Q3 2021 SP Plus Corp Earnings Call

October 27, 2021

Good day, and thank you for standing by and welcome to the SP Plus Corporation third quarter 2021 earnings conference call. At this time all participants are in a listen only mode. After the speaker presentation. It will be a question answer session to ask a question. During the session you will need to press star one on your telephone.

If you require any further assistance please press star zero.

And I'd like to hand, the conference over Cheeseburger today, Kristopher Roy Chief Financial Officer. Please go ahead.

Thank you Victor and good afternoon, everyone as Victor just said I'm Kristopher Roy Chief Financial Officer of SP, plus welcome to our conference call. Following the release of our third quarter 2021 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 and expectations for 2021 and statements regarding the company's strategies plans intentions future operations and expected 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 incorporated by reference for purposes of this call and available on the SP plus <unk>.

And the risk factors in 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 there.

They are provided for informational purposes only.

A full reconciliation of non-GAAP financial measures to comparable GAAP financial measures were presented in the tables accompanying 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 in the investor.

Our 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 after the end of the call and will be available for 30 days from today I.

I will now turn the call over to Marc Baumann, our chairman and Chief Executive Officer.

Hey, Thank you Chris and good afternoon, everybody. We're pleased to report on SP Plus's strong third quarter results. Our performance continues to track the ongoing recovery in business conditions and benefits from our streamline cost structure, specifically the progressive reopening of the economy consumer preferences for <unk>.

Driving their personal vehicles versus mass transit and rideshare options and improving air travel and hotel occupancy have all led to a broad based uplift in demand for our services third quarter. Adjusted gross profit reached 84% of what it was in the comparable quarter of 2019, which we see as a strong showing.

Given that parking activity at our same locations as well as overall air travel and hotel occupancy rates remained lower than what it was at this time two years ago pre pandemic.

Results for the quarter benefited from a reduced cost structure with adjusted G&A costs, 20% below third quarter 2019 levels.

The net result of substantial growth in adjusted EBITDA, which was up 18% on a sequential basis.

As demand for our services continues to increase you can expect to see our G&A increase but we believe much of the cost reduction is sustainable and we expect to continue to leverage G&A as we grow top line gross profit.

From the onset of the pandemic, we work to reposition our portfolio restructuring or exiting certain unprofitable leases and reducing costs in our business model all while continuing to invest in our sphere technology initiatives and maintaining an organization that we believe is well positioned for the recovery that is currently under.

Wei.

With an improved value proposition for our clients the proven ability to start up new locations quickly and our industry, leading technology offerings, we've been able to strengthen our leadership position and win new contracts in both our commercial and aviation segments. We believe this points to share gains for SP, plus that will support future.

Long term growth.

In our commercial segment, we began servicing 69 new locations during the third quarter. This success has been a function of SP plus his track record of providing superior service and offering innovative technology solutions and we believe that some of our competitors have not performed up to expectations.

Given how we have helped our clients navigate during the pandemic together with our financial stability and our award winning innovations. We believe that owners now see us as the provider of choice versus other competitors, who they may have considered in the past.

We're particularly pleased to have recently commenced operations at the University of Toledo under its public private partnership Park, you Toledo SP plus is responsible for day to day parking management customer service and maintenance for 66 surface lots, representing more than 10000 spaces and just to clarify given.

We commenced operations in October these locations are not included in the 69, new Q3 locations that I just referenced.

With the success of this P. Three we believe there will be renewed enthusiasm for public private partnerships, particularly in higher education.

Complementing robust new business growth in the commercial segment location retention was also strong at approximately 91% for the 12 months ended September 32021.

Our commercial segment continues to recover nicely and see its share of new wins or recovery in the office vertical has been slow we've seen gross profit returned to or even exceed pre pandemic levels at residential locations is more people who purchased cars for the first time during the pandemic.

Gross profit at healthcare and large venue locations have also recover to or near pre pandemic levels.

Many of our new commercial wins were a direct result of our technology offerings and solutions as clients recognize that technology can solve some of the challenges, resulting from a tightening labor market and as wage inflation has enhanced the return on investment of our technology products, we can offer new clients attractive solutions that reduced staffing.

Needs, while boosting their bottom line and generating a healthy return for SP plus a win win all around.

Turning to aviation since July TSA passenger screenings had been running at about 75% to 80% of 2019 levels, suggesting significant additional recovery potential our market position continues to grow and has been further enhanced by our recent contract wins, including the parking and shuttle operations at both <unk>.

Again National and Dulles International Airport, which started October one and cover 32000 parking spaces in 55 shuttle buses.

We've also added valet parking services at our existing Sonoma County Airport operation and Curbside management at San Francisco International Airport, where we provide parking and other services last quarter, we spoke about our curbside concierge program, which combines bags service offering with spheres mobile point of sale system.

To allow us to check in passengers on multiple airlines for a modest service fee. Since we launched this new service in May we've rolled out 'twenty curbside concierge locations for one airline client and expect to expand to another 20 airports by year end. Additionally, we are in discussions with several other airlines given the.

Our interest in reducing airport terminal congestion and improving customer experiences all the while reducing their operating costs.

We continue to rapidly deploy our technology offerings and to that end. We now have 412 facilities operating with our on demand gateway solution.

Expect that we will have at least 450 locations up and running by the end of the year.

Deployment of our on demand gated solution is just starting to ramp up and we currently have 119 locations either fully installed or pending installation closing in on our goal of 150 by year end.

As a result of the deployment of these gated and gateway solutions as well as increased reservation activity third quarter 2021 transactions on parking Dot com was up 50% over Q2 of this year. The transaction growth was even greater on our mobile point of sale platforms, which is up 200% in the third quarter over Q.

Two.

I am pleased to note that SP plus was honored to be recognized as the innovative organization of the year by the National parking Association, a leading industry group that counts numerous parking operators and other mobility technology solution providers as its members. This award was in large part a function of their recognition of the <unk>.

<unk> and sophistication of our sphere brand of technology products and solutions. In addition to strengthening our ability to win new business and to add incremental services for existing clients sphere also enables us to reduce our costs as well as capture transaction fees that were previously being earned by an outside provider.

We'll continue to invest in technology offerings that positioned SP, plus at the forefront for new and incremental business.

Lastly, we expect our full year gross profit in 2021 to be at the high end of our guidance range of $170 million to $185 million and we expect our G&A costs to be at the lower end of the $85 million to $90 million range. In addition, we're uplifting our operating cash flow and free cash flow guidance ranges.

By $10 million, which Chris will discuss more fully in a few minutes. We're very pleased with our performance to date in 2021, and we're looking forward to further recovery and overall growth in 2022, as we hopefully put the pandemic behind us see clients ramping up our service levels and outsourcing more to us and continue to capture new <unk>.

<unk> opportunities I am now going to turn the call over to Chris for a financial review of the quarter.

Thank you Mark remember my remarks today will cover adjusted third quarter 2021 results.

So update you on our expectations going forward based on the business developments and trends that Mark shared with you just a moment ago.

For those who are listening to our call for the first time, you can find our GAAP results and a full reconciliation of all non-GAAP measures to GAAP measures in our earnings release issued earlier this afternoon.

Third quarter 2021, adjusted gross profit improved sequentially and year over year to $49 5 million.

The 7% increase sequentially and a 17% increase year over year.

Just a reminder, that the third quarter 2020 number included a $5 $6 million benefit from an early termination fee related to certain aviation contracts.

Mark spoke about the overall improving business conditions and our performance definitely reflects staff.

Adjusted G&A expenses for the third quarter of 2021 or $28 million compared to $15 5 million in the year ago quarter.

This 34% increase year over year was due to a number of reasons, but mainly once our business started to recover we restored the base salaries that were reduced at the onset of the COVID-19 crisis.

In addition performance based and long term compensation, which was not a factor in 2020 is back to more normalized levels.

If we compare this year's third quarter adjusted G&A to the pre pandemic third quarter of 2019, it is 20% below those levels.

While we believe a large portion of these cost savings are sustainable we do expect that G&A will increase as we support and invest in our growing business activity.

Additionally, we are very pleased to report strong third quarter and year to date cash from operations and free cash flow.

In the first nine months of 2021, the company generated $30 $1 million in cash from operations and free cash flow of $21 million compared.

Compared to $27 9 million and $18 9 million, respectively, a year ago.

2021 third quarter operating cash flow was $6 8 million.

And free cash flow was $3 $9 million.

This quarters cash flows reflect the payment of $15 9 million for 2020 payroll taxes that were deferred as part of the cares Act.

As Mark already stated based on our financial performance to date and our outlook for business trends going forward.

Our uplifting our full year 2021, operating cash flow and free cash flow guidance ranges for both measures by $10 million.

To be exact operating cash flow is now expected to be in the range of <unk> $62 million to $76 million.

<unk>, 72% increase at the midpoint compared to 2020 levels free.

Free cash flow is now expected to be in the range of $50 million to $60 million or <unk>, 92% above 2020 levels at the midpoint.

Embedded in our forecast is the expectation that we will collect a $20 million income tax refund in the fourth quarter of 2021.

The majority of which was contemplated when we provided our original full year guidance. So the increase in cash flow expectations is truly a function of our business conditions improving.

With that I'll turn the call back over to the operator to begin the Q&A session. Operator, we are now ready for Q&A.

As a reminder to ask a question you will need to press star one telephone.

To withdraw your question Jess.

Okay.

Once again questions one more questions.

Our first question will come from the line of Tim Mulrooney from William Blair You may begin.

Mark Chris Good afternoon.

Tim Hey, Tim.

So.

First question your implied guidance.

For gross profit I guess your guidance implies gross profit would be kind.

Kind of flattish sequentially from the third quarter to the fourth quarter, and EBITDA, maybe down a little bit sequentially.

The economy is still recovering so I would've thought there'd be some sequential improvement, but then I thought.

Maybe there might be some seasonality with the holidays or other mitigating circumstances.

That you might be able to highlight for us.

Yes, Tim This is Chris I think if you look at just the base business kind of pre Covid I would say that a large majority of our seasonality happens in both the first quarter and the fourth quarter. So I think as you look at the business in terms of performance for Q4, certainly you have some recovery.

That's happening, but you also have some seasonality thats offsetting that so I think youre going to as you look at the implied.

Both gross profit and G&A I think both of those factors have been contemplated as we as we've looked at our full year guidance.

Okay, that's what I suspected thanks, Chris and just one more from me.

More than labor inflation. Some of my services companies are highlighting labor availability is one of their primary concerns right. Now is this also the case for you guys or is it less of an issue as you continue to integrate automated technology in your facilities.

Well I think most like most companies that have hourly workers.

There has been challenges in filling open positions and were certainly no exception to that but I would say it has not inhibited our business and our ability to deliver our results. So.

We have open positions that.

The shortages that are going on now as I indicated in my remarks, there is an opportunity to introduce automation and maybe reduce the need for filling some of those open positions and certainly that is going on now, but I would say also that we have to recognize is that in many cases, we're going to have to put up labor rates in order to be able to attract.

And particularly in jobs that.

As bus drivers and valet attendants in other jobs that where automation can really be a factor and as we do that.

Our goal is clearly to.

To recover those increased costs and we've been able to do that so far either in the case of lease locations, where we're putting up parking rates on our own behalf and then at management locations. Those increased costs are going to be passed on to our client base for the most part so I think it is.

A challenge for most businesses right now, but we feel like we're navigating through it pretty well.

Great. Thanks for taking my questions.

Our next question comes from the line of Daniel Moore from CJS Securities You may begin.

Thanks, Mark Thanks, Chris Good afternoon.

Again.

So let me start with this might be a little squishy, but.

With gross profit approaching 85% of pre pandemic levels talk about the areas of your business that are still in that reopening phase I'm thinking of bags, specifically and maybe some of the lease agreements you mentioned.

Type locations, just what would it take in terms of the macro environment to get back to the 100% of pre pandemic gross profit levels.

Well I think if we look at our segments and talk maybe first about our commercial segment, which is everything besides airports in bags.

As I indicated a number of our verticals are back to pre pandemic levels now.

And they are the ones that you might imagine they would be we've touched on a couple of them in the comments, but residential in particular in large venues I think sporting events and other large activities like data pretty much resume sort of normal levels of activity.

Office buildings are lagging and certainly while hotels are growing constantly and we've added a number of new hotel clients during the quarter.

They are still not back to pre pandemic levels. So there is a few verticals like that that are still have a ways to come back in the commercial segment and I think clearly getting people into the offices and not full time, but.

On a hybrid schedule will definitely help and I think I think as people travel more both both.

Both business travel and also leisure travel, we're going to start to see those hotels fill up turning over to the aviation segment.

It's really a function of the level of travel that's going on.

I referenced the TSA numbers.

Clearly there has been.

The strong rebound in the summer with leisure travel that has fallen back a little bit as people have gone back to school, but not fallen back relative to 2019, so while theres less leisure travel going on now.

The relationship to 2019 is pretty much the same as it was.

Was.

Was earlier a couple of months ago business travel is lagging has not come back now in our business.

<unk> are more focused towards leisure travel and that's really what it's going to take for the bags business to come back fully user a sustained rebound in leisure travel I think the good news is that airlines are really excited about the fourth quarter. They are putting on capacity and expecting people to really want to make those re connections over the Holly.

It is with family members or maybe get go someplace warm if theyre in a colder climates. So I think we'll continue to see improved recovery in the in the aviation segment, but.

There's a ways to go before travel has returned to the levels that it was in 2019 and I think thats really what we need to see to get our own business back to 2019 levels.

Therefore.

The comments around G&A.

When we do get back to more of a full reopening whatever that looks like.

How do we think about a reasonable quarterly or annual run rate for G&A.

I would say COVID-19.

Chris I think it's probably a little early to give kind of the full perspective around that certainly were.

We've taken a lot of costs out of the business.

Structurally as we've looked at processes.

And really try to drive some incremental cost out of the business I think as you look at.

Some of the investments, we're making on the growth of the business not just.

Around this fair technology, but around business development activities and the like I think it's probably just a little early let us kind of frame that up as we kind of go through our budgeting season, and I think we'll be able to give you a little more perspective on that as we announce our fourth quarter results in our <unk>.

<unk> 'twenty two guidance.

Got it safe to assume based on the structural changes you've made and alluded to that it would be below 2019 levels.

I think I think that's the case I mean, I don't want to commit to kind of how how much that is but I think yes.

Pectase would be that.

<unk> G&A would certainly be less in 2019 G&A.

Perfect and lastly.

Obviously, you've done a ton of work over the last 18 months renegotiating leases and contracts.

Temporary and permanent basis.

At this stage based on the path to reopening.

Where are you what percentage of your agreements or where you would like them to be and I'm just trying to get a sense. If there are more as there's more work to be done or maybe you might even benefit from.

Some lingering underperforming contracts expiring are rolling off in the next year or so thank you sure. Yes, I think were principally done with renegotiating deals that being said.

We have a large portfolio of leases, it's over 400 leases and many are performing very well and certainly there are there are quite a few that are back to 2019 levels or or beyond and then we have some that are underperforming still and some of that is because of COVID-19 and some of it is because of other factors that affect that location.

So those will continue to get our attention and if we can find ways to improve their performance either by renegotiating or.

Their cases, driving our sphere technology platform through those lease locations to take costs out or become drive more revenue, we're going to be doing all of those things. So I don't think youre going to see a radical change in our lease count as we go forward we've talked before about the fact that we were more than willing to do leases.

Not willing to do leases that have long terms in no way out of them. We have been very very prudent in the leases we have entered into over the past 18 months to try to make sure that we have the flexibility that we need so.

We've got the portfolio.

In a good place.

Talked before about the fact that the remaining term on our lease portfolio is.

Between five and seven years and so during that time period for.

For the most part they are all going to burn off and if we have any there that are underperforming and that we haven't been able to fix theyre going to drop away for sure.

Alright, thanks for the color I'll jump back with any follow ups alright, Dan. Thank you. Thanks, Dan.

And as a reminder, star one for a question Star one.

The next question will come from the line of migrating from Sidoti you may begin.

Hi, good evening.

Hey, Hi, Mark.

So I wanted to circle back on one of the things you mentioned in your prepared remarks, which was around.

Wage inflation and how it might.

If I heard it correctly might be helping to sort of.

Ill put forward some of the benefits of the sphere offerings I was hoping you could put a little more on that because it seems as though something that would make sense. If you could talk a little bit about that and how that might be a driver for technology service.

Breakthrough going forward.

Sure well I think if you.

If you look at some of the sphere capabilities.

Many cases, we are enabling a low friction.

Using your mobile device to conduct your entire transactions. So you are not in we don't have to roll down the window of your car. When you are entering their parking facility you don't have to roll down the window and interact with the cashier when you are leaving.

So the increased penetration of those type of capabilities.

Reduce the need for cashiers, there's just no doubt about that the other thing is is that we have productivity needs that we have to manage we have to manage people pushing wheelchairs, we'd have to manage valet attendants, who are putting cars away and getting cars out for customers. We have to manage bus drivers and know where they're at and what there were there were there.

Where they are in their routes and so to the extent that we can deploy technology, we can improve the productivity of those people, even though those are not jobs that really could be replaced by automation. We can still help the people that are in those jobs, even more productive and clearly.

As I indicated in one of the earlier questions.

In some cases, we have to put up wages I mean, there's just no way around that and we're competing in a marketplace for hourly workers with other with other organizations and that's as part of this feature of our business and Thats why.

Particularly we like our business model, which is predominantly management contracts, where those costs are passed on to clients.

Right right and I was wondering if you could just swing back a little bit around.

I appreciate it I think one of the earlier questions surrounding around the timing of the.

Spending on technology offerings and going into the budgetary process. I was wondering if you can talk a little bit about maybe the scope of what you're looking at now versus maybe the beginning of the year are you getting the sense that some of the technology offerings that have been well received by customers who are then driven new sales what have you is that <unk>.

<unk> during the course of the year is along the lines of what you may be thought win when sphere was first introduced.

Well I think some aspects of sphere here I have been in place for a while like for example sphere remote where we can remotely manage facilities and we're now up to over 500 locations on sphere remote and that's up substantially at least 20% during the pandemic and so we'll continue to see demand from clients who.

We're saying you know what I don't need to have staff at the facility, particularly at off hours nights and weekends, that's a cost saving it reduces the pressure on labor availability as well. So we expect that will continue to grow.

It's a sizable number of locations, but theres a lot more that we can go out and generally speaking when we bring that service and we are.

Continuing to earn our typical management fee from a client and this is this becomes an additive service that we're providing now.

Some of the other.

Some of the other things we've talked about the sphere gateway solution as we indicated we're in the 400 range in terms of locations and those are primarily going to go into surface slots in places that have not hit revenue control equipment.

And there are still many many more locations to go clearly we've been focused on making sure that if their lease locations, we deploy that technology, but with management clients, we have to work with them.

To enable those capabilities. So there is still I think quite a bit of deployment that will youll see us engaging in over the next 12 months, but at the same time, we're not standing still we're looking at the capabilities with sphere and what are the what functionality do we want to add to it.

So that it can become really the parking lot com can be the airport choice for people that are looking for places to park.

And then.

The last thing for me I wanted to just if we could circle.

It could come up with two but maybe I'll see if I could fit it in.

You made mention of public private.

The partnership activity and I was wondering if there was anything in particular, maybe it's a function of timing or.

The timing of customers coming out of.

The pandemic and being in a better position to do these things or I was wondering if there was anything in particular that you saw more recently that was driving greater activity and or interest.

For that to be the callout sure well I think if you look back at the history of people, let's just call it privatizing parking.

There haven't been that many case studies, maybe theres a dozen over the last 20 years and some have worked out okay and there've been some that haven't worked out so well in the Chicago meters get talked about a lot is being having been one that didn't really work for the taxpayers in and was really maybe not the <unk>.

Way to structure a deal like that so when those things happen everybody sort of backs away and they sort of wait to see whether theres, a better structure or or someone who wants to try a new idea, but the underlying pressures that local government has if they're operating their own parking or universities have two <unk>.

The cost savings to find additional services sources of revenue to find ways of optimizing assets.

Those are still there and in fact, they're building I mean, we all read about pension obligation is growing and the like and so I think there's a need for it and a demand for it and there is no doubt that any institution, whether it's local government or university.

Who would want to go down this path is going to find is going to have the opportunity to get some additional cash infusion right out of the chute not provided by us, but by the financial player who is doing there Pete Pete P to P. Three with US and then get optimize performance. That's the part that SP plus provides we opted.

The performance of those operations to generate ongoing cash flow. So I just think that there's a strong case, but we need to see a few successes in the marketplace and thats what gets people comfortable that theyre not taking too.

Too big of a chance when they go down these pads. So I think the demand is there I think the success hopefully <unk> will become a wonderful case study of what to do and how to make it work and then we'll see others coming along over the next many months.

Sounds good thank you very much.

Thank you.

And our next question comes from the line of Kevin Spanky Barrington Research you may begin.

Hey, good afternoon.

So.

You clearly highlighted.

Some of that.

New business momentum.

In the aviation segment.

You also mentioned in.

The earnings release that you are currently in final renewal negotiations with two major airports.

This is meant to indicate that you feel like youre going to close those are kind of what.

What are the status what is the status of that those two negotiations right now.

I would say in general Kevin or a retention rate with our airport group is the highest it's really the highest part of our business.

We don't always retain everything, but we generally do much more so than in our business in general. So I think we're just indicating that we have a couple of nice legacy deals that we're getting we're in the completion stages of renewing will probably be talking about before long, but our main focus for new business is obviously on <unk>.

Winning new opportunities and we talked about some of those in and that can be a completely new opportunities such as the parking and shuttle that Reagan in dollars. So it can be additional services.

We've operated the parking at San Francisco Airport for quite some time, we've renewed it many times over the years, but the curb fund management was provided by one of our competitors. So our ability to win that contract really enhances the scope of what we're doing and we're looking around.

At our current airport portfolio, where we are now running more airports than we ever have in the history of the company. So we are we have continued to add airport locations and we're looking for opportunities for us to bid on services provided by our competitors at those airports that we already operate.

Some form of parking or other management, because obviously the clients are already familiar with us.

And we view us as a qualified bidder and that being said we're also.

Watching.

Bid lists for new opportunities and we will continue to go after new airport operations and I think I think we have plenty of them out there that we could go out.

Go out and take particularly because what we're hearing from airport clients that are choosing us is that our digital marketing programs, our technology under the sphere brand of technology really offering something that's unique and differentiated in the marketplace and thats why they are making those decisions to switch to SP plus from their current opera.

Peter.

Okay, that's good to hear.

So.

<unk> mentioned in your comments.

Through parking dotcom youre seeing.

Nice growth in the number of transactions there.

Youre, capturing some fees that might have otherwise gone to third parties in the past.

What do you view is.

Kind of the role of the third party Aggregators in your business model going forward I mean is it.

We continue to be a piece of your toolkit or.

Are you going to just continue to displace.

That model or just any thoughts on what that looks like longer term.

Sure.

I go to their let me clarify one thing so when we talk about lower fees, its really not lower fees to those type of players we're talking about.

Technology partners that we have relied on to build out our platform of capabilities that supported parking dot com and what we have.

<unk> are opportunities for us to bring some of those capabilities in house to enter into new arrangements with with new third parties that maybe can provide a better service or more cost effective service and in the case of transactions and parking dot com.

Through the what the sphere <unk> gateway solutions to assess a transaction fee to the parking person the customer and so those fees. So we are generating both revenue new revenue streams from the monetization of those capabilities, but also reduce.

The costs of providing.

The operating those platforms by making some changes in the third parties or in some cases, bringing in house.

That's that's a key focus for us as we invest in technology is to capture costs that would have been going to others or capture an additional income stream from people parking their vehicles. If we can do so and that's not unique to us. Other people are doing the same thing. So I think people parking recognize it paying a modest.

Ski.

We have some technology, enabling their low friction transaction is a worthwhile tradeoff as far as Aggregators, we have built out our own capabilities too.

Identify.

All of the places that we are selling parking and so at a given facility. We are selling parking obviously on the ramp we're selling parking monthly parkers, we are selling parking to our parking dot com.

Mobile App and we're selling parking in many cases through Aggregators and those are all useful channels now.

Anybody who looks at channel management would realize some channels are more profitable than others. Some some are some can have higher costs and some have lower cost and so our digital tools that we've built to enable us to allocate inventory with the view that we will optimize revenue and.

We're going to optimize revenue at least steps for our benefit if we're optimizing revenue management location thats for the clients' benefit and so if allocating some inventory to an aggregator is part of the equation of optimizing revenue for our facilities and then we will be doing that if if not allocating inventory to in aggregate.

<unk> it doesn't that doesn't make sense, then we're not going to do that and that's that's not a change but our digital analytics team has really put in place the tools to enable us to make those decisions using data and analytics and we share that with our clients. So that they can see the decisions and recommendations that need to be made around that.

Sorts of allocation to various channels.

Okay. Okay got it thanks for the color and the clarification there.

Just lastly.

Obviously.

The pandemic has changed a lot of things recently in.

Kind of thrown a wrench in your growth trajectory temporarily.

Obviously things bouncing back now but.

When we think about the business longer term I don't know, if you've had a chance to revisit or rethink.

Your longer term targets, you had kind of pre pandemic I've been talking about the 3% to 4% long term gross profit.

Target.

That something we should.

Still think of as valid longer term or is it kind of too early for you too.

Think about that as just kind of managing what's going on with the pandemic here.

Yes, well I think.

My view on this has been fairly consistent.

The pandemic when we when I went out with and I think it was 3% to 5% with sort of our long term growth objective for gross profit and we talked about that pre pandemic.

And in fact.

And then in 2019, we actually exceeded the top of that range and some people are saying well maybe now is the time you raise it up and I'm like well, it's a long term objective and some years, we will be above that range and other years will be in that range now clearly right now we're in a recovery to get back to where we were in 2019, which was there.

A record year for the company on.

Virtually all financial measures. So that's our that we should be able to grow faster than that until we get back to that level, but ultimately for the long term my view Hasnt changed at all I think thats sustainable that means growing faster than the CPI. It means and to do that we need to increase our penetration of services with our existing.

Base, we need to.

Our existing clients to give us new locations as they become more and more comfortable with us and they see the benefits of our technology offerings, and we need to capture market share from other players and continue to rollout new services through our technology umbrella that enabled us to capture income streams like what I was speaking about a few.

Minutes ago so.

Don't see why we couldn't.

That is unrealistic expectation and I don't think depend I think has really changed anything pre pandemic people that are going from ADP, whether it's in a car or a bus or at an airport.

We want to reduce friction they don't like congestion they don't like to interact with other people to get a transaction done they want to use their mobile device for everything and we have put technology at the center of our entire ecosystem as a company and we've accelerated that by continuing to invest in these things during the pandemic and I.

When when some of the concerns and fears around social distancing.

We'll go away ultimately people are still back too.

But a low friction experience when I am.

Going from a to B and so I think we're well poised to take advantage of that and Theres. No reason why we can't grow with those sort of levels over the long haul.

Okay fantastic. Thanks, that's all I had.

Okay, Kevin Thank you.

Thank you I'm not showing any further questions in the queue I'd like to turn the call over to mothball them and for any closing remarks.

Victor and thanks to all of you for joining US today, obviously, we're we're thrilled about how the year is panning out for US things are certainly a lot better and looking brighter than they did early in the year. When we when we set out on the journey of 2021. So anyway. Thank you again for being here today and your interest in us and we'll look forward to <unk>.

To you next time.

This concludes today's conference call. Thank you for participating.

You may now disconnect.

Okay.

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Good day, and thank you for standing by welcome too.

The SP plus Corporation third quarter 2021 earnings conference call. At this time, all participants are in a listen only mode. After the speaker presentation. It will be a question answer session to ask a question. During the session you will need to press star one on your telephone if you require any further assistance. Please press star zero.

I would now like to hand, the call over to your speaker today Kristopher Roy Chief Financial Officer. Please go ahead.

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

Welcome to our conference call following the release of our third quarter 2021 earnings.

Hi.

And the risk factors in 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.

They are provided for informational purposes only.

A full reconciliation of non-GAAP financial measures to comparable GAAP financial measures were presented in the tables accompanying the earnings release today.

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 in the Investor Relations section of the SP plus website.

Please note this call is being broadcast live over the Internet and is being recorded a replay will be available on the SP plus website. Shortly after that 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.

Hey, Thank you Chris and good afternoon, everybody. We're pleased to report on SP, plus a strong third quarter results. Our performance continues to track the ongoing recovery in business conditions and benefits from our streamline cost structure, specifically the progressive reopening of the economy consumer preferences for.

Given the parking activity at our same locations as well as overall air travel and hotel occupancy rates remained lower than what it was at this time two years ago pre pandemic.

Results for the quarter benefited from a reduced cost structure with adjusted G&A cost, 20% below third quarter 2019 levels.

The net result of substantial growth in adjusted EBITDA, which was up 18% on a sequential basis.

Okay.

Long term growth.

In our commercial segment, we began servicing 69 new locations during the third quarter. This success has been a function of SP Plus's track record of providing superior service and offering innovative technology solutions and we believe that some of our competitors have not performed up to expectations given how.

We have helped our clients navigate during the pandemic together with our financial stability.

Word winning innovations, we believe that owners now see us as the provider of choice versus other competitors, who they may have considered in the past.

We commenced operations in October these locations are not included in the 69, new Q3 locations that I just referenced.

With the success of this P. III, we believe there will be renewed enthusiasm for public private partnerships, particularly in higher education.

Complementing robust new business growth in the commercial segment location retention was also strong at approximately 91% for the 12 months ended September 32021.

Our commercial segment continues to recover nicely and see its share of new wins, while recovery in the office vertical has been slow we've seen gross profit returned to or even exceed pre pandemic levels at residential locations as more people purchase cars for the first time during the pandemic.

Gross profit at healthcare and large venue locations have also recovered to near pre pandemic levels.

Can offer new clients attractive solutions that reduced staffing needs, while boosting their bottom line and generating a healthy return for SP plus.

N win all around.

Turning to aviation since July TSA passenger screenings have been running at about 75% to 80% of 2019 levels, suggesting significant additional recovery potential.

Our cash position continues to grow and has been further enhanced by our recent contract wins, including the parking and shuttle operations at both Reagan National and Dulles International Airport, which started October one and cover 32000 parking spaces 55 shuttle buses.

To allow us to checking passengers on multiple airlines from a service fee. Since we launched this new service in May we've rolled out 'twenty curbside concierge locations for one airline client and expect to expand to another 20 airports by year end. Additionally, we are in discussions with several other airlines given there.

Our interest in reducing airport terminal congestion and improving customer experiences all the while reducing their operating costs.

We continue to rapidly deploy our technology offerings and to that end. We now have 412 facilities operating with our on demand gateway solution.

Expect that we will have at least 450 locations up and running by the end of the year.

Deployment of our on demand gated solution is just starting to ramp up and we currently have 119 locations either fully installed or pending installation closing in on our goal of 150 by year end.

As a result of the deployment of these gated and gateway solutions as well as increased reservation activity third quarter 2021 transactions on parking Dot com was up 50% over Q2 of this year. The transaction growth was even greater on a mobile point of sale platforms, which is up 200% in the third quarter over Q.

Two.

I am pleased to note that SP plus was honored to be recognized as the innovative organization of the year by the National parking Association, a leading industry group the accounts numerous parking operators and other mobility technology solution providers as its members. This award was in large part a function of their recognition of the <unk>.

<unk> and sophistication of our sphere brand of technology products and solutions.

In addition to strengthening our ability to win new business and add incremental services for existing clients sphere also enables us to reduce our costs as well as capture transaction fees that were previously being earned by an outside provider.

We will continue to invest in technology offerings that positioned SP plus at the forefront for new and incremental business.

Lastly, we expect our full year gross profit in 2021 to be at the high end of our guidance range of $170 million to $185 million and we expect our G&A cost to be at the lower end of the $85 million to $90 million range. In addition, we're uplifting our operating cash flow and free cash flow guidance range.

<unk> by $10 million, which Chris will discuss more fully in a few minutes. We're very pleased with our performance to date in 2021, and we're looking forward to further recovery and overall growth in 2022, as we hopefully put the pandemic behind us see clients ramping up our service levels and outsourcing more to us and continue to care.

New business opportunities I am now going to turn the call over to Chris for a financial review of the quarter.

Thank you Mark remember my remarks today will cover adjusted third quarter 2021 results.

I'll also update you on our expectations going forward based on our business developments and trends that Mark shared with you just a moment ago.

Third quarter 2021, adjusted gross profit improved sequentially and year over year to $49 5 million.

A 7% increase sequentially and a 17% increase year over year.

Just a reminder, that the third quarter 2020 number included a $5 $6 million benefit from an early termination fee related to certain aviation contracts.

<unk> spoke about the overall improving business conditions and our performance definitely reflects staff.

Adjusted G&A expenses for the third quarter of 2021, or $20 8 million compared to $15 $5 million in the year ago quarter.

This is 34% increase year over year was due to a number of reasons, but mainly once our business started to recover we restored the base salaries that were reduced at the onset of the COVID-19 crisis.

In addition performance based and long term compensation, which was not a factor in 2020 is back to more normalized levels.

If we compare this year's third quarter adjusted G&A to the pre pandemic third quarter of 2019, it is 20% below those levels.

While we believe a large portion of these cost savings are sustainable we do expect that G&A will increase as we support and invest in our growing business activity.

Additionally, we are very pleased to report strong third quarter and year to date cash from operations and free cash flow.

In the first nine months of 2021, the company generated $30 1 million in cash from operations and free cash flow of $21 million.

Compared to $27 9 million and $18 9 million, respectively, a year ago.

<unk> 2021 third quarter operating cash flow was $6 8 million and free cash flow was $3 $9 million.

This quarters cash flows reflect the payment of $15 $9 million for 2020 payroll taxes that were deferred as part of the cares Act.

As Mark already stated based on our financial performance to date and our outlook for business trends going forward.

Our uplifting our full year 2021, operating cash flow and free cash flow guidance ranges for both measures by $10 million.

To be exact operating cash flow is now expected to be in the range of $62 million to $76 million representing.

Representing a 72% increase at the midpoint compared to 2020 levels.

Free cash flow is now expected to be in the range of $50 million to $60 million or <unk>, 92% above 2020 levels at the midpoint.

Embedded in our forecast is the expectation that we will collect a $20 million income tax refund in the fourth quarter of 2021.

The majority of which was contemplated when we provided our original full year guidance. So the increase in cash flow expectations is truly a function of our business conditions improving.

With that I'll turn the call back over to the operator to begin the Q&A session. Operator, we are now ready for Q&A.

As a reminder to ask a question you will need to press star one telephone.

And to withdraw the question just press the pound key.

Hey.

Once again.

Questions one more questions.

Our first question comes from the line of Tim Mulrooney from William Blair You may begin.

Mark Chris Good afternoon.

Hey, Tim Hey, Tim.

So.

First question your implied guidance.

For gross profit I guess your guidance implies gross profit would be.

Kind of flattish sequentially from the third quarter to the fourth quarter and EBITDA may be down a little bit sequentially.

Now the economy is still recovering so I would've thought there'd be some sequential improvement, but then I thought.

Maybe there might be some seasonality with the holidays or other mitigating circumstances.

That you might be able to highlight for us.

That's happening, but you also have some seasonality that's offsetting that so I think youre going to look at the implied.

Both gross profit and G&A I think both of those factors have been contemplated as we as we've looked at our full year guidance.

Okay, that's what I suspected thanks, Chris and just one more from me.

Well I think most like most companies that have hourly workers.

There has been challenges in filling open positions and were certainly no exception to that but I would say it has not inhibited our business and our ability to deliver our results. So if we have open positions that.

The shortages that are going on now as I indicated in my remarks, there is an opportunity to introduce automation and maybe reduce the need for filling some of those open positions and certainly that is going on now, but I would say also what we have to recognize is that in many cases, we're going to have to put up labor rates in order to be able to attract.

And particularly in jobs that.

Bus drivers and valet attendants in other jobs that were automation can't really be a factor and as we do that.

Our goal is clearly to.

Pretty well.

Great. Thanks for taking my questions.

Our next question comes from the line of Daniel Moore from CJS Securities You may begin.

Thanks, Mark Thanks, Chris Good afternoon.

Again.

So let me start with this might be a little squishy, but with gross profit approaching 85% of pre pandemic levels can you talk about the areas of your business that are still in that reopening phase I'm thinking of bags, specifically and maybe some of the lease agreements you mentioned.

Type locations, just what would it take in terms of macro environment to get back to the 100% of pre pandemic gross profit levels.

Sure well I think if we look at our segments and talk maybe first about our commercial segment, which is everything besides airports in bags.

As I indicated number of our verticals are back to pre pandemic levels now.

They are the ones that you might imagine they would be we touched on a couple of them in the comments, but residential in particular in large venues I think sporting events and other large activities like data pretty much resume sort of normal levels of activity.

It's buildings are lagging.

And certainly while hotels are growing constantly and we've added a number of new hotel clients during the quarter.

They are still not back to pre pandemic levels. So there's there's a few verticals like that that are still have a ways to come back in the commercial segment and I think clearly getting people into the offices and not full time, but.

Just on a hybrid schedule will definitely help and I think I think as people travel more both both.

Both business travel and also leisure travel, we're going to start to see those hotels fill up turning over to the aviation segment.

It's really a function of the level of travel that's going on.

I referenced the TSA numbers.

Clearly there has been a strong rebound in the summer with leisure travel that has fallen back a little bit as people have gone back to school, but not fallen back relative to 2019, so while theres less leisure travel going on now.

The relationship to 2019 is pretty much the same as it was.

Was earlier a couple of months ago business travel is lagging has not come back now in our business. We obviously are more focused towards leisure travel and thats really what its going to take for the bags business to come back fully as a sustained rebound in leisure travel I think the good news is that airlines are really.

Excited about the fourth quarter, they are putting on capacity and expecting people to really want to make those re connections over the holidays with family members or maybe get.

Go someplace warm if theyre in a colder climates. So I think we'll continue to see improved recovery in the in the aviation segment, but.

There's a ways to go before travel has returned to the levels that it was in 2019 and I think thats really what we need to see to get our own business back to 2019 levels.

Therefore, and I appreciate the comments around G&A.

When we do get back to more of a full reopening whatever that looks like.

How do we think about a reasonable quarterly or annual run rate for G&A.

I see.

This is Chris I think it's probably a little early to give kind of the full perspective around that certainly where we.

You've taken a lot of costs out of the business.

Structurally as we've looked at processes.

And really try to drive some incremental cost out of the business.

As you look at.

Some of the investments, we're making on the growth of the business not just <unk>.

'twenty two guidance.

Got it safe to assume based on the structural changes you've made and alluded to that it would be below 2019 levels.

I think I think that's the case I mean, I don't want to commit to kind of how how much that is but I think yes.

Spectation would be that.

Last year's G&A would certainly be less in 2019 G&A.

Perfect and lastly.

Obviously, you have the tunnel work over the last 18 months renegotiating leases and contracts.

Temporary and permanent basis.

At this stage based on the path of reopening.

Where are you what percentage of your agreements or where you would like them to be and I'm just trying to get a sense. If there are more theres more work to be done or maybe you might even benefit from.

Some lingering underperforming contracts expiring are rolling off in the next year or so thank you sure. Yes, I think were principally done with renegotiating deals that being said.

We have a large portfolio of leases, it's over 400 leases and many are performing very well and certainly there are there are quite a few that are back to 2019 levels are or beyond and then we have some that are underperforming still and some of that is because of COVID-19 and some of it is because of other factors that affect that location.

So those will continue to get our attention and if we can find ways to improve their performance either by renegotiating or in other cases, driving our sphere technology platform through those lease locations to take costs out or become drive more revenue, we're going to be doing all of those things. So I don't think youre going to see.

<unk>.

A radical change in our lease count as we go forward, we've talked before about the fact that we were more than willing to do leases.

Just not willing to do leases that have long terms in no way out of them. We have been very very prudent in the leases we have entered into over the past 18 months to try to make sure that we have the flexibility that we need so.

We've got the portfolio.

In a good place.

Talked before about the fact that the remaining term on our lease portfolio is.

Between five and seven years and so during that time period.

For the most part they're all going to burn off and if we haven't you there that are underperforming and that we haven't been able to fix theyre going to drop away for sure.

Alright, thanks for the color I'll jump back with any follow ups alright, Dan. Thank you. Thanks, Dan.

And as a reminder to everyone for questions Darwin.

Our next question will come from the line of Mike <unk> from Sidoti you may begin.

Hi, good evening.

Hi, Mark.

So I wanted to circle back on one of the things you mentioned in your prepared remarks, which was around.

Wage inflation and how it might.

If I, if I heard it correctly it might be helping to sort of.

Ill put forward some of the benefits of the sphere offerings I was wonder if you could put a little more on that because it seems as though something that would make sense. If you could talk a little bit about that and how that might be a driver for technology service.

Breakthrough going forward.

Sure well I think if you look at some of the sphere of capabilities.

Many cases, we're enabling a low friction.

Using your mobile device to conduct your entire transaction. So you are not in we don't have to roll down the window of your car when you're entering a parking facility you don't have to roll down the window and interact with the cashier when youre Levy and so.

Increased penetration of those type of capabilities.

<unk> reduced the need for cashiers and there's just no doubt about that the other thing is is that we have productivity needs that we have to manage we have to manage people pushing wheelchairs, we have to manage valet attendants, who are putting cars away and getting cars out for customers. We have to manage bus drivers and know where they're at and what there were there were there.

Where they are in their routes and so to the extent that we can deploy technology, we can improve the productivity of those people.

Even though those are not jobs that really could be replaced by automation and we can still help the people that are in those jobs and more productive and clearly.

As I indicated in one of your questions.

Some cases, we have to put up wages I mean, there's just no way around that and we're competing in a marketplace for hourly workers with other with other organizations and that's just part of this feature of our business and Thats why.

In particular, we like our business model, which is predominantly management contracts, where those costs are passed on to clients.

Right right and I was wondering if you could swing back a little bit around.

I appreciate I think one of the earlier questions surrounding around the timing of the spending on technology offerings and going into the budgetary process. I was wondering if you could talk a little bit about maybe the scope of what you are looking at now versus maybe the beginning of the year are you getting the sense that some of the technology offerings.

It had been well received by customers or that have driven new sales. What have you has that evolved during the course of the year is along the lines of what you may be thought when <unk> was first introduced.

Well I think some aspects of sphere here, but you've been in place for a while like for example sphere remote where we can remotely manage facilities and we're now up to over 500 locations and sphere remote and that's up substantially at least 20% during the pandemic and so we're continuing to see demand from clients.

Who are saying you know what I don't need to have staff at the facility, particularly at off hours nights and weekends, that's a cost saving it reduces the pressure on labor availability as well. So we expect that will continue to grow.

It's a sizable number of locations, but theres a lot more that we can go out and generally speaking when we bring that service and we are continuing to earn our typical management fee from a client and this becomes an additive service that we're providing now.

Some of the other.

Some of the other things we've talked about the sphere gateway solution as we indicated we're in the 400 range in terms of locations and those are primarily going to go into surface slides in places that have not had revenue control equipment.

So that it can become really the parking com can be the airport choice for people that are looking for places to park.

And then I guess the last thing for me I wanted to see if we could circle well I guess I could come up with two but maybe I'll see if I could fit it in.

You made mention of the public private.

Our partnership activity and I was wondering if there was anything in particular, maybe it's a function of timing or the.

The timing of customers coming out of.

The pandemic and being in a better position to do these things or I was wondering if there was anything in particular that you saw more recently that was driving greater activity and or interest.

For that to be the callout sure well I think if you look back at the history of people, let's just call it privatizing parking.

There haven't been that many.

Studies, maybe theres a dozen over the last 20 years and some have worked out okay and there have been some that.

Haven't worked out so well in the Chicago meters here, you had talked about a lot is being having been one that didn't really work for the taxpayers and and wasn't really maybe not the right way to structure a deal like that so when those things happen everybody sort of backs away and they sort of wait to see whether there is a better structure or something.

Who wants to try a new idea, but the underlying pressures that local government has if they are operating their own parking or universities have to find cost savings to find additional services sources of revenue to find ways of optimizing assets.

Those are still there and in fact, they're building I mean, we all read about pension obligation is growing and the like and so I think there is need for it and a demand for it and there is no doubt that any institution, whether it's local government or university.

And then get optimized performance that's the part that SP plus provides we optimize the performance of those operations to generate ongoing cash flow. So I just think that there's a strong case, but we need to see a few successes in the marketplace and thats what gets people comfortable that theyre not taking a too big of a chance.

When they go down this path. So I think the demand is there I think the success hopefully <unk> will become a wonderful case study.

What to do and how to make it work and then we'll see others coming along over the next many months.

Sounds good thank you very much thank.

Thank you.

And our next question comes from the line of Kevin Spanky Barrington Research you may begin.

Hey, good afternoon.

Kevin.

You clearly highlighted.

Some of the.

New business momentum.

In the aviation segment.

Also mentioned in.

The earnings release that you are currently in final renewal negotiations with two major <unk>.

Ports.

That has meant that indicate that you feel like youre going to close those are kind of what.

What are the status there.

So that those two negotiations right now.

Say in general Kevin or a retention rate with our airport group is the highest it's really the highest part of our business.

We don't always retain everything, but we generally do much more so than in our business in general. So I think we're just indicating that we have a couple of nice legacy deals that we're getting we are in the completion stages of renewing will probably be talking about before long, but our main focus for new business is obviously on.

Winning new opportunities and we've talked about some of those in and that can be a completely new opportunities such as the parking and shuttle at Reagan in dollars. So it can be additional services.

We've operated the parking at San Francisco Airport for quite some time, we've renewed it many times over the years, but the curb fund management was provided by one of our competitors and so our ability to win that contract really enhances the scope of what we're doing and we're looking around.

At our current airport portfolio, where we are now running more airports than we ever have in the history of the company. So we are we have continued to add airport locations.

Looking for opportunities for us to bid on services provided by our competitors that those airports that we already operate.

Some form of parking or other management, because obviously the clients are already familiar with us.

And we view us as a qualified bidder and that being said we're also watching the.

Our bid list for new opportunities and we will continue to go after new airport operations and I think I think we have plenty of them out there that we could go out Colorado take particularly because what we're hearing from airport clients that are choosing us is that our digital marketing programs, our technology under the sphere brand of technology.

Offering something that's unique and differentiated in the marketplace and Thats why they are making those decisions to switch to SP plus from their current operator.

Okay, that's good to hear.

So.

You also mentioned in your comments.

Through parking dotcom youre seeing.

So really nice growth in the number of transactions, there and youre, capturing some fees that might have otherwise gone to third parties in the past.

What do you view is.

Kind of the role of the third party Aggregators in your business model going forward I mean is it.

<unk> to be a piece of your toolkit or.

Are you going to just continue to displace that.

That model or just any thoughts on what that looks like longer term.

Sure well before I go to that let me clarify one thing so when we talk about lower fees, its really not lower fees to those type of players we're talking about.

Technology partners that we have relied on to build out our platform of capabilities that supported parking dot com and what we have identified are opportunities for us to bring some of those capabilities in house to enter into new arrangements with with new third parties that maybe you can provide.

Better service or more cost effective service and in the case of transactions and parking dot com.

To the.

The sphere Gaydon sphere gateway solutions to assess a transaction fee to the parking person the customer and so those fee. So we are generating both revenue new revenue streams from the monetization of those capabilities, but also reducing the costs of providing.

The operating those platforms by making some changes in the third parties or in some cases, bringing in house.

That's that's a key focus for us as we invest in technology is to capture COO.

So would have been going to others or capture an additional income stream from people parking their vehicles. If we can do so and that's not unique to us. Other people are doing the same thing. So I think people parking recognize it paying a modest convenience fee.

<unk> has some technology, enabling their low friction transaction is a worthwhile tradeoff as far as Aggregators, we have built out our own capabilities too.

Densify.

All of the places that we are selling parking and so at a given facility. We are selling parking obviously on the ramp we're selling parking and monthly parkers, we are selling parking to our parking dot com.

Mobile App and we're selling parking in many cases through Aggregators and those are all useful channels now.

Anybody who looks at channel management would realize some channels are more profitable than others. Some some are some can have higher costs and some have lower costs and so our digital tools that we've built to enable us to allocate inventory with the view that we will optimize revenue.

If we're going to optimize revenue at a lease debts for our benefit if we're optimizing revenue management location thats for the clients' benefit and so if allocating some inventory to an aggregator is part of the equation of optimizing revenue for our facilities and then we will be doing that if if not allocating inventory to an aggregate.

Later it does.

If that doesn't make sense, then we're not going to do that and that's that's not a change but our digital analytics team has really put in place the tools to enable us to make those decisions using data and analytics and we share that with our clients. So that they can see the decisions and recommendations that need to be made around those sorts of allocation to <unk>.

<unk> channels.

Okay. Okay got it thanks for the color and the clarification there.

Just lastly.

Obviously.

Pandemic is just change.

Changed a lot of things.

Recently in.

Kind of thrown a wrench in your growth trajectory temporarily.

Obviously things bouncing back now but.

When we think about the business longer term I don't know if you had a chance to revisit or rethink.

Your longer term targets, you had kind of pre pandemic, you've been talking about the 3% to 4% long term gross profit.

Target.

That something we should.

Still think of as valid longer term or is it kind of too early for you too.

Think about that as you just kind of managing what's going on with the pandemic here.

Yes, well I think.

My view on this has been fairly consistent.

Through the pandemic when we when I went out with and I think it was 3% to 5% with sort of our long term growth objective for gross profit and we talked about that pre pandemic and in fact.

Then in 2019, we actually exceeded the top of that range.

And some people were saying well maybe now is the time you raise it up and I'm like well, it's a long term.

<unk> objective and some years, we will be above that range and other years will be in that range now clearly right now we're in a recovery to get back to where we were in 2019, which was a record year for the company on.

Virtually all financial measures. So that are that we should be able to grow faster than that until we get back to that level, but ultimately for the long term my view Hasnt changed at all I think thats sustainable that means growing faster than the CPI. It means and to do that we need to increase our penetration of services with our existing.

Base, we need to.

Minutes ago, So I don't see why we couldn't.

That is a unrealistic expectation and I don't think depend I think has really change anything pre pandemic.

People that are going from ADP, whether it's in a car or a bus or at an airport.

When when some of the concerns and fears around social distancing.

We'll go away ultimately people are still back too.

<unk>, a low friction experience when I am.

Going from a to B and so I think we're well poised to take advantage of that and Theres. No reason why we can't grow at those sort of levels over the long haul.

Okay fantastic. Thanks, that's all I had.

Okay, Kevin Thank you.

Thank you and I'm not showing any further questions in the queue I'd like to turn the call over to month Baldwin for any closing remarks.

Going to your next time.

Yes.

Yeah.

This concludes today's conference call. Thank you for participating.

You may now disconnect.

Q3 2021 SP Plus Corp Earnings Call

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