Q4 2021 SP Plus Corp Earnings Call
Okay.
Good day, and thank you for standing by and welcome to the Q4 2021 SP Plus Corporation earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your <unk>.
Telephone.
If you require any further assistance press star zero.
Oh like China conference over to your Speaker today, Mr. Kris Roy Please go ahead.
Thank you Gina Gina and good afternoon, everyone as Chino, just said I'm Kristopher, Roy Chief Financial Officer of SP plus.
Welcome to our conference call following the release of our fourth quarter 2021 earnings.
On 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 2022.
Statements regarding the company's strategies plans intentions future operations and expected financial performance.
Actual results performance and achievements could differ materially from those expressed or implied due to a variety of risks uncertainties or other factors, including those described in the company's earnings release issued earlier. This afternoon, which is incorporated by reference for purposes of this call available on the SP plus.
Website and the risk factors in the Companys 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 are presented in the tables accompanying the earnings release.
In addition, GAAP gross profit has been updated to include depreciation and amortization to.
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 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 chairman and Chief Executive Officer.
Hey, Thank you, Chris and good afternoon, everybody good to be with you today, we're pleased to report and the positive momentum we've experienced throughout 2021, which has accelerated our company's recovery from the pandemic and presents a runway for future growth.
In other words SP plus has reached an inflection point with expectations for our 2022 operating performance to approach or exceed pre pandemic 2019, which by the way was a record year for SP plus in virtually all financial measures.
We've seen a steady and consistent improvement in the levels of parking activity and demand for our services throughout the year, particularly in those markets that were most severely impacted by the pandemic such as those tied to leisure travel and entertainment, resulting in our improved financial performance. We're very pleased to report fourth quarter results, which were in line with our.
Expectations and represented a strong finish to a year of progressive improvement for SP plus.
Fourth quarter 2021, adjusted gross profit was up 42% year on year, but remain 9% below fourth quarter 2019 levels.
Excellent progress indicates there is still some additional runway for recovery, particularly in certain market verticals.
EBITDA was just 2% below pre pandemic fourth quarter 2019 levels as we were able to achieve substantial operating leverage and improving business conditions, given our streamlined cost structure together with our success in capturing new business. Our commercial segment was a solid performer both in the fourth quarter and full year as we were able to success.
We capitalize on changing consumer trends and our ability to quickly respond to the dynamic needs of our clients as things start to return back to normal.
Our aviation segment.
2021 was a year of significant growth, but there is a somewhat longer road back to full recovery for this segment given the pandemic ongoing impact on our travel clients.
2020, when was a year of strong new business and renewal activity and by all accounts the outlook for the travel industry is bullish we're responding to the needs of our particularly hard hit airport airline cruise line clients and prospective clients by developing novel solutions, such as curbside currency edge and consumer paid remote airline.
Check in services that are gaining traction due to the positive impact on the traveler experience and the ability to reduce congestion, while reducing our clients' costs.
Edition, we're continuing to see a lot of excitement about our suite of innovative technology offerings and we continue to lead the digital transformation of our industry. These competitive.
Advantages continue to differentiate SP, plus and reinforce our market leadership, our ability to exit 2021 with such strong results is due to the strategic priorities that we put in place in early 2020 upon the onset of the pandemic in essence as we manage through the worst of the times, we had three key objectives in mind.
First to streamline our cost structure, while staying nimble and retain the ability to scale up our activity levels to meet client demand.
Second to continue to invest in our technology offerings in an effort to meet the dynamic and diverse needs of our current and prospective clients.
And third to maintain our industry, leading position and our solid cash flow let.
Let me address our streamline cost structure, we've taken a close look at costs throughout the organization and transformed our operations to become a leaner more nimble organization.
Some costs will naturally increase over time as the business grows. We're also reinvesting some of those savings back into initiatives and resources to drive faster growth technology remains a huge competitive advantage for SP, plus which is why we accelerated our investments in this area even during the most challenging of times the.
<unk> of our technology solutions that improve the consumer experience, while increasing our clients' profitability through increasing topline revenues <unk> lowering operating costs. Additionally, our offerings support the touchless way of doing business, which we believe will be the norm for the future our sphere, Brian if technology products and serve.
This offerings also serve to increase our value to our clients, which is supported by our high retention rates and allows us to expand our addressable market. We will continue to invest further in these products and offerings as we view sphere is a key differentiator for SP plus.
Our streamline cost structure and technology offerings and create a path toward improved positioning and market share gains, we continue to pursue and win new business, while maintaining existing business.
Commercial segment, we were able to maintain a high location retention rate of 91% and our commercial segment location count was over 3000 at the end of 2021.
We also added several new aviation clients to our portfolio and added services at legacy operations.
Accordingly, we ended 2021 with a more stable base of business in light of the increased percentage of our base that is now managed locations.
Thus, we believe that SP plus is better positioned as we emerge from the pandemic than we were when we entered looking ahead, we expect 2020 to be another year of significant growth for SP, plus and which gross profit and adjusted EBITDA will approach or exceed 2019 pre pandemic levels.
Adjusted gross profit is expected to range from 200 million to $220 million, which at the midpoint represents year on year growth of 13% over 2021 adjusted gross profit.
We expect growth to come from both our commercial and aviation segments in the commercial segment, we are anticipating a rebound in verticals like hospitality events and venues municipal meters in office buildings and aviation, we're expecting a pickup in our activity levels across service series, particularly valet shuttle busing and ground transportation.
Management.
Adjusted EBIT is expected to range from $110 million to $120 million, which at the midpoint represents 21% year over year growth.
Our outlook for free cash flow is between $70 million to $80 million, which contemplates the receipt of a $20 million income tax refund that we had expected but didn't receive in 2021.
To sum up we believe SP plus is exceptionally well positioned for continued profitable growth. We continue to focus on delivering superior client service, which has kept our retention levels high and enabled us to sell in additional services to our existing clients are sphere capabilities have reinforced our market leadership and have given us opportunities to.
<unk>, our proprietary technology in new areas that expand our addressable market and our strengthened financial position solid cash flow generation provides the financial flexibility to continue to invest in organic growth.
Doing capital allocation strategies that can create additional value for shareholders now I'm going to turn the call back over to Chris for his financial review Chris.
Thank you Mark I am pleased to share more color on our financial performance in the fourth quarter, which marked a strong finish to 2021.
This is reflected in the adjusted results that I'll be discussing today.
As always please refer to our earnings release issued earlier this afternoon for our GAAP results and a full reconciliation of all non-GAAP measures to GAAP measures.
We reported a 42% year over year increase in adjusted gross profit to $49 3 million in the 2021 fourth quarter compared to $34 6 million a year ago.
This performance reflects a substantial recovery in business activity as demand for our services track the reopening of the broader economy compared to the year ago period, when we were still significantly impacted by the pandemic.
Our adjusted G&A expenses were up 6% year over year to $23 9 million in the fourth quarter of 2021 as compared to $22 5 million in the year ago quarter. This is primarily related to added costs and investments to support the increased business level of activity.
Despite this increase 2021 fourth quarter adjusted G&A still remains 15% below the fourth quarter of 2019, the last pre pandemic quarter, which is an indication of how we have streamlined our company to do things faster better smarter.
While some of these costs will progressively return, we think that a significant portion of these savings or stay in place as a result of streamlining administrative functions driving process efficiencies and tightening control tightly controlling discretionary spending.
Now, let me briefly sum up our full year 2021 performance.
We reported a 44% increase in adjusted gross profit to $185 5 million, reflecting the substantial recovery with Covid COVID-19 restrictions easing and higher vaccination rates encouraging increased consumer activity, including travel and leisure in 2021.
As our as our business conditions, we are nearing the pre pandemic levels. Our expenses in 2021 started to normalize as well adjusted G&A expenses increased 13% year over year from $77 3 million in 2000 $20 million to $87 million in 2021.
As a reminder, at the onset of the pandemic in 2020, we reduced compensation and tightened up on discretionary spending.
By the end of 2020, we reinstated base salaries for those employees affected by their pay reductions enacted earlier in the year.
In 2021, we restart certain performance based compensation programs, which explains the majority of our year over year increase all things considered we managed effectively throughout 2021 and with the permanent cost cuts I mentioned earlier adjusted G&A costs in 2021 still remained 19 <unk>.
Sent below the comparable period of 2019.
Now switching gears up at full year 2021 free cash flow was $41 8 million a 46% increase over 2020.
We realized a significant year over year increase despite the fact that we paid $15 9 million in 2021 for payroll taxes that were deferred from 2020.
Considering that a $20 million income tax refund we expected in 2021 was pushed to 2022. Our results were in line with our expectations. So the delay is just a matter of timing and the refund has been contemplated in our 2022 free cash flow guidance that Mark gave you.
Even excluding the income tax refund our 2022 free cash flow is expected to grow more than 30% at the midpoint over 2021.
With that I'll turn the call back over to.
Now to begin the Q&A session. Operator, we are now ready for Q&A.
Alright, so as a reminder to ask a question you will need to press star one on your telephone to resolve your question press. The pound key again that is star one on your telephone.
Standby will be composite Q&A roster.
First question comes from the line of Daniel Moore from CJS Securities. Your line is now open.
Good afternoon, Mark and Chris.
Afternoon, Thanks for taking the question and thanks for taking my questions.
Very solid results and even more solid outlook obviously.
What impact if any did <unk> have on your business from Q4, and as we look into Q1.
And I'm thinking both from a revenue perspective, and also from a cost perspective labor historically, it was a labor intensive business and those that.
Many others have had significant labor challenges, but you seem to overcome them very well. So maybe just talk about that a little bit if you could.
I mean, I'll just make one overall comment I think the pleasant surprise that we had given all of the labor issues is that at the peak of our Micron, we only had about 2% of our workforce out on sick leave.
And that was remarkably low.
I know some people in a light industries and other industries, where they were facing 20, 30% of people added simply so I don't really I think our organization really did not see any significant effect in terms of our ability to staff locations and operate clearly some people did make decisions to stay home and I'm talking.
People that we've been traveling and using our services and so there was a fall back.
We saw this in air travel after the holidays, which would occur anyway.
But.
Everybody recognizes and looking at the media that that wave has passed and people are getting back out there.
Indeed very helpful.
The aviation segment.
If I have my math right gross profit was nearly $75 million pre pandemic.
Fell to $40 million in fiscal 'twenty, what does that look like in fiscal 'twenty. One just trying to get a sense for how much we still have to make up as travel reemerge as in some of those business lines start to reemerge overtime.
Yes, I would say Dan if you look at aviation.
If you look at how we shook out for 'twenty, one and we'll have this in the 10-K as we file this over the next coming days.
Check out right around the mid <unk> in terms of kind of gross profit.
So if you look at.
That business certainly Mark mentioned this and we've kind of mentioned this from <unk>.
Previous calls.
The road for a recovery in aviation is just going to be a little bit longer certainly you are seeing.
Travel and leisure come back I think some of our clients have been a little bit slower to implement some of the services that we had on our pre pandemic basis. So.
<unk> got a couple of different things that they need to think through some of it is the cost and certainly youre seeing increased activity just with people movement. So I think there as they evaluate our services theyre trying to find the right opportunity to bring back those services to meet both the needs.
The passengers in travelers as well as the needs from a financial perspective.
So it doesn't sound like the guidance anticipate anticipate some recovery, but clearly not getting the lion's share of it back in fiscal 'twenty two.
No and I think one thing to remind ourselves of when we went into the pandemic.
The aviation segment in particular.
He has a lot of large complex contracts and some of those contracts, we're going to perform very very badly in 2020, and so we set out on a path to restructure a number of those deals we exited some deals we changed the economic arrangements of some of those deals we've talked about this on prior calls and Thats why we.
Often when referring to the recovery path, we talked about getting back to pre COVID-19 EBITDA faster than we'd get back to pre COVID-19 gross profit that is true for aviation more so in many ways than than the commercial division. So.
We will eventually surpass 2019 gross profit in aviation, but in order to get there. There is a combination of the recovery, which Chris is talking about the clients, bringing us back to provide all the services and we're certainly expecting a full crew season in 2022 and other values continue to reopen it.
Our big airports and they are bringing on more shuttle bus routes that had been mothballed, but ultimately for us to surpass 2022.
Aviation gross profit in 2019 aviation goes private excuse me.
We're going to have to continue our great track record of winning new opportunities.
So I think thats, its really going to be a combination of those things that will eventually get us back above 2019 gross profit for aviation.
Perfect and maybe last one for me and I'll jump back but.
Any examples or just maybe a little bit of updated color on how sphere is enhancing your ability to win new business, but also to expand service offerings too.
To offer additional service offerings to existing clients.
Yes, yes, yes.
Yes, I mean, it's become the focal point to decision, making by the client base and what we've learned is a couple of things. Some of this is we've talked about before and that one is that we can capture transaction fees off of processing transactions through this for your platform.
I was just looking through my notes before the call and we had about 250000 transactions in Q3. So if you annualized that now it will be about $1 million right and we had a couple of days in December that were 7% or 807 or 8000 transactions. So annualize those in Europe at around $3 million.
So we are continuing to push transactions through that platform, we see there's more opportunity for that and it becomes a differentiator in their decision making.
Clients are using so the key for US is that we have to continue and rollout and enhance the capabilities of that platform and so we have a number of new functions and capabilities coming out over the next couple of months that we think will make it even even more attractive platform for our client base.
Alright, thanks for the color again, I'll jump back with any follow ups.
You're welcome.
Thanks, Dan.
Next question comes from the line of Tim Mulrooney from William Blair. Your line is now open.
Chris Congrats on a nice quarter.
Thank you.
For Ya.
Yes.
So a couple of questions number one Chris did you say that the.
The aviation segment gross profit in the mid Forty's in 2021.
Yes.
I don't have that number right in front of me, Tim, but I'd say, it's kind of like in that just below.
Mid the mid point of 40% in terms of the aviation segment.
Was there a big step up in the fourth quarter, because I have you only doing about $10 million I'd be doing about $27 million through the first three quarters of 2021.
And.
$44 million or something means there was a big step up in gross profit in the fourth quarter am I thinking about that right.
Yes. It certainly we've had some increased activity in our in our aviation group as you continue to see.
Passenger.
Singer travels continue travelling leisure is resuming.
Certainly, it's a more heavily traffic timeframe of the year with the holidays and the like so from a seasonality perspective, our aviation business tends to perform pretty well in the fourth quarter.
Okay. That's helpful. Another I guess kind of bookkeeping when I look at 2019 gross profit it was about $228 million.
Is that directly comparable to your GAAP gross profit guide of 188 to two O eight or your non-GAAP guide of 200 to 220.
Yes, the direct comparable would be the non-GAAP .
Okay, perfect just wanted to make sure.
I think the bags business switching gears that contributed about $35 million of gross profit in 2019.
Given that many of these end markets still have a ways to go to fully recover how would you characterize the recovery of that business is bags back to I don't know 50% of the gross profit it was generating relative to pre pandemic is it more or less in that any directional help you can give there.
Sure no its not back to 50% of the pre pandemic gross profit because for the most part if you look at like the curve of mobility and travel activity throughout 'twenty. One, yes, we hit an amazingly strong leisure travel during the summer and there was also very strong as you travel in the fourth quarter.
But a lot of things didn't happen there was truncated cruise season in Alaska in 2021, there was so many many of our clients in Europe .
Airports and in resorts did not bring back all the services and still have it.
And so I would say the good news is that we've turned into performance that is as good as it is for the company and yet we still have more recovery story to be told in terms of bringing bags back to where it was pre pandemic. So that's really.
It's quite a ways to go there, but as Chris indicated in his earlier remarks.
The timing of when that's going to happen really is a function of the decision making that the clients make because many of them have mothballed certain services as an economy saving mode. We are pitching new ideas to them and this is starting to open up we've talked about curbside concierge I think we indicated that there is 34 airports, where we're operating with one airline.
In advanced conversations with some other airlines about introducing it for them as well along with some other services. So I think it'll be a steady gradual path back but.
Not the kind of thing, where we're going to be even if travelers are traveling at pre pandemic levels domestically.
For 2022.
That are comparable or above 2019, and that's not happening yet.
Banks will not be a 2019 levels of activity that is handling because of decisions by its client base and so we're going to continue to see recovery in the base business going into 2023 and potentially into 2024.
Okay. That's really helpful market and I think it's interesting too because if your gross profit is almost back to 2019 level and.
<unk> is one that means your core business.
That's clearly showing.
Market share gains in our core business and I guess that leads me into my next question because thats one of the most common things that comes up in my conversations with investors is the market share gains that you've had and now I'm thinking more about the commercial business.
We certainly see.
Total location count picking up in that business, but I was hoping maybe you could expand a little more and talk about where these contract wins are coming from any any vertical in particular and if these share gains are.
The result of struggling competitors or are you willing to price or are most of these really a result of your technology solutions.
Yes, well I would say they are mostly the result of the technology solutions in the technology solutions open up some new opportunities for us which.
I'll elaborate on in a minute, but when you talk about verticals.
Similar story to what we mentioned last quarter certain verticals have recovered and are back for the commercial segment above pre pandemic levels I'm talking about the profit being generated in those verticals and so some of the best vertical recoveries. We've seen so far are in the municipal space The hospital space and large.
Venues sporting venues and the like we actually added 11, new hospitals in 2021, which.
Was great year for hospital wins for Us Theyre finally have stabilized their efforts that focus on COVID-19 treatment and all of that and they are turning your attention back to.
Trying to find the best possible service providers to support them.
Our University space is nearly back to pre pandemic and so as our commercial so it's really the two.
Two verticals that continue to lag one is the office buildings as you might imagine as companies.
Spent time reassessing and resetting their expectations as to when people come back to the office and the whole retail mixed use space, which clearly people have adapted to online shopping and in some cases they are saving.
Shopping was also taking place when people go to work and if you're working from home and you're probably not going to that store, that's near where you live. So those are some of the verticals that we that we still see will come back we have a lot of office business and so I think more and more companies are making commitments.
About bringing people back at least on a hybrid schedule starting here in the next month or two so I think that will give us a positive uplift on the commercial group.
Okay, that's great color Tim.
Go ahead, Chris Tim maybe just I was just going to say just to add on to that and you mentioned kind of just the location count.
We're really pleased with kind of the activity that we've been able to say over the last year and if you look at 2021 from <unk>.
From a managed location where actually.
So fairly significantly, but let's say, maybe $40 45 locations up and manage from 2019.
Which is really good to see in terms of the business coming back we did have.
A decrease in the leases and we've talked about that over the last several quarters here just in terms of looking at those leases and calling the ones that really are unprofitable. So I think we're really happy with our location count in terms of where we landed for the at the end of the year.
Yes that was really promising to see we were we were glad to see that too.
Definitely indicative of.
The wins and share gains you've been making maybe one more from me just a quick one Chris.
Any seasonality to keep in mind for gross profit or earnings.
For the 2022 quarters as we're all contemplating our models here.
Yes, I mean seasonality wise Q1 is always our softest kind of softer quarter. If you look at it relative to all the other quarters.
That's J it is generally a softer quarter both on the on the <unk>.
Gross profit side, it kind of translates down into EBITDA. It also translates into kind of a lower free cash flow as well so.
Q1 is a softer part of the year, what I would say is that we're kind of getting into that spring break timeframe and thats really where we start to see the recovery that seasonality kind of pick up from kind of a slower part of January and first part of February spring break.
Typically starts kind of at President's weekend kind of works its way through the end of March and into the early part of April so.
So far as we kind of look at.
And the early part of this year, it's kind of coming in as planned.
I've seen anything that would kind of change how we're thinking about the business. Obviously, we just had our outlook and we feel good about kind of where we're seeing the numbers come in for the first part of.
January had a little bit of February .
Very promising outlook and good luck in 'twenty two guys. Thank you.
Thanks, Tim.
Thank you.
Alright again, if you would like to ask a question. Please press Star. One next question comes from the line of Marc Riddick from Sidoti. Your line is now open.
Yes.
Hi, good evening.
Hey, good evening, how are you.
Hi, there I wanted to go over a couple of things certainly the b.
The outlook certainly I have my numbers were in.
I encourage and I wonder if you could touch on a couple of things.
I'm wondering as far as the streamlining of of expenses, if you could talk a little bit about.
How some of those decisions sort of came about whether that's a offshoot of some of the learnings.
It would be.
Or is this sort of.
Based on being able to.
The technology investments that you've made up to this point, having greater profitability from those type of decisions and then I have a couple of follow ups after that.
Yes, I think if you think about the G&A certainly theres been a lot of learnings that have come through as it relates to a cohort. So there has been.
Just looking at the business. So what I would say maybe the lead into that as we thought there was some opportunity to kind of redo things and rethink things in terms of driving cost out of the business. So that was on our radar kind of coming into the pandemic.
The pandemic kind of accelerated some of those things that we kind of had in mind in terms of opportunities.
And I think as we've gone through the pandemic, we've identified some additional opportunities and what I would say is while we're we're not quite done I think we're continuing to look at opportunities to continue to drive cost out of the business.
I would say that what we'd like to do is to kind of take some of those savings and reinvest it back into the business in terms of how do we try and reinvest.
Those dollars back into the business to accelerate growth at a faster pace and that some of that is going to be through our technology solutions. Some of that's going to be through additional.
Additional business and development folks some of that is going to be and just investing in our people in terms of compensation adjustments and the like so.
It's a little bit of a kind of a little bit of everything in terms of.
Coming into the pandemic going through the pandemic and as we've come out of the backside hopefully if the pandemic there's been a lot of the lessons learned and a lot of opportunity.
Alright excellent.
I can touch on that.
Hello.
Hello.
Sorry about that last year.
Yes, given the outlook that you have for the year and certainly that is very positive. So I wonder if you could talk a little bit about your thought process is now as far as capital allocation and when we might have opportunity to does it makes sense.
Invest in shares and how we should be thinking about that for 2022.
Sure I mean I think.
We've had.
A desire over many years given the high free cash flow generation. The company has to try to create value for shareholders and certainly we have bought back a lot of stuck in the past, but I think.
Our focus right now is are there opportunities for us to take some of the free cash flow and you've seen our guidance for 2022, and that's a pretty big number.
It's bigger than 2019 to a record number.
We're looking at of course, it includes the tax refund but.
We're looking at saying are there investments, we could make that could accelerate the pace of growth or the transformation the digital transformation of our industry and our business.
And so I think that represents.
At least some.
The thought process of looking at what can we do to further development of our sphere platform and its capabilities.
And those sorts of things so.
We'll take it one step at a time, we're going to be generating a lot of cash.
We understand that.
After.
Being highly leverage last year during the pandemic, we're now come back down into the normal range for our business.
But to be in the two to three times level and so it does give us the chance to look for ways to accelerate growth, but I think we feel the best way to create value for shareholders is to try to grow faster and that means doing the things that can drive our top line and of course, our EBITDA.
Excellent and then one last thing for me I was wondering if you talk a little bit about the.
Where we are on gateway locations and what you might think we might see this year.
I was thinking about the earlier I don't.
I don't have that number in front of me, but we are well down the track I mean, I think it's 600 or more.
Lewis locations at this point.
And until we.
We still have a ways to go there is more where this technology can be deployed in terms of our existing portfolio.
Also have the gated solution.
Which uses a lot of the same technology, but provides access control to ensure that people are actually paying when they park I think the probably the most exciting sort of new development is there a lesson in lots of places where in many of these are not in the downtown business core.
Sure.
Ploy ease or others vendors.
Vendors and service providers and the like take all the good parking spots and that might be at a hotel it might be at a shopping center or or the like and we are starting to have great experiences.
In deploying our gateway solution and all that really means is the mobile app, but some signs with QR codes and generating revenue and most importantly, creating a premier premium space.
For the.
The best customers the parking so.
I think I think that represents.
Gross up the growth opportunity for us that maybe 12 months ago, we hadn't even contemplated for this technology and there are of course literally thousands and thousands of places out there.
I've just.
Got the number now it's 500 locations for the gateways, but.
Given what I, just said about the scope of.
And the utilization of the technology, we have a fairly let's call it low penetration vis vis the business opportunity for that.
Yes.
Thanks, and then the last one for me and this is sort of a little squishy, Mark sorry, I apologize before I ask it but one of the main questions that we get is around tying the company to a reversal of a work from home activity and the like and certainly given the outlook that you have in some of the commentary that you had already I was wondering if you.
Just wanted to get sort of a general overview of sort of maybe what your thoughts you had going into.
The setting of outlet numbers and kind of what kind of environment, you're either expecting or what have you because certainly that's one of the things that.
Gets tied in for a lot of investors.
Would love to hear your updated thoughts on that thank you, yes sure.
Look.
The way we budget.
It's a way that has served I think the company well for a long long time and that is at the location level. Because every contract has some unique attributes to it some have fixed and variable components. Some of our leases et cetera. Some serve a commercial office buildings at some sort of other places as well theyre not just limit.
To one type of place a reason why people go somewhere so I think what we can say is that.
Gross profit for Q4 for the office building segment in commercial was about 75% of 2019, so it's not like everybody's home and nobody is going to the office I mean, you might read that kind of thing, it's 30%, 40%, but when people do go in they are generating more revenue because they are not.
<unk> monthly parking and monthly parking is discounted parking so.
We're not super far away.
From getting back to 2019 gross profit in that segment and part of it is because we've added new locations and part of it is because of what I just said about the way parking is paid for so we can easily get back.
And exceed 2019 gross profit from the.
Office segment without everybody clinical returning to the office five days a week, that's not going to happen anyway.
Goodness at a better thank you very much.
Okay. Thank you.
Next one on our Q is Kevin Spanky from banked in research. Your line is now open.
Hey, good afternoon.
Hi, Kevin.
I just wanted to ask about obviously really solid outlook for.
2022, but as you look at the.
Top.
Bottom ends of the range that you provided for 2022, what are some of the factors.
Youre thinking about that.
Got you to either end of the range is mostly about the pace of recovery.
New business wins or what other factors might we think about.
Playing into that range.
Yes, Ken.
Kevin.
Chris I think it's kind of a combination of all of the above right I think youre going to start to say.
And Mark had mentioned this I think youre starting to see people return back to the office and I think youre going to start to see some continued recovery I think some verticals as Mark mentioned it maybe.
Recovered a little quicker than other verticals. So if you look at.
Stadiums when youre watching the television sporting event, certainly those stands our fall.
If you come down into the office space, that's probably less fall. So I think but I think youre going to start to see some of those recovery trends continue into other verticals that will certainly help us in 2022, and then I think as we look to new location, certainly we want to increase our market penetration and.
I really look to sphere and that the technology that we're able to provide has really resonated with our client base and I think they are looking at it and just saying how can we use more of the sphere ecosystem and that really kind of has two two kind of primary components to it one it reduces friction right nobody.
Really wants to have that friction experience.
And then the second item is.
It can certainly.
<unk> opportunities for the client in terms of.
Aggregating their parker's aggregating information so I think at the end of the day, you're going to see kind of a mix of both youre going to see a recovery in terms of.
New business Youre going to see the.
The recovery Thats, just going to happen naturally as we kind of move continue to move through the pandemic.
Alright that makes sense.
And as we think about your technology investments in 2022, continuing to really focus on that.
Are there any specific areas that you really want to continue to develop or any.
And do you think that can be done.
All internally and organically or.
Is it does it make sense to kind of look.
Look at the acquisition landscape from a technology perspective in <unk>.
To your capabilities.
Through that Avenue as well.
Sure well I think fundamentally we all.
Our experience and use of mobile apps to pay for transactions that have low hopefully low friction experiences and so we're continuously monitoring what functionality capability other mobile apps provide.
For people using those services and that is not limited to just the parking industry or the shuttle bus industry or other industries, where we provide services and so we're looking at those things.
Our team and I have.
Our team that works on these things in our <unk>.
Operating guys are we won't talk about the same thing if our client values it.
Need to have it.
And that means.
So we have to continuously be in dialogue with our clients about what they value what their expectations are how are things changing for their businesses. How can we help them achieve their objectives. That's the most important thing. It's why we what we exist to do is to serve that client base and when we have that information and then we look for ways to.
Try to deliver on that as quickly as possible.
And that might mean, we develop it ourselves in some cases that might mean, we acquire.
Some functionality from somebody and folded it into our platform in some cases, we might partner with somebody who.
<unk> got a solution and we can get to market faster. So it's never a one size fits all so.
There will be new functionality coming out in <unk>.
It's too numerous to mention now, but you'll see it and if there is significant we will talk about them publicly for sure but the idea is simply to reduce the amount of friction and mobility.
And that's the focus now the other side of our business.
Pre pandemic as Chris indicated earlier, we thought we were pretty efficient.
We've spent money on technology to make our support functions and back office as efficient as we could but given the pandemic gave us a little bit of time to have a reexamination of things we identified some areas, where we felt that we could do more.
Some of this involves taking manual processes out of the equation.
And as it always comes down to is like how do you get the information and the data that says the parking facility or other facilities into our systems bear in mind that the technology at the facilities not owned by US, It's our clients' equipment and so we have lots of ways that we do that and some of that is fully automated and just uploaded to the cloud and some of that.
<unk> manual processes, so there's definitely opportunities for us to streamline a lot of that automate more of that and make them more efficient and we're spending time and effort on that and I think those are the kinds of things that can reduce errors get us capture more of the revenue, but also reduce our G&A costs as we go forward.
Okay really interesting and helpful commentary congratulation on the results and.
That's all I had thanks great.
Great. Thanks, so much Kevin Thanks, Kevin.
Thanks for the non acute is Daniel Moore from CJS Securities. Your line is now open.
Thank you just a little housekeeping this might be obvious and I missed it.
Capex expectations embedded in the free cash flow guide.
And Mark clearly your focus is on.
Internal investments, which have paid off.
Handsomely here in the near term so far in the near term are there M&A <unk> technology.
Gains that you might look at as well as the balance sheet continues to improve it could be down to as slow as two times leverage based on the free cash flow guide by year end. Thanks.
I'll, let Chris take the first part there.
Talk about cap Capex, and then I'll come back to our sort of approach and how we're thinking about the technology development.
Yes, I think Dan if you look at Capex for 'twenty, two I think the $10 million to $15 million range is kind of where we're at which is probably about the norm in terms of what we would generally have in terms of a range, maybe a little bit higher as we continue to make some investments in and sphere, but kind of.
Right in the same range that we've been in for the last couple of years.
And I think in terms of technology, So I'm just getting over a cold.
We we have a pretty clear picture.
That.
Is derived from what I was explaining to Kevin and that is what our clients expectations for technology, what does the market need for technology.
What are clients value and what.
Really looking to have as part of the portfolio of technology platform.
And how does that compare to what our platform can do at any point in time.
Until we have it we definitely.
No platform as ever fully developed there will always be some gap of some kind or another and when we take a look at what those gaps are and we say if we close that gap.
How does that help us generate more gross profit and EBITDA for the company and well costs to close that gap. If we if we go out in <unk>.
Choir that capability from someone who already has it will it will it cost what would it be will be economic arrangement. If we partner with somebody to simply provide that capability or if we want to develop it ourselves what will it cost and how long would take and there is a market opportunity cost to moving at a certain pace. So I would just say that.
Goal is to have no meaningful gaps that create profit market opportunities for us with technology in this space, we operate and we always continuously looking at.
All of the ways that we might close those gaps and we are definitely not one size fits all solution provider, we have competitors out there who tout their one solution to all situations and thats not going to work and a lot of cases, and then we have other people, who say well I'll just go in.
Use somebody else's technology and hope that they can provide the needs that a client is our goal is to satisfy clients and that means that we will develop stuff ourselves, but in many cases, we will there'll be some partners out there are others that can help us move faster and we're going to then look at potentially.
Acquiring that capability, if that gets us down to where we wanted to be faster.
Alright very helpful.
For all the color and feel better I appreciate it.
Yes, Thanks, a lot I appreciate it.
And there are no further questions at this time I will now turn the call over back to Marc Baumann.
Okay. Thank you so much and.
We're obviously thrilled with the way the year ended it was a great year for US certainly ended and progress much better than we might have thought a year ago. When we were starting out and gave our original guidance for the year.
And obviously, we have big expectations for 2022, but as always we're very focused on driving growth driving faster growth and utilizing technology to really differentiate ourselves in the marketplace. So thank you for being with US today, and we look forward to talking to you next quarter.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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