Q2 2021 SP Plus Corp Earnings Call

July 28, 2021

[music].

Good day, and thank you for standing by welcome to quarter, 2.2021 and SP Plus Corporation earnings Conference call. At this time, all participants are in a listen only mode.

I'll start and speakers presentation, there will be a question and answer session to ask a question. During the session you will need to press star.

And your telephone.

If you require any further assistance, please press star zero and I.

I'd now like to hand, the conference over to Mr. Kristopher, Roy Chief Financial Officer.

Sir Please go ahead.

Thank you Rachel and good afternoon, everyone as Rachel just said I'm Kristopher, Roy Chief Financial Officer of SP.

1 plus welcome to our conference call. Following the release of our second quarter 2021 earnings during.

During the call today management will make remarks and may be considered forward looking statements, including statements as to the impact of COVID-19, and outlook for 2021 and statements regarding the company's strategies per.

People's intentions, future operations and expected financial performance.

Actual results performance and achievements could differ materially from those expressed or implied day due to a variety of risks uncertainties or other factors, including those described and the company's earnings release issued earlier this afternoon.

Plan, which is incorporated by reference for purposes of this call and available on the SP plus website and.

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 SEC.

In addition management will discuss non-GAAP financial information.

Information during the call management.

Management believes the presentation of non-GAAP results provides investors with useful supplemental information concerning the company's ongoing operations and is an appropriate way to evaluate the company's performance.

And they are provided for informational purposes, only a full reconciliation.

<unk> of non-GAAP financial measures to comparable GAAP financial measures were presented and the tables accompanying the earnings release to the extent other non-GAAP financial measures are discussed on the call reconciliations to comparable GAAP measure will be posted under the regulation G tab and the investor and.

And 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 the SP plus website. Shortly after the end of the call and will be available for 30 days from today I will now turn the call over to Marc Baumann our chair.

Chairman and Chief Executive Officer.

Thank you Chris and good afternoon, everybody. This was another quarter of solid execution for SP plus business conditions continue to improve as COVID-19 restrictions eased and higher vaccination rates spurred consumer activity and very pleased to report that we were able to manage effectively.

And <unk> throughout this period calibrating the service levels to accommodate increasing traffic and many locations while keeping costs in check.

This enabled us to post robust adjusted EBITDA performance, which was 31% above first quarter 2021, and represented a 51% margin on gross profit.

A strong indication of how we have streamlined our company to become a leaner more flexible organization.

Our better than expected performance and the second quarter was broad based tied to the recovery that is underway and many of the verticals, we serve as well as our size scale and reputation this enabled SP plus to effectively ramp up.

Up and expand our business with existing clients and win new business and both our commercial and aviation segments.

Although most aspects of our business have not yet returned to where they were prior to COVID-19 and affect some verticals such as large events and services such as valet parking remained significantly affected we're pleased with the <unk>.

Aggress, we're making.

And we're increasingly confident and our ability to exceed pre pandemic EBITDA levels once business conditions return to more normalized levels and.

And the second quarter, we started up over 80, new operations and our commercial division, representing a mix of hotel commercial and retail sites and several event venues.

And fewer former clients, who are forced to close during the pandemic, but the majority are new wins and many instances it was our touchless technology and other innovative tools that sealed the deal for us and others. It was because they were attracted to our tech solutions and robust marketing campaigns debt for 1 clients increased their monthly.

<unk> revenue by approximately 15% from where it was before we took over.

And some chose SP plus because of poor service rendered by the incumbent operator that caused consumer complaints and issues and we're making excellent progress and deploying our on demand solutions for gated and gateway operations, We're now live and over 4.

400, Caitlin locations transactions on the Gateway platform grew over 200% during Q2, as we onboard and more locations and we believe that there is considerable upside at same locations as we further optimize these operations.

We have 25 gauge locations up and running and another 100 locations and.

Invitation and Q, great progress toward our goal of having 150 locations live on our <unk> solution by the end of the year.

<unk> and parking dot com are outpacing pre COVID-19 volumes as our technology offering is helping to facilitate the return of people 2 offices and central business districts. Additionally.

Increased car ownership and the consumers reluctance to use mass transit and rideshare services due to COVID-19 evolve and positive factors for our operations.

Also we're now powering various client websites using our sphere custom solutions, which is enhancing our stickiness to our clients. These micro sites are an excellent.

And the imported for larger operations like those at stadiums and convention centers and from municipalities.

<unk> 2021, its been another banner year for our Aviation Division, we have a number of new wins and renewals and are seeing additional opportunities to expand our relationships by providing additional services to our clients.

<unk> 2 and example of this is the new White Glove service, we developed called Curbside Concierge, which is debuted at Tampa airport to accommodate travelers following Super Bowl 55 earlier this year.

This service allows travelers to check in with the airline and check their bags at the curbside for a nominal fee.

And developing it.

Our combined bank's proprietary technology with the sphere mobile point of sales system, we built that SP, plus giving us a unique offering that allows travelers to check in for multiple airlines. During the second quarter. We went live with this service had 10 markets with our first major airline client with plans to expand to another 30 markets.

We ended the year with.

We've seen strong interest from other airlines as well as the industry looks to provide value added services for their customers and reduce congestion and their terminals, while also reducing their operating costs.

Our early survey results show, 92% of respondents are highly satisfied with the service with 95% indicating that day.

I would use the service again, we see this as a potentially significant opportunity for bags to build decades revenue base and a post COVID-19 environment.

Also just last week, we announced that in partnership with 2 minority owned businesses. We were awarded a 10 year contract renewal at the Bush Intercontinental and Houston hobby and Ellington.

And airports and Houston, Texas. This involves parking management services for approximately 36000 parking spaces at Houston, and 2 largest airports as well as valet services shuttle buses embassador and courtesy cards to transport passengers and engineering services. In addition, we're also providing remote.

And checking services for valet customers at Houston hobby.

And we've been notified of several additional awards by large airport and airline clients, but are not and are positioned to talk about those as of yet we'll be announcing some of these wins over the next several weeks. Additionally, we are working closely with our hospitality clients to ramp up operate.

<unk> to accommodate the return of leisure and business travelers and here again, we believe there will be opportunities for SP, plus to provide and expanded array of services and in the past.

In summary, second quarter results showed considerable sequential improvement and with the first half completed the added visibility of our portfolio and.

And our expectations for continued progress and the second half of this year, we're pleased to be able to raise our guidance for full year 2021.

And specifically for 2021, we now forecast gross profit of $170 million to $185 million up from our prior forecast of $140 million to $160 million.

At the same time, we now expect G&A to be $85 million to $90 million as compared to $75 to $85 million previously the higher G&A and we previously expected relates to higher accruals for performance based compensation as well as additional investments and technology initiatives and other resources to better position.

<unk> us to take advantage of new business opportunities as business activity continues to pick up.

We're also initiating cash flow guidance, which Chris will discuss and his financial review I will now turn the call over to Chris.

Thank you Mark let's take a closer look at our financial performance and the second quarter of 2000.

21, and and adjusted basis as a reminder, our GAAP results as well as a full reconciliation of all non-GAAP measures to GAAP measures were issued and our earnings release after the market closed today.

And we're very pleased with adjusted gross profit of $46.4 million and the second quarter of 2021.

Which marked an increase of $42.5 million from last year's second quarter.

This strong year over year comparison, primarily reflects improved business conditions compared to a tough second quarter of 2020 that was severely impacted by COVID-19 and.

Adjusted G&A expenses for the second quarter of 2020.

And 1 or $21.8 million, while this was a 14% increase from a comparable quarter and 2020 remember that in the year ago quarter. We took some actions to reduce G&A and response to the onset of the pandemic and <unk>.

Including temporary pay reductions and lower accruals for performance.

<unk> based compensation.

Second quarter 2021, mainly reflects certain compensation costs, returning to more normalized levels, including higher performance based compensation in 2021 and light as a business recovery underway. However.

However, we are pleased to say that adjusted G&A and the second quarter.

2021 remains 20% below 2019 second quarter levels, mainly due to our continued diligent cost management.

<unk> quarter 2021, adjusted earnings per share were <unk> 49.

This compares to an adjusted loss net loss per share of <unk> 86, and the second quarter.

<unk> 2020.

Additionally, we are very pleased to report strong second quarter and year to date net cash from operations and free cash flow and the first 6 months of 2021, the company generated $23.3 million and net cash from operations and free cash flow of $17.1 million.

Driven by strong business performance and modest capital expenditures.

These numbers not only give us confidence that we will have a higher free cash flow year to year as we previously anticipated, but also to initiate full year guidance for both these metrics. We now expect full year operating cash flow.

And of $52 million to $66 million, representing a 47% increase at the midpoint compared to 2020 levels.

Our expectation for full year, 2021, and free cash flow is $40 million to $50 million or 57% above 2020 levels at the midpoint.

Our financial performance.

<unk> and the first 6 months of 2021, together with our expectation for continued improvement and business activity and the second half of 2021 led us to increase our guidance range for full year gross profit by 27 and $5 million at the midpoint with a range of $170 million to 185 million.

And as Mark discussed with that I'll turn the call back over to Mark for his closing remarks.

Thank you, Chris our improving outlook demand trends and flexible cost structure position us well to benefit from the pickup and travel and their return to the office both of which are expected to gather steam later in the year we.

We worked hard to support our clients as they navigated this challenging environment and we will continue to support them in any way that they need our clients have appreciated our flexibility and our strong service levels. We delivered at a time when many of our competitors were far less focused and we expect to see additional business opportunities and expanded scopes given that we have proven our.

Our ability to deliver.

Will it continue to be some concerns about the economic impact of the Delta variant. We're confident that we'll continue to benefit from better business conditions and the second half of the year and beyond.

Operator, I'd now like to open the call up for questions.

Yeah.

Thank you as a reminder to ask a question. This fresh star 1 on your telephone keypad again, just for Istar and and the number 1 on your telephone keypad and to withdraw your question does suppress the pound G. Please standby, while we compile the Q&A roster.

Our first question comes from the line of Daniel Moore of CJS Securities. Sir Your line is open.

Mark Chris Good afternoon, Thank you for taking the questions.

Thank you afternoon.

Obviously, some pretty significant progress once again this quarter.

Pre pandemic EBITDA was running.

And just under $30 million per quarter already back to $24 million.

And so obviously really good progress.

And there's still some uncertainty among investors just in terms of.

And what profitability would look like.

And when we look at let's say fully open back up or under kind of a 2019 condition. So.

Running just given the contract revisions as well as the share gains that you've made.

If we were back in 2019 levels, but what would kind of EBITDA look like relative to our 2019 operating condition forward EBITDA look like and that.

That scenario I know, it's a difficult question, but just even qualitatively would be.

Sure I think our.

Youre right and what you are saying, Dan we did make a lot of changes during the pandemic, we renegotiated a lot of deals.

Deals were converted from leases to management and some lease terms were changed to try to eliminate minimum guarantees, but as we look forward at the business and of course, we.

And it had strong new business during the pandemic as well and our expectation is that wind conditions in other words mobility conditions. When people are resuming their normal pre pandemic lives. The company would we would expect it to be back to pre pandemic EBITDA or greater so I don't think theres anything structural.

Helpful.

That would preclude debt 1 thing we have said previously and I think that's still true to certain extent is that because we did restructure some deals.

It may take us a little longer to get to pre pandemic gross profit and then to get to pre pandemic EBITDA and that's why Chris and others here and so focused on taking.

That's structural cost out of the business so that we can resume.

Pre pandemic EBITDA once.

Business activity and commercial and consumer mobility returns to pre pandemic levels.

That's super helpful.

Just housekeeping were there any cost concessions and the gross.

<unk> numbers this quarter similar to Q1.

Yeah, we did have some cost concessions.

And I think if you look at it certainly the cost concessions.

As a as a dollar amount and certainly reducing and I think if you go back to Q1.

Probably we would've reported $18.4 million or so of cost concessions. If you look at.

If you look at Q2 that number has certainly gone down I would say, it's just over $10 million about $10.3 million in terms of cost concessions going through.

Gross.

Profit. So we are seeing those cost concessions reduce.

The good news with that is that revenues, increasing which is.

Allowing us to be able to release some of those cost concessions. So it's it's certainly a good story.

And to see the revenue go up and it's somewhat of a good story and see those cost concessions.

<unk> go down.

No doubt.

Just in terms of the lease portfolio, where would you say capacity utilization is today.

Lease locations compared to pre pandemic, how is that performing.

There is a hard thing to generalize around given that we.

We have so many hundreds of leases, we're certainly seeing strong parking demand and a lot of markets as people have been reluctant to get on the mass transit or back into ride sharing and I think we've said this before and this is a trend that has continued at certain day parts at certain locations, we're seeing trends.

Unit volumes, that's people just showing up to park that are greater than 2019 levels, I think thats happening and more and more places but we're.

As a business.

If we start to see capacity, reaching the point, where we would have to put full signs out there, it's usually and opportunity to put up parking rates and so.

1 of the things that we've been doing and this immediate recovery period of the pandemic is ensuring that we've got the supply demand right and we're putting up rates, where theres an opportunity to do so.

Excellent last 1 from me I'll hand, it over but bags certainly sounds very encouraging.

And the agreement with Hawaiian Airlines and it sounds like you've got dialogues with other airlines and door airport customers and the Hopper.

Is it the accelerated spike in demand for air travel.

Is it your.

Your message resonating.

A little bit more with new potential new customers.

Maybe just talk about.

The net the marketing side of it versus just the.

And the macro side of it and then any color around some of those new.

New deals I guess, we'll have to wait to hear them, but certainly sounds encouraging.

Yes.

Great. Thanks, Good question, Dan I think.

As everyone probably knows pre pandemic.

<unk> provided a number of services for leisure travelers and they're tied either 2 airports or resort or cruise travel and so clearly the services. They provide are traditionally around airports, which was the delayed luggage delivery, where they deliver delayed luggage.

17 Airlines and over 13 market those services are ramping back up as more and more.

Luggage is delayed and I think we will see that ramp up even further once the airlines resumed and they are sort of hub and spoke network. During this immediate period and a lot.

The airlines have gone and more point to point and that which.

Which tends to keep demand for.

<unk>.

And delay those delays of luggage to be lower than it would be in normal times, let me say it that way.

But what we also found and we've talked about this at the time, we acquired bags, there's a need to reduce congestion and the terminal and it may be congestion.

And at.

And at the counters and may be congestion at the TSA lines or it may be congestion at the curb.

People are loading and unloading and banks has traditionally provided outsource skycap services for some airlines, but with their proprietary multi year line tool, they're able to check and passengers.

From any 1 of 7 airlines using 1 terminal and net and net tool we were pitching to all of the SP plus airport clients pre pandemic as a way to alleviate congestion and the airport terminals and we had a number of airports ready to go as the pandemic.

<unk> to unfold.

As we went through the pandemic period.

<unk> leadership team started thinking a little bit about that tool and those capabilities and and say well why don't we as airlines are looking to be cost conscious maybe more so than pre pandemic and airports are also facing cost pressures because of the pandemic.

Maybe we could offer up a consumer pay model for that same service and Thats with the curbside concierge product is that we talked about and our remarks.

Which we tested and.

After the Super Bowl and Tampa for 1 day with a few airlines that worked very very well and as a result of that.

1 airline and soon and I think other airlines are going to pick that up and enable us to sort of roll that out and many many markets throughout the country and I think debt that represents an opportunity not only to recover more quickly.

And then maybe it would have happened otherwise, but also for bags to take market share away.

Away from some of the people that we're providing the traditional sky cab services because this would be a replacement for those services. So we're very excited about the early prospects, particularly as we talked in our remarks, the consumer acceptance of this and their willingness to and eagerness to use debt service going forward and and even if people.

People felt more comfortable being back in the terminal because COVID-19 wanes and dissipates later, you still can't be getting rid of your luggage outside the terminal and now you are free to get in their move about go into shops and relax before your flight and so we think that it really fills an important niche that consumers are looking for.

Seek to travel with plus friction.

Great and my question was a little bit, but that's that's exactly the color I was looking for I will circle back and jump back in queue with any follow ups. Thanks.

Thank you.

Thank you. Our next question comes from the line of Steve Mahoney from William Blair, Sir Your line.

And as open.

Martin Good afternoon, congrats on a nice quarter. Thank you. Thank you.

And im.

So a couple of questions here first on the guide so the midpoint of your guide.

I think implies about $91 million and gross profit for the second half of the year.

Which.

And as these from about 5% versus the first half of 2021 and I think it's great that you guys raised the guide here, but I'm wondering why you'd only expect a 5% improvement now and the second half of the year over the first half when folks are expected to start going back to work. After the labor day weekend is there just.

Just some conservatism and the numbers here as you take a wait and see approach or are there other considerations.

And then I should be taking into account.

I don't know if there is conservatism in there.

Tim I think if you if you go back to Q1, we called out about 4.

And is up $8 million or so and.

And concessions that really went through Q1, net but really related to last year of 2020. So I think if you pull that out I think the growth is and the second half would be closer to 11% if you kind of Paul debt.

Those concerns.

And so still a pretty robust growth in terms of expectations for the back half.

Back half of the year.

That's a really good point, Chris I forgot about that sorry, Mark go ahead.

And just going to say, Jim and of course, 1 of the uncertainties and forecasting right now is that there has been this.

And started using surgeon and leisure travel going on right now which is very good for our business. Because we are serving the leisure traveler and nobody knows exactly what the at leisure curve will look like I'd like to thank debt. We're just at the beginnings of a prolong search because everybody has a lot of pent up.

Cabin fever, and 1 and.

Get out there and do things, but.

We also know that normal patterns for leisure travel our debt Theyre very strong and the second and third quarter and then as the schools reopen and and people go back to their kind of normal patterns, the leisure travel and sort of fades away a bit so.

And it's challenging to try to overlay the pandemic.

And maybe on top of the normal patterns of leisure travel so.

And our expectations are that there is going to be strong leisure travel but.

And it remains to be seen what debt paid and really looks like.

Right Yep Okay.

Mark Chris Hugh you mentioned.

<unk>.

Recovery with the previous analyst cost concessions I think you said $18 million and then $10 million was that on revenue.

Well there'll be we've got there's probably 2 pieces to that some of that will go through in terms of.

Reduction.

And cost.

Services for our for our leases.

There is also some service concessions, which are really more I would say cover and Mac quasi governmental and just under the accounting rules that.

They really are lease type contracts, but concessions.

And through as a reduction of revenue.

Yes.

And it's our.

Or and increase in terms of gross profit. So it's just a little bit under the accounting rules it gets into a little bit of complexity there just from.

Pointed out of 1 individual line items.

We're going to be filing and the queue here and.

So a couple of days and so youll see that <unk> pointed out in the footnotes.

The dollar amount for each of those components.

And thank you for clarifying that and let me just ask this a different way you had $4.8 million of cost concessions.

And the first quarter of 'twenty 1.

Is there any and the second quarter.

After of 2021 that we should be taking into account here on this nice gross profit beat that you had and the second quarter.

Well when you when we when we called out the $4.8 that really related to periods that we started negotiations and 2020, but under the accounting rules until we get full resolution.

And we Werent really able to book that so we booked it in Q1, if you look at the total cost concessions that we were able to get.

Q1 had about $18.4 million and total cost concessions and then Q2, we have about $10.4 million. So we've seen some reduction and the total cost.

And sessions that have gone through from a gross profit per site perspective.

Understood. Okay. Thank you maybe.

Maybe just 1 more from me.

Within your office building clientele.

Heard discussion about things like multi day passes.

Cost and standard non standardized pricing structures and can you talk a little bit more about what these are if you are seeing more demand for these types of non standard arrangements as many companies transition to a hybrid working model.

Sure well we have cash.

And really created technology that enables all of those things and so and the office building space.

Base, where generally.

Operating under a management agreement working for a client who is either the building owner of the property manager for the building and so generally speaking for office buildings.

While we are able to make and management fees is not dependent on the utilization of that parking facility.

And it is paying.

Non interest efficiently and optimize it for to meet their objectives. So if a client wants to offer a multi day pass or some other discounted parking early bird specials, which have been around for a long time.

All of our sphere technology is fully capable of providing for that but and I will say that from the point of view people commuting.

Since suburbanites, who have not yet really.

Mass transit.

Levels of pre pandemic I think youre seeing this and almost all the suburban rail there is still operating and very very low levels, whereas the.

And Chicago, we have the Cta for the industry itself there are running at low growth roughly 50.

Percentage of pre pandemic, the suburban rails, running and maybe 10% to 15% and pre pandemic. So people are driving more and consequently, there and maybe not going to be there 5 days a week they don't want to pay the daily rate.

Don't want to buy monthly yet and.

So there definitely has room for incentives and and we.

Ill equipped to do that as well as off from marketing programs to our clients to try to draw people to the properties.

Got it thank you very much.

Thanks, Tim.

Thank you and once again as a reminder to ask a question you will need to press star 1 on your telly.

And we're well keypad. Our next question comes from the line of Kevin and Thank you from Barrington Research Sir Your line is open.

Hey, good afternoon.

Hi.

I just wanted to.

Talk a little bit more about.

And your lease portfolio and.

And obviously the last few quarters went through.

Accelerated process of.

Renegotiation and exit were net.

Sherry.

Is that process ongoing is that something you are maybe backing off a little bit on now the results are recovering or kind of what's the overall.

A LIFO and <unk>.

State of the lease portfolio and your ability to improve.

Improve upon that.

No its ongoing Kevin.

The things that we have we do on a regular basis as look at the performance of each of our leases it gets easier and easier for Chris and me to do that since we have fewer of them.

Raul.

But we still have 400, plus leases and our commercial division and clearly they're all seeing improvement as we come out of this pandemic period as Chris indicated we've had concessions and that helped their performance and and now that revenue is growing well they'll they'll have to stand on their own if you will.

And I'm now as the concessions continue to go down on a forward basis, but long term we.

Like leases, we want to be and leases, but as we enter into new leases or renew existing leases when and if things that we're really keenly focused on is what happens if there is another pandemic or a recession.

Research and to have some sort of economic downturn.

Can we have a way to terminate the lease early or make or make sure that we have concessions were or provisions and the lease where it converts.

Percentage rent only and no base rent. So if we can get those types of terms, we're entering into new leases and and.

And because some of the other players and our industry, who traditionally done leases have.

And some cases defaulted on their lease obligations are not fulfilled them that.

And has caused some of their low.

Handlers to sit turned to us and say hey, what would you be willing to do and that puts us in a position to say we'd be happy to work with you but.

To have these types of provisions and our contracts so debt.

And that's that's sort of our go forward approach, if we have leases that aren't able to make money and and I kind of use 2019 as the benchmark. We had some that didn't make money and 2019, they're probably not going to make money and 2022 either.

And so for.

But we leases, we're try and as always to improve the turns by renegotiation in other cases, those leases will come to their natural exploration. We have very few leases that have more than 5 years to go on the terms. So.

In essence any lease we have today that we don't like.

And we'll have the position.

For those to move away from over the next few years, but I expect the company will continue to see growth and its management contract portfolio, that's our bread and butter debt.

We are used to serving clients, but we will continue to have leases, although probably that will continue to decrease as we look ahead over the next few years.

<unk>.

Okay, Great Thats helpful color.

I wanted to.

Skip out.

Maybe an area that hasn't been mentioned and as much to list.

Few quarters here, just in light of Covid, but you're.

Growth opportunities.

<unk> and both the <unk>.

Municipal and institutional markets and as healthcare universities.

Et cetera.

Whats the state of those opportunities as debt.

Kind of slow down.

During the pandemic in terms of the pipeline or.

What sort of opportunities are you seeing coming out of.

The current environment and.

And in those particular markets.

Yes, there has been a tremendous amount of interest and the sports World I think because affects sports came to a standstill during the pandemic.

And now everybody is realizing that we're kind of back to normal.

Rapidly moving back to normal with an expectation of back to normal during the fall here and so while we continued through our SP plus Gameday division operating large events during the pandemic, we're starting to see.

Oh.

Lots of inbound requests for help from universities and and professional teams that are saying, we need to help we need help planning their recovery and and returned from the pandemic. So very very strong interest and the sports and venue world for either events or activities coming this fall.

C or and the first parts of next year.

Municipalities have continued to do their they are putting things out to bid we picked up a couple of smaller and municipal contracts over the past few months and continue to see that vertical is a very important 1 for the long haul I think municipal.

<unk> in general have been somewhat distracted by the pandemic and their objectives of getting the public vaccinated and keeping people safe and so.

And there is maybe for those who have not yet outsourced parking and other facilities. There is there hasnt been much.

Going on there there is a.

A large university that has done a privatization exercise that will be.

Announced fairly shortly that we're involved and so there is definitely activity I think it's probably taken a little bit of a pause during the pandemic, but we expect it to ramp back up because once again.

Institutions and the municipal.

Space, they've got pension obligations and they've got budget challenges, there's been a surge of money coming from the federal government, but thats not going to go on forever and so theyre going to be back to their basic question of how can we get more value out of our assets and bringing us in our SP plus municipal services.

Into the businesses.

And into their operations as a way for them to drive more bottom line profitability.

The hotel area and hospitality have been very very active aside from working with our existing clients.

Some of whom had been shut down and others.

And we're operating at low levels or maybe have suspended valet parking and during the pandemic.

<unk>.

We indicated in our remarks, there and the process of ramping up but we've also I think the pandemic has caused a number of players and hospitality to question, whether they have the right answer from the point of view of the <unk>.

Service providers, such as ourselves to provide their services and this.

And as given us an opportunity to get in front of some of these people for the first time and to talk about what we can do with sphere technology many of them.

Hotels, and others have antiquated technology. They are often looking at big investments and with our sphere technology. There is an alternative for them that doesn't involve upfront.

Our investment and so I think youll see us starting to bring on more hotels I think in the quarter.

81 commercial locations that we brought on 20 of them were hotels, so there's definitely going to see and expansion of our activities and the hospitality vertical the 1 area that I think has been somewhat.

Somewhat dormant during the pandemic as far as the verticals you mentioned is really health care and I think once again.

While we were very excited pre pandemic to be designated as a preferred parking operator by 3.

And 3 group purchasing organizations, it's been very very quiet and I think that's just a function.

And the fact that the health care systems have been prioritizing dealing.

Dealing with the pandemic and all of the implications of debt head for for their employee base for their for the for people that are sick and need medical care, but I think once again, we come out and things stabilize I think that will pick up again, because they are still.

Consolidation going on and the health care space. There is there is building and urban markets on surface parking lots and parking garages and when you create the potential for congestion and and mobility friction challenges.

Where SP, plus and come in and really make a difference.

Okay.

It all makes sense and very helpful commentary I appreciate it I'll jump back in the queue. Thanks, Thanks, Kevin Thanks, Kevin.

Thank you. Our next question comes from the line of Marc Riddick from Sidoti Sir Your line is open.

Hey, Good afternoon, Hey, Hi, Mark Mark.

And as always I really appreciate all the color and and information that you're providing and your answers and so I'll be I'll be brief and touch on a couple of things.

Around that I wanted to start maybe with you made mentioned and ill be.

Are you able to ramp up with your customers. So wondering if you could give us sort of an update as to what youre seeing as far as labor.

And and.

And what those what those pressures may or may not allow it and maybe how that might try and total what youre, what youre doing from a pricing standpoint and then.

Couple of follow ups after that share.

Sure well like most businesses that are hiring hourly workers.

We have some of the same challenges.

So moving people.

Clearly the labor supply has been contracted by people, who are not and the labor market right now whether because of concerns over the virus not having been vaccinated, yet or maybe schools aren't open and they have childcare issues that they have to contend with so those.

And gets kind of macro issues affect every business I think we've been.

Successful and filling the labor needs that we have and 1 of the parameters that we look at is how much overtime are we paying as a percentage of payroll because if we can't fill jobs than we have we have to pay overtime pay to the other people that we have so.

Those still and get the job done and our overtime levels as a percentage of payroll are running pretty much at pre pandemic levels right. Now so that suggests that we have enough staffing in place.

And clearly as well the labor challenges are geographically based and some markets. It's no problem at others and others. It's.

It's a bigger challenge we've had to put up wages and some markets are or what other incentives in place.

Fortunately our portfolio is predominantly management contracts and so if we are having to pay higher wage rates to fill open roles.

And the higher rates and costs are passed on to our clients rather than absorb.

And so that we got obviously at lease locations, we have to bear those costs and as I indicated earlier in my comments.

There is an opportunity to put up parking rates and most of our markets just given the supply demand equation and so that'll be the way that we cover those increased labor costs.

Okay great.

And then I was wondering if you could maybe switch gears and and talk about certainly very strong free cash flow generation, even during the challenges of the pandemic I was wondering if you talk a little bit about maybe what you're looking at from a potential.

Potential acquisition pipeline perspective, and maybe what you are maybe what your views are what the multiples are out there.

I'd say, it's probably premature for us to be back and the M&A market and and part of that market debt.

Great and low pre pandemic levels of EBITDA that may or may not be true for all of the businesses that are out there and so I think we need to see how businesses stabilize and return from the pandemic before we can be sure of what kind of a value attached to those sort of things. So I think that that's probably down the road for us that being said.

Within the parking space itself.

If something sizable from a regional and national basis would become available we would certainly take a look at it but realistically.

We're having a pretty good experiences at winning business and taking things away from our competition and so I don't think we feel it.

Or a bump to do acquisitions and the parking space. So.

Something that we monitor all the time, but.

I don't think Thats, something thats really on the horizon for the rest of this year.

Okay, and then I wanted to switch back over to you.

The benefits and the progress that's been made around the technology.

Strong and.

And new business wins, and and you touched on the marketing.

And things being part of the.

Driving force and winning new business as well. So wondering if you could talk a little bit about maybe if there are particular verticals that have been more receptive or or or maybe Ben.

G has formed a little better as far as us.

Applying the technology or maybe finding new uses for the technology, how should we think about the <unk>.

And what areas or maybe are a little more aggressive than others as far as gaining gaining share going forward. Thank you sure, yes, I mean there.

Really you can't really exclude any of the verticals because the spheres suite of capabilities is really.

Broad based and.

For example for our commercial office building.

Clients with our sphere gated solution or a sphere and gauge solutions youre.

We're able to eliminate the need for.

And the traditional parking equipment and maybe some of the traditional costs that you might have had and that operation.

In fact, we have the dispute gauged solution in place now and are are building in Chicago, where we work and I was able to use it today for the first time and and it's very slick because I drove up and on my mobile devices and the parking dot com mobile app.

I was able to raise the gate I did not have to open my window or touch anything that's the future and so thats and more efficient kind of a solution also for our commercial our multilocation property owners are whole sphere analytics suite of data and dashboards is very very appealing because they can have.

Tremendous visibility into the performance of their assets and.

And the retail mixed use space.

Once again people often have antiquated equipment or maybe they arent able to capture all of the revenue. They are complex transactions with validation and R. R.

And then.

There may be pay and display equipment that is running near to the end of its useful life and so once again, our the sphere ecommerce solutions are going to be appropriate and both of those and eliminate the need to make.

From investments and capital and I think thats very very compelling and I was just talking and 1 of our.

And our leaders earlier and the week about our retail mixed use center, where they had decided to spend $125000 to upgrade all their equipment because they had traditional parking meters and we said you don't need to do that.

With our <unk> solutions.

And can use their smartphone scan a QR code and pay.

Debt has been extremely well received since we implemented debt with them and and and consequently, it kind of feeds into another part of our strategy for growth, which is to generate transaction fees for ourselves off of mobile transactions.

All of our competitors.

And in the technology space have have built up debt sort of our model and so people are used to the idea of convenience fee or a transaction fee and we see the ability to generate recurring revenue streams that will benefit gross profit and give us additional growth. We've also seen a huge increase in demand for our remote management.

Utilities, you know as people look to control labor costs or maybe labor is hard to come by.

Our opening their minds to the idea that maybe I don't need to be fully staffed or I don't need to be stepped and certain day parts and so I think we've added more locations to a remote management capabilities, probably and the last 12 months.

For the 12 months since we started doing remote management and more than 10 years ago. So there's there's just everywhere you turn there's the ability to really drive the transformation with technology to reduce friction and our goal is debt no matter what vertical we're talking about no matter what size of scale of the operation from.

From something very small and it's something very complex. We are a technology solution that can improve performance.

That's very helpful. Thank you very much.

And Mark.

Thank you there are no further questions in queue I am now turning the call back to Marc Baumann for final remarks.

And then and any thank you very much and well obviously, we're delighted with our performance and the quarter and we're hopeful that these trends will continue throughout the rest of the year and we'll be having another great call with you next quarter. Thanks for joining us today.

Okay.

This concludes today's conference.

You may now disconnect.

And then.

[music].

And.

[music] zone.

Okay.

And on that.

And the line.

[music].

And then.

And.

Net.

Yes.

[music].

Good day, and thank you for standing by and welcome to <unk> to 2021 SP plus Corporation.

Fruition earnings conference call at this time, all participants are in a listen only mode.

I'll start and speakers presentation, there will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone if you require any further assistance. Please press star zero and I would now like.

To hand, the conference over to Mr. Kristopher, Roy Chief Financial Officer.

Sir Please go ahead.

Thank you Rachel and good afternoon, everyone as Rachel just said I'm Kristopher, Roy Chief Financial Officer of SP, plus and welcome to our conference call. Following the release of our second quarter 2021 and 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.

Look for 2021 and statements regarding the company's strategies plans intentions future operations and expected financial performance.

Actual results performance.

<unk> and achievements could differ materially from those expressed or implied due to a variety of risks uncertainties or other factors, including those described and the company's earnings release issued earlier. This afternoon, which is incorporated by reference for purposes of this call and available on the SP 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 SEC.

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 is 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 financial measures were presented and the tables accompanying.

Earnings release to the extent other non-GAAP financial measures are discussed on the call reconciliations to comparable GAAP measure will be posted under the regulation G tab and the investor and the Investor Relations section of the SP plus website.

Please note this call is being broadcast live over the.

And that and is being recorded a replay will be available on the SP plus website. Shortly after the end of the call and will be available for 30 days from today I will now turn the call over to Marc Baumann, Our chairman and Chief Executive Officer.

Chris and good afternoon, everybody. This was another quarter of.

And our knowledge of execution for SP, plus business conditions continue to improve as COVID-19 restrictions eased and higher vaccination rates spurred consumer activity and very pleased to report that we were able to manage effectively throughout this period calibrating the service levels to accommodate increasing traffic and many locations.

While keeping costs in check.

This enabled us to post robust adjusted EBITDA performance, which was 31% above first quarter 2021, and represented a 51% margin on gross profit a strong indication of how we have streamlined our company to become a leaner more flexible organization.

<unk> saw better than expected performance and the second quarter was broad based tied to the recovery that is underway and many of the verticals, we serve as well as our size scale and reputation. This enabled SP plus to effectively ramp up and expand our business with existing clients and win new business and both our commercial and aviation segments.

And although most aspects of our business have not yet returned to where they were prior to COVID-19 and in fact, some verticals such as large events and services such as valet parking remains significantly affected we're pleased with the progress we're making.

And we're increasingly confident and our ability to exceed pre pandemic EBITDA levels once business.

Business conditions return to more normalized levels and.

And the second quarter, we started up over 80, new operations and our commercial division, representing a mix of hotel commercial and retail sites and several event venues are fewer former clients who are forced to close during the pandemic, but the majority are new wins and many instances.

It was our touchless technology and other innovative tools that sealed the deal for us and others. It was because they were attracted to our tech solutions and robust marketing campaigns that for 1 client increased their monthly revenue by approximately 15% from where it was before we took over and.

And some chose SP plus because.

And of course service rendered by the incumbent operator that caused consumer complaints and issues were making excellent progress and deploying our on demand solutions for gated and gateway operations. We're now live and over 400 gateway locations transactions on the Gateway platform grew over 200% during Q2 and.

As we on boarded more locations and we believe that there is considerable upside at same locations as we further optimize these operations.

We have 25 gauge locations up and running and another 100 locations and the implementation queue, great progress toward our goal of having 150 locations live on our <unk> solution by.

And a year.

Reservations and parking dot com are outpacing pre COVID-19 volumes as our technology offering is helping to facilitate the return of people 2 offices and central business districts. Additionally, increased car ownership and the consumers reluctance to use mass transit and rideshare services due to COVID-19.

By the end of evolve and positive factors for our operations.

Also we're now powering various client websites using our sphere custom solutions, which is enhancing our stickiness to our clients. These micro sites are an excellent fit for larger operations like those at stadiums and convention centers and from municipalities.

2021 has been another banner year for our Aviation Division, we have a number of new wins and renewals and are seeing additional opportunities to expand our relationships by providing additional services to our clients.

A good example of this is the new White Glove service, we developed called Curbside Concierge, which is debuted.

Tampa Airport to accommodate travelers following Super Bowl 55 earlier this year.

This service allows travelers to check in with the airline and check their bags at the curbside for a nominal fee and.

And developing it and we combined bank's proprietary technology with the sphere mobile point of sales system, we built at SP plus.

And that a unique offering that allows travelers to check in for multiple airlines during the second quarter. We went live with this service at 10 markets with our first major airline client with plans to expand to another 30 markets by the end of the year with.

We've seen strong interest from other airlines as well as the industry looks to provide value added.

Giving us for their customers and reduce congestion and their terminals. While also reducing their operating costs. Early survey results show, 92% of respondents are highly satisfied with the service with 95%, indicating that they would use the service again, we see this as a potentially significant opportunity for bags to build back its revenue base.

Services and a post COVID-19 environment.

Also just last week, we announced that and partnership with 2 minority owned businesses. We were awarded a 10 year contract renewal at the Bush Intercontinental Houston Hobby, and Ellington airports and Houston, Texas. This involves parking management services for approximately 36000 parking.

Spaces at Houston, and 2 largest airports as well as valet services shuttle buses embassador and courtesy carts to transport passengers and engineering services. In addition, we're also providing remote airline check and services for valet customers at Houston hobby.

And we've been notified of several additional awards.

Airport and airline clients, but are not and are positioned to talk about those as of yet we'll be announcing some of these wins over the next several weeks. Additionally, we are working closely with our hospitality clients to ramp up operations to accommodate the return of leisure and business travelers and here again, we believe there will be opportunities for SP plus.

To provide and expanded array of services and in the past.

In summary, second quarter results showed considerable sequential improvement and with the first half completed yet and visibility of our portfolio and our expectations for continued progress and the second half of this year, we're pleased to be able to raise our guidance for full year 2000.

And in 'twenty 1.

Specifically for 2021, we now forecast gross profit of $170 million to $185 million up from our prior forecast of $140 million to $160 million.

At the same time, we now expect G&A to be $85 million to $90 million as compared to $75 to.

<unk> previously the higher G&A than we previously expected relates to higher accruals for performance based compensation as well as additional investments and technology initiatives and other resources to better position us to take advantage of new business opportunities as business activity continues to pick up.

We're also.

<unk> cash flow guidance, which Chris will discuss and his financial review I'll now turn the call over to Chris.

Thank you Mark let's take a closer look at our financial performance and the second quarter of 2021, and and adjusted basis. As a reminder, our GAAP results as well as a full reconciliation of.

Of all non-GAAP measures to GAAP measures were issued and our earnings release after the market closed today.

We are very pleased with adjusted gross profit of $46.4 million and the second quarter of 2021, which marked an increase of $42.5 million from last year's second quarter.

This strong year over year comparison.

Also and primarily reflects improved business conditions compared to a tough second quarter of 2020 that was severely impacted by COVID-19.

Adjusted G&A expenses for the second quarter of 2021.

$21.8 million, while this was a 14% increase from a comparable quarter.

And 2020 remember that in the year ago quarter, we took some actions to reduce G&A and response to the onset of the pandemic, including temporary pay reductions and lower accruals for.

And for performance based compensation.

Second quarter 2021, mainly reflects certain compensation costs.

Returning to more normalized levels, including higher performance based compensation in 2021 and light of the business recovery underway.

However, we are pleased to say that adjusted G&A and the second quarter of 2021 remains 20% below 2019 second quarter levels, mainly due to.

Our continued diligent cost management.

Second quarter 2021, adjusted earnings per share were <unk> 49.

This compares to an adjusted loss net loss per share of <unk> 86, and the second quarter of 2020.

Additionally, we are very pleased to report strong second quarter and year to date.

Net cash from operations and free cash flow and the first 6 months of 2021, the company generated $23.3 million and net cash from operations and free cash flow of $17.1 million driven by strong business performance and modest capital expenditures. These.

And these numbers not only give us call.

Confidence that we will have a higher free cash flow year to year as we previously anticipated, but also to initiate full year guidance for both these metrics. We now expect full year operating cash flow of $52 million to $66 million, representing a 47% increase at the midpoint compared.

'twenty levels.

Our expectation for full year, 'twenty, 'twenty, 1 and free cash flow is $40 million to $50 million or 57% above 2020 levels at the midpoint.

Our financial performance and the first 6 months of 2021 together with our expectation for continued improvement in business and.

Activity and the second half of 2021 led us to increase our guidance range for full year gross profit by 27 and $5 million at the midpoint with a range of $170 million to a $185 million as mark discussed with that I'll turn the call back over to Mark for his closing remarks.

Hey.

And to 'twenty, Chris our improving outlook demand trends and flexible cost structure position us well to benefit from the pickup and travel and their return to the office both of which are expected to gather steam later in the year, we worked hard to support our clients as they navigated this challenging environment and we will continue to support them in any way that they need.

And our clients have appreciated our flexibility and our strong service levels. We delivered at a time when many of our competitors were far less focused and we expect to see additional business opportunities and expanded scopes given that we have proven our ability to deliver.

While there continue to be some concerns about the economic impact of the Delta variant where.

Confident that will continue to benefit from better business conditions, and the second half of the year and beyond.

Operator, I'd now like to open the call up for questions.

Thank you as a reminder to ask a question press star 1 on.

And your telephone keypad again, just fresh start and then the number of line on your telephone keypad and do we draw. Your question. This question and Keith Please.

Please standby, while we compile the Q&A roster.

Okay.

Our first question comes from the line of Daniel Moore of CJS Securities.

Sir your line is open.

Mark Chris Good afternoon.

Yes.

Thank you afternoon.

Obviously pretty significant progress once again this quarter.

Pre pandemic EBITDA was running just under $30 million and quarter and already back to $24 million.

So obviously really good progress.

And there's still some uncertainty among investors just in terms of.

And what profitability would look like.

When we look at let's say fully open back up or under kind of a 2019 condition. So.

And the contract revisions as well as the share gains.

That you've made.

If we were back in 2019 levels what would kind.

EBITDA look like relative to our 2019 operating condition forward EBITDA look like and.

And that scenario.

A quick question, but just even qualitatively would be helpful.

Sure I think or are Youre, right and what you are saying Dan we.

<unk> got a lot of changes during the pandemic, we renegotiated a lot of deals.

Deals were converted from leases to management and some lease terms were changed to try to eliminate minimum guarantees, but as we look forward at the business and of course, we have had strong new business during the pandemic as well and our expertise.

Spectation is that wind conditions in other words mobility conditions when people are resuming their normal pre pandemic lives. The company would we would expect it to be back to pre pandemic EBITDA or greater so I don't think theres anything structural that's happened that would.

Preclude debt 1 thing we have said previously.

And I think that's still true to certain extent is that because we did restructure some deals.

It may take us a little longer to get to pre pandemic gross profit and to get to pre pandemic EBITDA and that's why Chris and others here and so focused on taking structural costs out of the business. So that we can resume.

Pete pandemic EBITDA once.

Business activity, and commercial and consumer mobility and returns to pre pandemic levels.

That's super helpful.

Just housekeeping were there any cost concessions and the gross profit numbers this quarter similar to Q1.

Yes.

We did have some cost concessions.

Yeah, and I think if you look at it.

Currently the cost concessions as a.

And the dollar amount and certainly reducing and I think if you go back to Q1, we would've reported $18.4 million or so.

Of cost concessions, if you look at.

If you look at Q2 that number has certainly gone down I'd say, it's just over $10 million about $10.3 million in terms of cost concessions going through <unk>.

Gross profit so we are seeing those cost concessions reduce.

The good news with that is that revenue is increasing which is allowing us to be able to release some of those cost concessions. So it's it's certainly a good story.

To see the revenue go up and it's somewhat of a good story to see those cost concessions go down.

No doubt.

Just in terms of the lease portfolio, where would you say capacity utilization is today.

Lease locations compared to pre pandemic, how is that performing.

There is a hard thing to generalize around given that we have so many hundreds of leases, we're certainly seeing strong parking.

And demand and a lot of markets as people have been reluctant to get on the mass transit or back into ride sharing and I think we've said this before and this is a trend that has continued at certain day parts at certain locations. We're seeing transient volume Thats people, just showing up the park that are greater than 2019.

<unk> levels, I think that's happening more and more places but.

Sure.

As a business.

If we start to see capacity, reaching the point, where we would have to put full signs out there, it's usually and opportunity to put up parking rates and so 1 of the things that we've been doing and this immediate recovery period of.

The pandemic is ensuring that we've got the supply demand right and we're putting up rates, where theres an opportunity to do so.

Excellent last 1 from me I'll hand, it over but.

Certainly sounds very encouraging.

Agreement and with Hawaiian Airlines and it sounds like you've got dialogues with other airlines and.

And our airport customers and the Hopper.

Is it the accelerated spike in demand for air travel.

Is that your.

Your message resonating.

A little bit more with new potential new customers.

And if you just talked about.

I guess, the marketing side of it versus.

And it's just the.

And the macro side of it and any color around some of those new.

New deal I guess, we'll have to wait to hear them, but certainly sounds encouraging.

Great. Thanks, Good question, Dan I think everyone probably knows pre pandemic Biggs provide a number of services.

As for leisure travelers and they're tied either 2 airports or resorts or cruise travel and so clearly the services. They provided traditionally around airports, which was the delayed luggage delivery, where they deliver delayed luggage for 17 airlines and over 13 market those services are ramping.

And backup as more and more.

Luggage is delayed and I think we'll see that ramp up even further once the airlines resumed their sort of hub and spoke network. During this immediate period and a lot of the airlines have gone and more point to point, and which tends to keep demand for or.

The delay.

And those delays of luggage to be lower than it would be in normal times, let me say it that way.

But what we also found and we've talked about this at the time, we acquired bags, there's a need to reduce congestion and the terminal and it may be congestion at the counters that may be congestion at the TSA lines or maybe.

Congestion at the curb as people are loading unloading and begs has traditionally provided outsource skycap services for some airlines, but with their proprietary multi year line tool. They are able to check in passengers from any 1 of 7 airlines using 1 terminal and net and net tool.

We were pitching to all of the SP plus airport clients pre pandemic as a way to alleviate congestion and the airport terminals and we had a number of airports ready to go as the pandemic started to unfold.

And we went through the pandemic period based leadership teams started.

Thinking a little bit about that tool and those capabilities and say well why don't we as airlines are looking to be cost conscious maybe more so than pre pandemic and airports are also facing cost pressures because of the pandemic, maybe we could offer up a consumer pay model for that same service and.

And that's with the curbside concierge product is that we talked about and our remarks.

Which we tested it.

After the Super Bowl and Tampa for 1 day with a few airlines that worked very very well and as a result of that 1 airline and soon and I think other airlines are going to pick that up and enable.

And sort of roll that out and many many markets throughout the country and I think debt that represents an opportunity not only to recover more quickly.

And then maybe it would have happened otherwise, but also for bags to take market share away from some of the people that we're providing the traditional sky cab services because.

Because this would be a replacement for those services. So we're very excited about the early prospects, particularly as we talked in our remarks, the consumer acceptance of this and their willingness to and.

Eagerness to use debt service going forward and and even if people felt more comfortable being back in the terminal because of Covid.

Wanes and dissipates later, you still can't be getting rid of your luggage outside the terminal and now you are free to get in their move about go and the shops and relax before your flight and so we think that it really fills an important niche that consumers are looking for as they seek to travel with less friction.

Great and my question was a little bit.

And as the color I was looking for I will circle back and jump back in queue with any follow ups. Thanks.

Thank you.

Thank you. Our next question comes from the line of Steve Rooney from William Blair. Sir Your line is open.

Martin Good afternoon congrats on.

And a nice quarter. Thank you. Thank you.

So couple of questions here first on the guide so the midpoint of your guide.

I think implies about $91 million and gross profit for the second half of the year.

Which is up about 5% versus the first half of 2021.

And I think it's great that you guys raised the guide here, but I'm wondering why you'd only expect a 5% improvement and the second half of the year over the first half when folks are expected to start going back to work. After the labor day weekend is there just some conservatism and the numbers here as you take a wait and see approach.

Approach or are there other considerations debt.

I should be taking into account.

I don't know if there is conservatism in there.

Tim I think if you if you go back to Q1, we called out about $4.8 million or so and.

And concessions that really.

Q1, net but really related to last year of 2020. So I think if you pull that out I think the growth is and the second half would be closer to 11%. If you kind of pull all debt.

Concession, so still pretty robust growth in terms of expectations for.

For the back half.

And back half of the year.

That's a really good point, Chris I forgot about that sorry, Mark go ahead, no I was just.

And I see him and of course, 1 of the uncertainties and forecasting right. Now is that there has been this amazing surge and and leisure travel going on right now which is very good.

For the business because we are serving the leisure traveler and nobody knows exactly what the at leisure curve will look like I like to thank debt. We're just at the beginnings of a prolong search because everybody has a lot of pent up.

Cabin fever, and wine and get out there and do things, but we also know that normal patterns for leisure.

For example, our debt Theyre very strong and the second and third quarter, and then as schools reopen and and people go back to their kind of normal patterns and the leisure travel and sort of fades away a bit so.

It's challenging to try to overlay the pandemic recovery on top of the normal patterns of leisure travel so.

And our expectations are that there is going to be strong leisure travel but.

Range to be seen what debt paid and really looks like.

Right Yep, okay. Thanks.

Thanks, Mark Chris Hugh you mentioned.

With the previous analyst cost.

I think you said $18 million and then $10 million was that on revenue.

Well there'll be we've got there's probably 2 pieces to that some of that will go through in terms of.

Reduction and cost.

Services for our for our.

Consulting is theirs.

There is also some service concessions, which are really more I would say government quasi governmental and <unk>.

Just under the accounting rules.

<unk>.

They really are lease type contracts, but concessions go through as a reduction of revenue.

And it's.

Lease or an increase in terms of gross profit. So it's just a little bit under the accounting rules it gets into a little bit of complexity there just from.

Pointed out of 1 individual line item.

And we're going to be filing the Q here and the next couple of days and so youll see that <unk> pointed out in the footnotes.

The dollar amount for each of those components.

Thank you for clarifying that and let me just ask this a different way you had $4.8 million of cost concessions and the first quarter of 'twenty 1.

Is there any and the second quarter of 2021 that we should be taking into account here on this nice gross profit beat.

That you had and the second quarter.

Well when you when we when we called out the $4.8 that really related to periods that we started negotiations and 2020, but under the accounting rules until we get full resolution and we werent really able to book that so we booked it in Q1, if you look at.

Total cost concessions that we were able to get.

Q1 had about $18.4 million and total cost concessions and then Q2, we have about $10.4 million. So we've seen some reduction and the total cost concessions that have gone through from a gross profit per site perspective.

Understood. Okay. Thank you.

Maybe just 1 more from me.

Within your office building clientele I've heard discussion about things like multi day passes non standard non standardized pricing structures. I mean can you talk a little bit more about what these or if youre seeing more.

And for these types of non standard arrangements as many companies transition to a hybrid working model.

Sure well, we have clearly created technology that enables all of those things and so and.

And the office building space, we're generally right.

Operating under a management agreement working for a client who is either the.

And demand owner of the property manager for the building and so generally speaking for office buildings.

And what we are able to make and management fees is not dependent on the utilization of the parking facility. The client is paying us to manage it efficiently and optimize it for to meet their objectives. So if a client wants to offer a multi.

And building gas or some other discounted parking early bird specials, which have been around for a long time.

All of our sphere technology is fully capable of providing for that but and I will say that from the point of view of people commuting.

Since suburbanites, who have not yet really.

Zoomed mass transit at the levels.

The day because of pre pandemic, I think youre seeing us and almost all the suburban rail theres still operating at very very low levels, whereas the.

And Chicago, we have the Cta for the industry itself there are running at low growth.

And roughly 50% of pre pandemic, the suburban rails, running and maybe 10% to 15% and pre pandemic. So.

So people are driving more and consequently, there and maybe not going to be there 5 days a week they don't want to pay the daily rate.

And don't want to buy monthly yet.

And so there definitely has room for incentives and and we are well equipped to do that as well as up from marketing programs to our clients to try to drive people to the properties.

Got it thank you very much.

Thanks, Tim.

Thank you and once again as a reminder to ask a question you will need to press star 1 on your telephone keypad. Our next question comes from the line of Kevin and Thank you from Barrington Research Sir Your line is open.

Hey, good afternoon.

Hi.

I just wanted to talk a little bit more about your.

Your leased portfolio and <unk>.

Obviously, the last few quarters went through.

Accelerated process of.

Free negotiation.

Exit where necessary.

Is that process ongoing is that something you are maybe backing off a little bit on and now that results are recovering or kind of what's the overall.

Date of the lease portfolio and your ability to and.

Improve upon that.

No.

Ongoing Kevin 1 of the things that we do on a regular basis as look at the performance of each of our leases it gets easier and easier for Chris and me to do that since we have fewer of them now.

But we still have 400, plus leases and our commercial division and clearly they're all.

No improvement as we come out of this pandemic period as Chris indicated we've had concessions and that helped their performance and and now that revenue is growing well.

And I'll have to stand on their own if you will.

And the concessions continue to go down and our forward basis, but long term we likely.

Leases, we want to be and leases, but as we enter into new leases or renew existing leases when and if things that we're really keenly focused on is what happens. If there is another pandemic or a resurgence of some sort of economic downturn.

And we have a way to terminate the lease early or make or make sure that.

Seeing and concessions were or provisions and the lease where it converts.

Percentage rent only and no base rent. So if we can get those types of terms.

We're entering into new leases and and because some of the other players and our industry, who traditionally done leases have.

In some cases defaulted on their lease obligations.

We have and they are not fulfill them.

That's caused some of their landlords to turn to us and say Hey, what would you be willing to do and that puts us and are positioned to say we'd be happy to work with you, but we need to have these types of provisions and our contracts. So.

Debt, that's that's sort of our go forward approach.

We have leases.

Geisha arent able to make money and and I kind of use 2019 as the benchmark. We had some that didn't make money and 2019, they are probably not going to make money and 2022 either and.

So for those leases.

Try and as always to improve the turns by renegotiation in other cases.

And those leases will come to their natural exploration, we have very few leases that have more than 5 years to go on the terms. So.

Any lease we have today that we don't like.

Is it positioned to move away from over the next few years, but I expect the company will continue to see growth and its management.

And the entre portfolio Thats, our bread and butter. That's what we are used to serving clients, but we will continue to have leases, although probably that will continue to decrease as we look ahead over the next few years.

Okay, Great that's helpful color.

I wanted to.

And can I ask you about.

And maybe an area that hasn't been mentioned and as much to list.

A few quarters here just in light of Covid, but you're.

Growth opportunities and both the.

Municipal and institutional markets and it is.

Healthcare universities.

Et cetera.

Whats the state of those opportunities as debt.

Kind of slow down.

During the pandemic in terms of the pipeline or what sort of opportunities are you seeing coming out of.

The current environment and.

And.

These particular markets.

Yes, there has been a tremendous amount of interest and the sports World I think because affects sports came to a standstill. During the pandemic now everybody is realizing that we're kind of back to normal or were rapidly moving back to normal within expectation.

Those purchasing and back to normal during the fall here and so while we continued through our SP plus Gameday division operating large events during the pandemic, we're starting to see lots of inbound requests for help from universities and and professional teams that are.

We need to help we need help planning their recovery and and return from the pandemic. So very very strong interest and the sports and venue world for either events or activities coming this fall or and the first parts of next year.

Municipalities have continued to do their they are putting.

We're saying that the bid we picked up a couple of smaller and municipal contracts over the past few months and continue to see that vertical is a very important 1 for the long haul I think municipalities and general even somewhat distracted by the pandemic and their objectives of getting the public vaccinated and keeping people safe.

And so.

Theres, maybe for those who have not yet outsourced parking and other facilities. There is there hasnt been much.

Going on there there is a.

A large university that's done a privatization exercise that will be.

Announced fairly shortly.

That we are involved and so there is <unk>.

Definitely activity I think it's probably taken a little bit of a pause during the pandemic, but we expect it to ramp back up because once again.

Institutions and the municipal space, they've got pension obligations, they've got budget challenges.

And then a surge and money coming from the federal government.

But that's not going to go on forever, and so theyre going to be back to their basic question of how can we get more value out of our assets and bringing us in our SP plus municipal services.

Into the businesses into their operations as a way for them to drive more bottom line profitability.

And the hotel area and hospitality event very very.

Active aside from working with our existing clients.

Some of whom had been shut down and others.

Debt.

We're operating at low levels, or maybe had suspended valet parking and during the pandemic.

As we indicated in our remarks, there and the process of ramping up but we've also I think the pandemic has.

Caused a number of players and hospitality to question, whether they have the right answer from the point of view of the <unk>.

Service providers, such as ourselves to provide their services and this has given us an opportunity to get in front of some of these people for the first time and to talk about what we can do with sphere technology.

<unk> many of them.

Hotels, and others have antiquated technology. They are often looking at big investments and with our sphere technology. There is an alternative for them and it doesn't involve upfront investment and so I think youll see us starting to bring on more hotels I think in the quarter.

The 81.

Commercial locations that we brought on 20 of them were hotels. So there is definitely going to see and expansion of our activities and the hospitality vertical the 1 area that I think has been somewhat dormant during the pandemic as far as the verticals. You mentioned is really health care and I think once again.

While we were.

We're very excited pre pandemic to be designated as the preferred parking operator by <unk>.

And 3 group purchasing organizations, it's been very very quiet and I think that's just a function of the fact debt to health care systems have been prioritizing.

And dealing with the pandemic and all of the implications.

And that debt head for for their employee base for their for the for people that are sick and need medical care, but I think once again, we come out and things stabilize I think that will pick up again, because there's still consolidation going on and the health care space. There is there is building and urban markets on surface parking lots and parking garages and when.

And you create the potential for congestion and and mobility friction challenges.

Where SP, plus and come in and really make a difference.

Okay, that's all mix and.

Very helpful commentary I appreciate it I'll jump back into queue. Thanks, Thanks, Kevin.

And thanks, Kevin.

Thank you. Our next question comes from the line of Marc Riddick from Sidoti Sir Your line is open.

Hi, good afternoon.

Hi, Mark.

So as always I really appreciate all the color and and information that you're providing and your answers and so I'll be I'll be brief and touch on a couple.

Couple of things.

Things around that I wanted to start maybe with you made mentioned.

And being able to ramp up with your customers. So wondering if you could give us sort of an update as to what youre seeing as far as labor.

And and.

And what those what those pressures may or may not allow it and maybe how that might try and total what youre what youre.

And from a pricing standpoint, and then I have a.

Couple of follow ups after that.

Sure.

And like most businesses that are hiring hourly workers.

We have some of the same challenges and getting people.

Clearly the labor.

Apply has been contracted by people who are.

We're not and the labor market right now whether because of concerns over the virus not having been vaccinated, yet or maybe schools aren't open and childcare issues that they have to contend with so those those kind of macro issues affect every business I think we've been.

Successful and filling the labor needs that we have.

And 1 of the parameters that we look at is how much overtime are we paying as a percentage of payroll because if we can't fill jobs than we have we have to pay overtime pay to the other people that we have so that we can get the job done and our overtime levels as a percentage of payroll are running pretty much at pre pandemic levels right now.

So that suggests that we have enough staffing in place.

And clearly as well.

Labour challenges are geographically based and some markets. It's no problem at others and others. It's a bigger challenge we've had to put up wages and some markets are or what other incentives in place.

Fortunately.

Finally, our portfolio is predominantly management contracts and so if we are having to pay higher wage rates to fill open roles and those higher rates and costs are passed on to our clients rather than absorbed by us obviously at lease locations, we have to bear those costs and as I indicated earlier in my comments.

There is an opportunity to put up parking rates and most of our markets just given the supply demand equation and so that'll be the way that we cover those increased labor costs.

Okay, Great and then I was wondering if you could maybe switch gears and and talk about certainly very strong free cash flow generation, even during the challenges.

And as the pandemic I was wondering if you talk a little bit about maybe what you're looking at from a potential.

Potential acquisition pipeline perspective, and maybe what you are maybe what your views are what the multiples are out there.

I'd say, it's probably premature for us to be back and the M&A market and and part of that Mark is that.

No.

You don't really know what our business is going to be performing like after the pandemic. We've given some indications today, where we feel that when mobility is back to pre pandemic levels, we will be performing at or above pre pandemic levels of EBITDA that may or may not be true for all of the businesses that are out there and so I think we need to see.

See how businesses stabilized and returned from the pandemic before we can be sure what's kind of a value to attach to those sort of things. So I think that's right down the road for us debt.

And being said.

Within the parking space itself.

And if something sizable from a regional and national basis would become available we would.

And certainly take a look at it but realistically.

We're having a pretty good experiences at winning business and taking things away from our competition and so I don't think we feel a strong need to do acquisitions and the parking space. So.

Something that we monitor all the time, but I don't think thats.

It's really on the horizon for the rest of this year.

Okay, and then I wanted to switch back over to the.

And the benefits and the progress that's been made around the technology as far as and new business wins, and and you touched on the marketing campaigns being part of the.

Something unfortunate winning new business as well. So wondering if you could talk a little bit about maybe if there are particular verticals that have.

And then more receptive or or or maybe it had been.

And performed a little better as far as.

Applying the technology or maybe finding new uses for the technology how.

But do I think about the.

What areas are maybe are a little more aggressive than others as far as gaining and gaining share going forward. Thank you sure yes.

They're really you can't really exclude any of the verticals because the spheres suite of capabilities is really very broad based and.

For example for our commercial office building.

And with our sphere gated solution or a sphere and gauge solutions.

You were able to eliminate the need for some of the traditional parking equipment and maybe some of the traditional cost that you might have had and that operation.

In fact, we have the dispute.

And our solution in place now and are building in Chicago, where we work and I was able to use it today for the first time and it's very slick because I drove up and on my mobile devices and the parking dot com mobile App and I was able to raise the gate I did not have to open my window or touch anything that's the future and.

Fear gauge and more efficient kind of a solution also for our commercial our multilocation property owners are whole sphere analytics suite of data and dashboards is very very appealing because they can have tremendous visibility into the performance of their assets and.

And the retail mixed use space.

Once.

So that's and people often have antiquated equipment or maybe they arent able to capture all of the revenue. They are complex transactions with validation R. R.

There may be pay and display equipment that is running near to the end of its useful life and so once again our sphere.

Once again commerce solutions are going to be appropriate and both of those and eliminate the need to make.

Upfront investments and capital and I think thats very very compelling and I was just talking to 1 of our our leaders earlier and the week about our retail mixed use center, where they had decided to spend $125000 to upgrade.

And all their equipment, because they had traditional parking meters and we said you don't need to do that.

With our <unk> solutions.

People can use their smartphone scan a QR code and PE and that has been extremely well received since we implemented debt with them and and consequently it.

It kind of feeds into another part of our strategy for growth, which is to generate transaction fees.

For ourselves off of mobile transactions.

All of our competitors.

And the technology space have built up debt sort of our model and so people are used to the idea of convenience fee or a transaction.

<unk> fee and we see the ability to generate recurring revenue streams that will benefit gross profit and give us additional growth. We've also seen a huge increase in demand for our remote management facilities as people look to control labor costs or maybe labor is hard to come by.

Our opening their minds to the idea.

That may be I don't need to be fully staffed or I don't need to be staffed and certain day parts and so I think we've added more locations to a remote management capabilities and probably in the last 12 months than in any 12 months. Since we started doing remote management and more than 10 years ago. So there's there's just everywhere you turn.

There is the ability to really drive the transformation with technology to reduce friction and Oracle is debt no matter what vertical we're talking about no matter what size of scale of the operation from something very small and it's something very complex. We are a technology solution that can improve performance.

That's very helpful. Thank you very much alright, mark.

Thank you there are no further questions in queue I am now turning the call back to Marc Baumann for final remarks.

Thank you very much and well, obviously, we're delighted with our performance and the quarter and we're hopeful that these.

These trends will continue throughout the rest of the year and we'll be having another great call with you next quarter. Thanks for joining us today.

Thank you. This concludes today's conference call you may now disconnect.

Q2 2021 SP Plus Corp Earnings Call

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