security session.
Selman.
Great. Thank you and thanks for everyone for participating today in our call I.
I want to thank you for your interest in SP, plus and we look forward to seeing you.
Upcoming conferences and meetings or speaking with you next time at the end of Q1 have a good day now.
This concludes today's conference call thank everyone for participating.
Great.
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