Q4 2020 SP Plus Corp Earnings Call
[music].
Good afternoon, ladies and gentlemen, thank you for standing by and welcome to the Q4 like tiny Tiny SP Plus Corporation earnings Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at <unk>.
Hi.
One should require assistance during the conference. Please press Star then zero on your Baxter on telephone.
Minder. This conference call is that recorded I would now like to turn the conference over to Mr. Kristopher Roy Chief Financial Officer. Please go ahead Sir.
Thank you Annie and good afternoon, everyone as Dani just said I'm Kristopher Roy Chief Financial Officer of SP, plus welcome to our conference call. Following the release of our fourth quarter 2020 earnings.
During the call today management will make remarks that may be considered forward looking statements, including statements as to the impact of COVID-19 outlook for 2021 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 or implied due to a variety of risks uncertainties or other factors, including those described in the company's earnings release issued earlier. This afternoon, which is available on the SP plus website and the risk factors in the company's annual report on form <unk>.
10-K, and quarterly reports on form 10-Q, and other filings with the SEC.
Please refer to these documents for additional information.
In addition management will discuss non-GAAP financial information during the call management believes the presentation of non-GAAP results provides investors with useful supplemental information concerning the company's ongoing operations and in an appropriate way to evaluate the company's performance. They are provided for informed.
<unk> purposes, only a full reconciliation of non-GAAP financial measures to comparable GAAP financial measures were presented in the tables accompanying the earnings release. Please note. This call is being broadcast live over the Internet and is being recorded a replay will be available on the SP plus website. Shortly after the end of <unk>.
The call and will be available for 30 days from today.
I will now turn the call over to Marc Baumann, our Chief Executive Officer.
Hey, Thanks, Chris and thank you all for participating in today's call to review, our fourth quarter and full year results and discuss our business outlook.
First I'd like to thank the entire SP plus organization for their commitment in 2020, which made it possible for us to remain operational throughout the pandemic and provide a safe environment for our employees our clients and their customers.
This required tremendous focus and determination given the large number of locations, we serve and our broad geographic footprint across North America, we were tested and the efforts of our leadership teams and employees together with the support from our clients enabled us to successfully navigate through the crisis and post the considerable recover.
In the second half of the year.
We ended 2020 as we expected with Q4 gross profit similar to the prior quarter. When you adjust for the early contract termination fee, we called out when we reported last quarter's results.
Funds were largely steady on a sequential basis with the pickup in holiday travel, partially offset by the restrictions imposed by a spike in COVID-19 infection rates in certain geographies.
We also noted on our last call that fourth quarter G&A would reflect the reinstatement of base salaries to pre pandemic levels for those employees affected by pay reductions enacted in April at the onset of the pandemic.
We also incurred additional G&A in the fourth quarter for certain compensation programs, which traditionally would have been expensed over several quarters.
Most importantly, we continued to execute on our strategy in the fourth quarter net is designed to minimize our downside while accelerating our growth coming out of the pandemic in terms of limiting our downside. We made structural changes that have improved our long term visibility and reduced our exposure to revenue fluctuations and cost inflation.
We renegotiated lease terms wherever we could and also exited or converted to management contracts of 164 leases in 2020.
Today management contracts, which tend to have greater predictability comprise 85% of our portfolio in the commercial segment.
On the expense side, we substantially reduced our annualized G&A from what it was at the end of 2019 by streamlining administrative functions driving process efficiencies and tightly controlling discretionary spending.
With respect to accelerating our growth post pandemic, we've significantly expanded our technology offerings increased the scope of our services to existing clients and leverage our strengths to gain new business.
We remained committed to developing and deploying new technologies in 2020 technology was an area in which we continued to invest even during the darkest days of the pandemic through sphere. We were we are a one stop shop for our commercial and aviation clients, who have the ability to interact with us as the single provider if they need enhanced.
Our customization with their technology as.
As you can imagine solutions that enabled touch free digital transactions and mitigate congestion as well as support social distancing have become increasingly relevant to clients and consumers in today's environment, and we believe that the consumers preference for solutions that eliminate touch points will continue long after we're all vaccinated.
One area, where we've made significant headway over the last year is in our Gateway solutions. This allows a consumer to pay for parking via our parking dot com app or website, or alternatively text to pay or scan to pay rather than having to access the traditional pay station.
We enabled 300 gateway locations by the end of January 2021, there are many more locations that could benefit from this solution. So the remaining opportunity is large we've also been able to extend the use of our technology solutions to special events and December used our proprietary sphere technology to presell parkey.
Parking for Cowboy Christmas a 10 day event that attracted over 127000 visitors to the Fort Worth Convention center. During the event, we processed almost 11000 transactions on our newly developed proprietary mobile point of sale platform using handheld devices. Since this initial event, we've been able to use this platform.
Form at other operations, including supporting our checking play operation at Tampa Airport after the Super Bowl.
We remain committed to leading the digital transformation of our industry and we believe that other mobility opportunities enabled by our technology will emerge over the short to medium term debt will provide new opportunities for SP plus.
We've also been successful in selling our existing services and developing new services to address the issues caused by the pandemic and the resulting changes in consumer preferences and behaviors, which we believe will persist for the foreseeable future as I mentioned just last week, we provided our checking flight baggage check in services to passengers who.
Part of it from Tampa International Airport on the day following Super Bowl 55 on American Southwest's Spirit, and United Airlines, which enabled them to check their luggage and print boarding passes for a nominal fee. During the pandemic. These airlines suspended traditional skycap services at Tampa Airport, so bags unique capability to check in passing.
<unk> for multiple airlines enables travelers to bypass the airline ticket counter lines maintain social distancing and proceed directly to TSA screening.
This offering is especially useful and important during these times, we're maintaining social distancing is critical the.
The comprehensive Covid playbook that we launched early in the pandemic continues to gain traction, enabling us to expand the services, we offer to existing and potential clients. The more frequent and enhanced cleaning protocols effective signage and our use of environmentally sound cleaning products have led our clients to entrust us with additional services that create a.
Health and safe environment for our staff, our clients and their customers.
We're preparing a case study highlighting the range of services, we provided at Super Bowl 55. This year, where in addition to running all the transportation and parking and other services as in past years SP plus Gameday was also responsible for disinfecting the shuttle buses wheelchairs and golf carts in line with Covid protocols.
Our scale industry, leading technology solutions and client centric culture together has enabled SP plus to capture business from new clients as well and we've been able to convert many of the inbound requests we received during the worst times of the pandemic into ongoing service contracts.
We added 45, new locations in the commercial segment during the fourth quarter and over 200 locations for the year. Despite the new locations added during the year our location count declined somewhat in 2020 due to terminations. Many of them were leases that came to their natural expirations or where we had the ability to exit a.
Finally, our location retention count retention rate dropped to 87% for the calendar year 2020, as compared to 93% for calendar year 2019.
To sum up while COVID-19 continues to impact our clients on our business. We believe we have enough visibility to reinstate full year guidance metrics for gross profit and G&A costs based on our current portfolio of business. We expect gross profit for full year 2021 to range from $140 million to $160 million, which.
A 17% increase over 2020 levels at the midpoint G&A expense for the year is expected to be in the range of $75 million to $85 million, which contemplates a return to a more normal levels of performance based compensation taken.
Taken together this should result in a considerable year over year increase in adjusted EBITDA and higher free cash flow supporting this guidance is our expectation that business conditions and our performance in the first half of 2021 will remain similar to those in the second half of 2020 adjusted for seasonality, where the pickup taking place in the second half.
For the year at.
At this point I'll turn the call back over to Chris for a financial review Chris. Thank.
Thank you Mark.
As we have in the past I'll discuss adjusted results, our GAAP results as well as a full reconciliation of on non-GAAP measures to their nearest GAAP measures are presented in the earnings release, we issued earlier today, which is available on our SP plus website.
Also talk to the year over year performance as well as sequential quarter performance as we think Thats, a better way to track our operations and our Covid business environment.
In the fourth quarter of 2020, adjusted gross profit was $34 6 million compared.
Compared to $54 3 million in the year ago quarter.
As in previous quarters of 2020, this decline reflects reduced business activity due to the pandemic.
If we look on a sequential basis and adjust for the previously disclosed early contract termination fee that benefited the 2023rd quarter. Adjusted gross profit remained relatively stable given the additional restrictions that were enacted in response to the spike in Covid cases in the latter part of the fourth quarter.
Year over year fourth quarter of 2020, adjusted G&A decreased by 20% to $22 5 million reflecting.
On a reduction in discretionary spending in light of COVID-19, and our disciplined cost management efforts a significant portion of our G&A expense was permanently reduced setting the stage for us to operate with an overall lower cost basis going forward.
Looking at the G&A guidance, Mark just laid out we expect 2021 adjusted G&A at the midpoint to be 26% lower than 2019 adjusted G&A.
When comparing to the 2023rd quarter, we reported a $7 million increase in adjusted G&A for a number of reasons, including the reinstatement of approximately $1 $5 million on base salary reductions that were implemented earlier this year at the onset of the COVID-19 crisis.
Also as Mark noted earlier, we had additional G&A expense this quarter relating to the timing of certain compensation related cost, which in more normalized times would have been sprout spread out across several quarters.
Fourth quarter 2020, adjusted earnings per share was <unk> <unk>.
Compared to adjusted earnings per share of <unk> 55 for the fourth quarter of 2019.
Now, let me briefly sum up our 2020 full year performance adjusted gross profit for the full year 2020 was $128 6 million as compared to $228 1 million a year ago. This performance reflects reduced business activity due to the pandemic as well as charges relate.
To provision for credit losses, and legal settlement, partially offset by fees received related to terminated contracts.
Adjusted G&A expenses decreased 28% year over year to $77 $3 million. This improvement reflects our cost management and actions taken to lower compensation and related costs as well as discretionary spending in light of the COVID-19 pandemic.
Adjusted earnings per share were <unk> 44 for the full year 2020, as compared to $2 73 per share in the same period of 2019.
As a result of our disciplined focus on reducing accounts receivable as well as strategic cash management. The company generated solid net cash from operations and free cash flow in fiscal 2020, or $40 2 million and $28 7 million, respectively as compared to $76 million.
Net cash from operations and $63 million on free cash flow on the same period of 2019.
The cares act allowed us to defer the payment of 2020 payroll taxes to 2021. Despite this headwind we expect to grow free cash flow in 2021.
Given our free cash flow generation in 2020, we reduced our available credit line by $45 million in connection with a recently executed an amendment to our senior credit agreement that will also provide more flexibility and availability under revised covenants. As a reminder, we increased our revolving credit.
At the onset of COVID-19 by the same amount out of an abundance of caution, but ultimately we did we did not need the additional availability.
For perspective at the end of last week, we had $173 million of capacity under our senior credit facility and we would continue to have $128 million available even after the reduction our free cash flow and ample credit line gives us confidence and flexibility to operate in these uncertain times with that.
Now I'll turn the call back over to Mark for some closing thoughts.
Thank you Chris as we move ahead into 2021, we see significant growth opportunities on the horizon that are likely to continue beyond this year.
First of all at the very core of our business is our ability to facilitate mobility and reduce congestion at the locations. We serve and those attributes are of critical importance. During this health crisis, and we expect it will remain top of mind for clients and consumers for the foreseeable future.
Second many experts believe there is significant pent up demand for leisure travel once it's safe to do so and when people start to travel again, we believe the need and desire to maintain safe distancing alleviate congestion and transact touched free will be more important than ever before and net which plays right into our sweet spot.
As we have the programs and tools in place to accommodate returning travelers in particular, our remote airline check in capabilities can free of congestion at the airport curb ticket counter our rental car operation.
We also provide the option to bypass the congested baggage claim area by arranging to heavier bags picked up and delivered to your home resort or other location of your choosing.
Thirdly, we've seen a migration from shared mobility, such as rideshare car share or public transit to personal car utilization during the pandemic. We know that first time car ownership has skyrocketed during the pandemic and we believe that for the foreseeable future the preference would be for commuters to use their personal vehicles.
And that will increase the need for off street parking and more actively managed on street parking.
Finally during the crisis many of our competitors have struggled financially or operationally distracted. We believe this presents us with an opportunity to gain market share as we strengthen our national account relationships leverage our differentiated technology offerings and promote our marketing programs and revenue optimization capabilities.
These capabilities become even more important to our clients in sectors that were especially hard hit by the pandemic as they look to rapidly increase their revenues and recapture customers SP plus is well suited to meet this challenge.
That concludes our prepared remarks for today and I'd like to turn the call back over to you see if you can open the lineup for questions.
Thank you, Sir ladies and gentlemen, if you have a question at this time. Please press star and then the number one key on your stock.
Two on telephone if your question has been an cake or you wish to remove yourself from the queue.
Our first question comes from the line of Daniel Moore from CJS Securities. Your line is open Q&A after your last day.
Chris Good afternoon, Thanks for taking the question.
Yes.
Just wanted to drill down on you gave great color on the G&A because it was a little above what we had expected how much of that increase.
More normalization of incentive comp as you described might have been spread out over quarters.
If you have it maybe.
Better detailed on the Delta there and were there any other insurance reserves or other factors in the quarter that.
On things, one way or the other a little bit.
Dan This is Chris.
As you look at kind of that additional comp from a from a quarter perspective.
Look at that and say, it's about $5 5 million.
I would say.
A large portion of that is non cash related.
In terms of kind of thinking on the second part.
In terms of the prior year casualty, there really wasn't anything meaningful on a year over year basis. So I don't think any of that came into play in terms of looking at kind of sequentially.
The numbers, but also year over year.
Okay. I think last quarter, you had said you expect an additional $1 5 million.
And normalization.
Compensation, so is the delta more of that.
Sort of.
One time more let's say one time, but just timing related debt a fair way to look at it.
I think thats, a fair way to look at it Okay. That's helpful.
Talk about new business wins, I think last quarter, you stated the <unk> added more new locations in the prior two quarters than at anytime in the last few years.
How is the message is resonating mark is the pace of business wins, even in the Covid research holding up or even accelerating.
Well I think as we indicated we added almost 50 locations in the commercial group in the quarter and Thats on top of strong adds in the other quarters. So I think the message that we've been putting out there that we have a very strong Colgate playbook, we have technology game plan, that's hit the cutting edge and we can.
Drive costs out of your business, we can optimize revenue with our tools I think does play very very well and increasingly we're hearing from people who are being served currently by some of our competitors who are saying your competitor has lost their focus and doesn't seem to be that interested in parking or your competitor doesn't have the technology.
<unk> that can enable the kinds of things that you can do I think when we introduced the sphere technology brand, we were pleasantly surprised debt.
Bye bye using net as a means of communicating our full array of capabilities, we've generated a lot of excitement.
From our clients out in the marketplace and as I indicated in my prepared remarks, we've been implementing net net locations on a rapid basis and having implemented our sphere gateway solution at 300 locations now means that we have more and more of that type of technology in place that are gateway location than anybody else. So.
We are moving ahead with more and more on technology, and we expect momentum to build with the clients as they start to see maybe what with the people that are served by SP, plus or getting with their relationship with us as opposed to some of the other people on the marketplace.
Got it one more on I'll jump back in queue.
I appreciate the guide didn't look for 2021 very helpful. On obviously near term still impacted by Covid here.
If we look at 2019 EBITDA levels and taken into accounts all the puts and takes on new business wins, lower G&A offset by contract terminations and the changes to.
Some of the contracts to reduce variability post COVID-19 as it whether it's 22 or beyond is it reasonable to think we get back to those two.
19 profitability levels.
As we come out in the World Normalizes.
Absolutely I think we may have talked about this on our prior call. We clearly have exited a number of leases and there are some things.
From a let's just call. It a gross profit point of view that wont come back post Covid, but we've also worked very hard on looking at our structural G&A costs as we talked in the release and in our comments and we've taken permanent cost side of our G&A and obviously you've seen what we've guided for 2021, so our ambition.
As we looked at what we think post COVID-19, where it looks like is to drive growth through technology and to drive gross profit to eventually get back to pre COVID-19 levels, but in the meantime by bringing our cost base down put ourselves in a position to get EBITDA and free cash flow back to pre COVID-19 levels faster.
Ultimately there is no reason why we can't get gross profit back to pre COVID-19 levels, but I, just think that's going to be potentially a slower curve than the one for EBITDA and that's why we've worked so hard to take cost out of our overhead structure. So that we can do that faster.
Perfect any follow ups I'll circle back thank you.
Thanks, Dan Thanks, Dan.
Thank you Sir our next question comes from the line of Tim Mulrooney from William Blair. Your line is open.
Good afternoon Martin Chris.
Tim.
Yes.
I wanted to ask one question on guidance.
Just on the guidance for gross profit and SG&A is it fair to assume that translates to an EBITDA guide of $55 million to $85 million or is there something else that im not taking into consideration.
Well I think in general you could take gross profit minus G&A and good EBITDA. So there is there is nothing else I don't think that you have to take into consideration.
Okay alright. Thanks.
Mark.
In the press release, you said the 2020, you have the highest level of new business activity that you've seen in years.
The Asian business that caught my eye, because we know the aviation business was hit pretty hard in 2020, I think I know what you mean, but could you just take a minute and expand on that statement.
Sure I mean, clearly the existing operations, we're definitely impact as we scaled to the level of activity based on the amount of people traveling and but the good news for us with our existing base, especially with the airport operations as debt all of those airports continue to operate so it wasn't.
Like in the sporting World, where maybe there's nothing going on at a sports Stadium you know all of the airports, where operating if not at lower levels. The other thing is because the government tends to work on long term planning and they have contracts coming up on a regular basis for.
Going out to bid.
They conducted their sort of rebids of existing deals or or bids of debt.
Looking for potential new operators at the same pace that they would in normal times and so what ended up happening is that essentially.
During 2020, we added more airports more new airports to our SP plus portfolio than I think any one year I can remember and I've been here 21 years. So there has been a fantastic year of wins and we have a couple more we can't talk about yet, but we will be press releases will be coming out shortly.
So we expect that to continue as our airport as prospective airport clients again look at those same things what's your Covid playbook, what's your technology capability for promoting social distancing, we're bringing bags capabilities into the discussions with the airports as we did at Tampa After the Super Bowl and we're in this.
<unk> about doing something similar at other airports right now so I think that's going to be a nice growth area for us obviously the bags business has been impacted because of the fact that people aren't traveling at the same levels as they would pre COVID-19, but.
And the opportunities for new clients are there for them as well, but that statement is primarily around the expansion of our airport division within our aviation segment.
No that's very helpful actually I appreciate the color there.
We could just talk about bags for a second to get.
Better handle on on that business that you acquired several years ago can you talk about how that business performed in 2020. The reason I ask is to try to get an idea about what the potential rebound from that business could be if travel does indeed return on the second half of 2021.
Yes, it operated at a level that you would imagine it would relative to the amount of travel because they are delivering delayed luggage. They are repairing damage luggage, they're moving people in wheelchairs. They are operating sky cab services.
And alike and debt those services in many cases were curtailed on.
Or or put a pause on in many places, but we looked at the bags business.
This time, we said to our leadership team. There look it's important that we continue to serve our clients continue to pitch, new and interesting ideas to them and at the same time scaled on our cost base. So that the bags business can remain profitable, which it did in 2020 so.
They are operating at a low level compared to pre COVID-19, but I think are poised to grow and during the time that all of this is going on the pitch some new ideas and I could elaborate a little on the one around Tampa because the idea.
The idea was really debt, we could because we have the capability too.
Check in people from multiple airlines from one technology terminal.
Since the Sky cab services at Tampa Airport had been suspended.
During the Covid crisis, we can offer an alternative.
Where the consumer is paying for the check in the typical model that takes is used and sky cab services end and with remote check in is a sponsored model that is sponsored by an airline or the airport and while we still think there's a place for that in the future to alleviate congestion in the terminal on these things save money for.
The airlines and for the airports because they don't have everybody crushing into the terminals. We do think that there's room for a consumer pay model and because it was so successful at the Super Bowl a number of our other airport clients are saying.
Hey that looked interesting they are aware of it and the airlines debt participated with US are saying, we like this model and consumer acceptance was very high so we're going to be trying to pitch that the other thing is that the <unk> technology. Historically required you to wait in line and go up to a fixed station to check in.
Our new handheld technology that we deployed that was primarily developed for sporting venues to check people in using our own our own technology software technology on an Android device, we use that with the check and fly after that.
The game and it offered the opportunity we actually collect peoples' payments, while they are in line and that way when they actually get to the front to drop off the luggage. It's a much faster process and so that of course opens up to the door of putting someone on our Boston and collecting bag fees.
And payments for checking in while someone's on a bus as opposed to waiting for them to crowd. After they get off the bus. So our focus on continued expansion of technology capabilities looking for innovative ways to put those in place I think will give the opportunity for bags to scale back up once people resume traveling and of course, we've seen.
<unk> in the media Tim that the airlines are now, saying that they are we allocating some of their aircraft away from business hubs to travel and leisure destination, because they are seeing an up uptick let's call. It in demand for leisure travel and we expect that to continue throughout 2021.
Yes.
<unk> hit on my next question, Mark, which is going to be if you had an idea on how the bags business kind of splits between travelers for leisure versus travelers for business is it fair to say that it probably skews leisure.
It's heavily skewed to leisure because thats the thats the scenario face it where people have checked luggage.
If youre on a business trip and many of us at least we used to travel a lot pre COVID-19.
Sure.
We're often bring in our bag as a carry on because we don't want to be bothered hauling a lot of stuff for a one two or three day trip, but the people that are going to go on a cruise or going to a resort or or any sort of extended leisure trip. Those are the people that have a lot of luggage and they want help with it and then so the base business I would say is it's more than just <unk>.
Skewed toward its predominantly for the leisure traveler.
Okay, one more from me I've taken up a lot of time here, but just one more it's.
It's been a couple of quarters since we've talked about your enterprise sales approach.
Due to Covid and other things, but I mean, we'd like to check in on that and see if there is.
If that's still something that you are aggressively pursuing and might we hear about more enterprise deals in the upcoming fiscal year and do you think the pandemic has accelerated this opportunity in any material way. Thank you.
Yes sure. Thanks, that's a great question, well, we do to maintain and continue our focus on national accounts.
<unk> have actually recently landed an opportunity of a new national account relationship that we are in the process of taking over locations four and so I think whether even if your property manager or owner of real estate that's affected by the pandemic.
Youre starting to scratch your head and say, what's the best way for me to accelerate the recovery of my business coming out of this and Who's got the best technology for helping me figure out what to do to optimize pricing to capture all the nuances on the marketplace and so that is definitely opening up doors for us we still.
I believe that we are going to continue to add new low locations within healthcare.
And but the decision making process and healthcare is not fast. These are large organizations that have structured procurement processes, but as time passes we will continue.
To add locations, there and as I.
As I indicated I think.
One of our best growth options is to look at somebody who has a national footprint, where we already provide services and we take our sphere IQ dashboard and the technology analytics that we have behind that and we say to them. We can give you. This great picture for those few locations that we operate for you, but you're flying blind with.
In regard to the performance of your other locations and if you could give us your whole portfolio or more of your portfolio.
We can give you that visibility and provide.
The creative solutions on how to drive revenue or other variables that are important to you. So that debt is clearly a major focus for us as we go through 2021 and I'm sure. We're going to have some nice wins to announce fairly soon in that area.
Okay. Thank you very much Joe.
Welcome.
Thank you, Sir ladies and gentlemen, if you have a question at this time. Please press star and then the number one key on your Touchstone telephone we don't have another question from the line of Mike <unk> from Sidoti Your line is open.
Hi, good evening gentlemen.
Afternoon afternoon.
So wanted to touch a little bit on one of the other areas that you touched on in the press release.
Really appreciate all the color that you've given already on some of the other areas. I was wondering if you can touch a little bit about each day.
The concept of seeing more folks embrace.
Driving brand shop.
The expense of public transportation or the the on street parking needs. What have you I was weighted you touch a little bit on sort of how you can capture.
Those opportunities because we're certainly seeing debt anecdotally and seeing more first on drivers and was wondering if you could sort of touch on maybe what the gain on <unk>.
To take advantage of debt.
Absolutely well I mean, I think there is a bunch of anecdotes and then we do have some facts.
What we're seeing and certainly.
In New York as an example.
At certain day parts, we're actually seeing higher transient which means that people that just come in and paid by the day higher transient volumes at some of our locations than we did pre COVID-19.
And so that's clearly a sign that people are making a decision to driving a personal vehicle and of course, there's a lot of data out there about us.
Used car sales have skyrocketed people are buying vehicles for the first time now and I think there's also a lot of information coming out on mass transit, saying net ridership has gone down in some places.
60 and 90%.
So I don't those are the things that we're observing now in some cases the business is just going to come to us anyway, because we have the conveniently located facilities day people can download the parking dot com app. They can see our locations. We are continuing to expand the technology capability of parking dot com to.
Make it easier for you to prepay or be routed to a facility. So I think that's probably the most important thing that we can do it.
And also capturing more locations now people that.
Choose to be.
Choose to use our services are going to be made aware of parking dot com by the signings that we have on our facilities and we're hoping that that will be a mechanism for them too.
Find out more about the other places where that where we can serve them or where they might be able to park. We don't we don't spend a lot of time and money on.
On marketing.
On the form of advertising per se, but we do a lot of debt debt analytics stuff and we use that to try to identify people that might be customers or potential customers of ours and create demand from them.
Great and then one of the things I just wanted to circle back around on onto the Super Bowl. So the interesting thing about the Super Bowl is that's the overlap.
Sure.
Putting world exposure in your game day exposure, you said EBIT scramble right and I wanted to touch a little bit as to how they can help you on the on the sporting side of things because obviously, that's such a big event.
Draws a lot of eyeballs.
Hopefully, we're getting to the point, where with baseball season, beginning we're beginning to get to the game stadiums opening again and hopefully maybe concert on the road I was wondering are you getting any form of <unk>.
Initial communications on on some of the efforts that might be available to you.
Those types of things ramp up as we go on to this summer.
Right.
Absolutely.
One of the good things is that while though although many sports venues are been shutdown due to the lack of sports.
They are making plans to come back and I think people are seeing that there were I don't know, 22% to 25000 fans at the Super Bowl and in some jurisdictions.
On the governors and other officials have are allowing fans to attend.
At some level. So we are in active conversations with our clients in those places.
Regarding the protocols, we can put in place because SP plus gameday has provided management of the ground transportation and parking at the Super Bowl for I don't know closing in on 20 years.
We have that relationship and we were able to go to them and say theres. Some things that we can do here and working it with Tampa Airport, where bags had traditionally done remote airline check in we have those relationships and one of the things that we recognize there is a need and we are being asked by not just sporting.
Clients, but other clients.
Can you help us with with cleaning protocols and so we've worked hard to identify cleaning options that are safe environmentally sensitive and work effectively and I think we were so pleased that we were selected to actually clean the buses and other vehicles that we're going to be used by the teams in the media and all the people that were.
Participating in the Super Bowl and again, using cutting edge technology to measure bacterial levels on surfaces and be able to demonstrate that we have provided a clean safe way for people to be transported so.
That's why I referred to the case study marketing as we're pulling together all of the the story of what happened there we're going to use that as a major push.
To get in front of other clients on even some prospective clients in the sporting world to show them that what we can do for them.
The Covid world and of course afterwards as well.
Okay. That's great to hear and then the last thing from me you touched a little bit on the competitive environment.
That may be struggling so wanted to talk a little bit about.
Maybe what the opportunities might be whether it's we should think about potential use of cash with the free cash flow continuing to be strong and actually.
On the growing.
In 2000, <unk> when you could talk a little bit about maybe potential acquisition opportunities maybe if there are concerns out there.
That's something that we could see and then also if you could talk a little bit about share repurchase resumption.
What that might look like in the future.
Okay glad to do it well I think.
We're seeing a bunch of things with some of the competitors. One is they don't have the technology and of course, we didn't stand still with technology, we rolled out new capabilities that we've been talking about all year and we have more under development now that will be rolling out over the next few months.
We're able to differentiate ourselves in the minds of prospective clients with our technology offering and that helps us take business away from competitors and that's why we have one.
A lot of the new business that we've won this year. The second thing is that as we as some of our prospective clients have told us. They are concerned about the financial strength of some of our competitors and there have been people that have defaulted on lease payments.
Aren't fulfilling their other financial obligations theres people that seem to have lost their focus as it relates to parking and parking management and maybe their interests aren't really in parking anymore and so that's caused.
Lack of attention to the client and what the client is looking for and so those have opened up opportunities to us. So.
I think rather than looking at our competitors as M&A targets.
Really more of a case of we have a differentiated offering we are leading the digital transformation of our industry with technology and we are we have the other the main laser focus on delivering optimize revenue and the other things that clients are looking for that's going to allow us to take business away from them. So I think.
We can grow our market share Thats why I commented on that in the comments as.
As far as M&A generally we always wanted to be in a position if the opportunity is right and the value is right.
Net we would pursue now during a time like this.
<unk> is difficult it's hard to figure out because there's a lot of uncertainty around what the recovery curve from Covid is going to be for a lot of businesses. In this space that we operate in so we're going to be careful and not rushed on that.
Down the track to.
Just say well now is a good opportunity for us to buy things, we're not a private equity firm where we are.
Business, that's creating value for shareholders and we want to make sure that we really doing that if we engage in any M&A activity I think as it relates to share buybacks or other things we.
We need a little time to pass and we can see how the year pans out we still have some restrictions on them in around that so youre not likely to see us doing that in the near term but.
As we come out of Covid and as the country comes out of Covid is vaccines rollout we expect.
Our business performance to continue to recover and I think that opens up the door to those sorts of things in the future.
Much appreciate it thank you very much youre welcome.
Omar.
Thank you Sam you have another question on a follow up question that is from Kevin. Thank you.
Barrington Research. Please go ahead.
Hey, good afternoon.
So.
<unk>.
Reinstating the guidance for 2021, the gross profit guidance you mentioned.
Visibility of forwarding you to do that can you just kind of talk a little bit more about what's.
Giving you that visibility or giving you that confidence.
Issue their guidance and maybe also some of the swing factors, we might think about from the.
Bottom to the top of that range.
Sure I think one of the things that has happened over the past several.
Several years now is that the proportion of management contracts to lease contracts in our portfolio has grown and I was just thinking about this the other day.
Back win win.
Central and standard merged.
In 2012, I think we had close to 900 leases in the commercial division and now we have cash debt. So that's been a long term process.
We recognize the fact that leases create a lot more volatility there are definitely headwinds in the lease space around.
Ride sharing and maybe some of the cost areas as minimum wages go up and the like and so Chris and I have had a very disciplined focus on saying the leases that we are going to do we're going to be the kind of leases that we like are going to have much more predictability because we're not in new leases taking on responsibilities for things like <unk>.
<unk> repairs and real estate taxes, and we're negotiating provisions that enable us.
Relief in the event that something unforeseen happens so that debt volatility as time passes is reducing as a proportion of our total business and there will certainly be.
As we said I don't know 170 to 200 less leases in 2021 than there was last year. So that helps us with the visibility on the top line. The other thing is that we tried to be realistic in our expectations. In other words, we didn't want to get ahead of ourselves and how fast the recovery would take place and as we said in the call.
Comments, we expected the first half of 'twenty 'twenty, one to look a lot like the second half the second half of 2020 as adjusting for seasonality. So we saw the second half of 'twenty had some really good months and it had some months that were still recovering and so I think we felt like we've given ourselves.
Room too we have a solid performance in the first half of the year and and there is no reason to expect that things are going to deteriorate markedly from what the second half of 2020 look like and then a resumption of recovery in the second half as modest. So I think that gives us debt alone gives us confidence that putting our guidance.
We're out there, it's not going to we're not going to get surprised in a fairly major way.
As far as the things that could cause performance to deviate one way or the other obviously.
We're really pleased that we've been able to rollout.
Our sphere gateway solution, a 300 locations just in a little less than six months and we have more to go and we have our <unk> solution that we're working on rolling out now as well.
Along with other new technology capabilities, we've added some new portfolio clients as I've mentioned and we have some new airport.
Airport pitches, some of which we've been successful on and we'll be talking about soon others. We're optimistic that we're going to be successful in the bidding process. Because we had a great year in 2020. So I think those are the kinds of things along with our continued focus on safety.
It's going to be the kind of things that could cause us to move above the midpoint of the range and of course, if there is.
Some resurgence of of the Covid incidents or Lockdowns, because government makes those kind of decisions.
Maybe cause a delay in the recovery in certain sectors and thats the kind of thing that could cause gross profit to kind of come down a little bit, especially around leases, but that's why with 85 percentage of portfolio and management's now we feel like we have a lot more visibility on our gross profit line and maybe we've ever had.
Okay, Great that's helpful and.
Whats the overall state of your lease portfolio as it stands now are there.
Still any is there still any significant tranche there that you might say.
Kind of quote unquote bad leaves bad lease portfolio in terms of high fixed rent or you're pretty happy with the shape of debt portfolio now and what's the strategy going forward is to continue to.
Exit and renegotiate.
Leases, even if maybe they're not.
Some of those quote unquote bad.
Ed contracts.
While we definitely have some leases that we would like to get rid of.
And some of them have.
Exploration dates in 2021 and more have expiration dates in 2022, and so forth I think you'd have to say in general the bulk of our lease portfolio probably has on average five years to go or there's a few that go longer than that and there is quite a few that are less than that so.
One of the things that Chris and I do as we meet with our operating teams on a quarterly basis and we review every single lease in our portfolio and we say, which ones are coming up for renewal, which ones have clauses in them that allow us to.
Either terminate or renegotiate or reduce the rent I will say a lot of our landlords, who we've been with for a long time many of them have been really receptive to working with us because they love the job that we do they like our financial strength and they understand that these are unusual times. So I wouldn't want to portray it as that we don't like.
To do leases, but where we have the opportunity to improve the financial performance of elite through those measures or increased automation in the lease facility where.
We're taking those steps so all in all I think we will see as we look at 'twenty, one 'twenty two 'twenty three.
Improved gross profit contribution from whatever remains of our lease portfolio.
Okay great.
I wanted to ask.
Also about.
Comment you had.
The press release in terms of.
Being able to offer your sphere technology solutions on.
A stand alone basis, and how that substantially expands.
The address the addressable market for those technology offerings.
Any more commentary on that and what sort of traction.
You may be getting on offering those on a standalone basis or debt.
But it's still preferable to.
On kind of have a little more.
No.
The relationship.
<unk> to <unk>.
Kind of offering stand alone.
Well I think it goes without saying that if we are given the option, we like to provide more services to our clients rather than less and so the ideal client wants us to operate something put all our technology in place to drive their shuttle buses.
And do everything else that we can possibly do within the array of SP plus capabilities, but we have learned over the years debt, we have clients that choose to.
Bring us on board for some services and not other services, we have clients that have various preferences and so as we've been working hard to develop our sphere technology platform.
One of the important guiding principles has been.
Let's not have it be mandatory debt debt platform be deployed where SP plus is operating the parking.
If it if it if we can operate the parking that would be great. We'd like to do that and we it's something we know how to do very well, but we don't want to limit.
The possible capabilities or the rollout of that technology to only those places where we are the operator, because we do know that there are some prospective clients out there who for whatever reason would prefer to operate themselves and of course, there are technology companies out there in the marketplace that are true.
On to sell to them all the time, saying.
Here's the here's our technology platform and you can operate yourself and use our technology platform and I think all we're really trying to say where by our comments in our releases that we can play in net feel too.
So if you want a full service operator that does everything we do that if you are simply looking at technology options and you want someone who is going to provide the technology, but you want to operate yourself, we can do that as well and we're starting just starting now because we finally have completed the capabilities that we think are going to be attractive to clients to do that.
We started pitching that to a variety of prospects and I think we've got.
A number of conversations that are fairly advanced along those lines.
I think some people are going to take us up on it in and go that way with us and maybe later they'll decided to have us operate too just like a lot of times, we get in with with parking management and technology and then we later add other services.
Okay.
Okay that makes a lot of sense. Thanks for taking the questions. That's all I had.
Glad to do it Kevin Thank you.
Thank you Sir we do have a follow up question from the line of Daniel Moore from CJS Securities. Your line is open.
Alright, sorry about that thank you again, Chris I'm going to ask you to.
Take me up on on those feel like or not but to do a little bit of our job for us.
If you think about gross profit guidance for 2021 at the midpoint.
Given your comments around the cadence of recovery, how should we think about the percentage of that gross profit that falls in <unk> versus <unk>.
I would probably think about it.
Maybe a little differently, Dan and hopefully this helps.
Plus you add a little bit here, but.
You look at the business naturally in our business Q1 is kind of our more seasonally impacted quarter and so just given the weather conditions there.
Just the last people kind of traveling and being out and about and so naturally youre going to see kind of Q1 be our softer quarter I think as you look at Q2.
That starts to you start to get spring breaks you start to get a lot more people movement. The weather starts to get a little nicer. So you'll start to see an uptick in and people movement and then.
Q4 is generally a pretty good quarter for us. So I think if you look at kind of <unk>.
First half versus second half naturally the first half of our business is more seasonally impacted.
From that aspect. So it's hard for me to kind of give you kind of on a percentage from one one after the other but.
Hopefully that kind of helps you in terms of kind of thinking about gross profit cadence.
No that is helpful understood.
I appreciate the color again, thank you.
Welcome.
Thank you Sir there are no further questions at this time I will now turn the call back to Mr. Marc Baumann for closing remarks, okay.
Okay. Thank you Annie and just wanted to say thanks to all of you for joining us today.
Very much appreciate your interest and support.
In letting us explain ourselves in our business and look forward to speaking to you again.
Next quarter take care.
Thank you presenters, ladies and gentlemen. This concludes today's conference call. You may now disconnect. Thank you for participating have a good day.
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