Q4 2022 SP Plus Corp Earnings Call
Thank you for standing by and welcome to the Q4 2020 to SP Plus Corporation earnings Conference call. At this time, all participants are in a listen only mode.
The speaker's presentation there'll be a question and answer session to ask a question at that time. Please press star one wanted your telephone.
Today's conference call is being recorded.
Now I'll turn the conference Mr. Kris Roy Chief Financial Officer. Please begin.
Thank you Valerie and good afternoon, everyone as Barry just said I'm Kristopher Roy Chief Financial Officer of SP, plus welcome to our conference call. Following the release of our fourth quarter 2022 earnings during the call today management will make remarks that may be considered forward looking statements, including.
Those statements as to the outlook and expectations for 2023 and statements regarding the company's strategies plans intentions and 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.
Earlier this afternoon, which is incorporated by reference for purposes of this call and available on the SP plus website and the risk factors in the Companys annual report on Form 10-K 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.
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 Relations section of the SP plus website.
Please note this call is being broadcast live over the Internet and is being recorded a replay will be available on the SP plus website. Shortly after the end of the call and will be available for 30 days from today I will now turn the call over to Marc Baumann, Our chairman and Chief Executive Officer.
Hey, Thank you, Chris and good afternoon, everybody I'm pleased to share highlights from our strong finish to a year of substantial double digit growth for SP, plus and to discuss the business trends and initiatives that support our new growth targets to begin our performance in the fourth quarter demonstrated our industry leadership and capped a year of.
<unk> year on year growth across all key financial metrics, we continue to effectively execute on our strategy by growing our existing contracts improving our outstanding retention rate and winning new business. While also accelerating the deployment of our award winning sphere and Aero Parker technology solutions.
We saw robust gross profit growth in the fourth quarter and full year and this strong performance was broad based across our segments verticals and geographies.
In the commercial segment adjusted gross profit growth of 11% in the quarter and 18% for the year was led by our commercial and large venue and hospitality verticals, reflecting increased leisure activity and favorable return to office trends and the ongoing rollout and successful adoption of sphere.
In fact 2022 results reflect a record level of adjusted gross profit in our commercial segment.
In the aviation segment, 30% of adjusted gross profit growth in the fourth quarter and 34% for the year was a function of an increase in the number of airports served and a significant uptick tech and travel activity.
And lastly measures, reflecting our scale and reach in both our segments hit new record levels in 2022.
We processed $4 billion of gross parking revenues. This is combined from our lease facilities and on behalf of our clients. If it's a management contract. We transported 51 million passengers on shuttle buses and handled over $6 5 million pieces of check luggage last year. Our commercial segment is comprised of over 31 hundreds low.
Patients, which reflects 106 net new locations added over the last 12 months.
In fact, we've achieved net location growth over the last seven consecutive quarters further demonstrating our success in growing our market share.
Gross profit from new business in the commercial segment was the second highest level ever achieved and we approved our location retention rate to 93% on the aviation side, we've expanded our presence to 158 global airports, adding 69 net new airports to our portfolio in 'twenty, two including <unk>.
65 unique airports from the acquisition of Arrow Parker. These are airports, where we did not previously have a presence with either SP plus airports, where bags and we are now providing our curbside concierge services for two airlines at 40 airports.
If you haven't done so already you might want to check out the updated investor presentation that we just published on our Investor Relations website, where we've broken out some of these size metrics by vertical market.
This positive momentum is continuing in 2023 and marks an inflection point in terms of our growth trajectory.
Over the last several years has helped position SP plus as a leader in the digital transformation of our industry and now we are well positioned to capture the growth opportunities presented by our technology innovation as we noted in our earnings release, we expect another strong year of growth in 2023 with adjusted gross profit growth of 11.
Percentage at the midpoint of which approximately two percentage points reflects the full year impact of Euro Parker acquisition, and our expected adjusted EBITDA growth, which is also a 11% in 2023 at the midpoint of our guidance range anticipates additional investments in G&A that we believe will set the foundation for achieving it.
Accelerated gross profit growth.
Over the last several years, we've been making investments to build the leading edge technology solutions. We have today. In addition to our internal development efforts in 2022, we significantly enhanced our technology position with two strategic acquisitions.
<unk> industry, leading SaaS platform is poised to generate recurring technology revenues at 80 airports worldwide. This acquisition provides expanded opportunities to realize cross selling synergies across our entire aviation portfolio as we leverage relationships and capabilities to grow our traditional parking and transportation.
<unk> business as well as <unk> suite of services and now Arrow Parker's technology.
As part of the Aero Parker acquisition, we also acquired <unk> An award winning digital marketing agency with an impressive client base, both in and outside of the aviation space with.
With divert we acquired a partner whose technology solutions we've deployed since.
'twenty as part of spheres platform just as importantly, this acquisition lays the foundation for the establishment of the SP plus technology innovation lab based in India, which we believe will enable us to accelerate our progress on our technology roadmap.
As we head into 2023, we're executing on our multifaceted growth strategy, which includes one strengthening our leadership position to expanding our addressable market and gaining revenue synergies from our recent acquisitions and three taking advantage of substantial opportunities to lever monitor.
Ties our technology with respect to our leadership position SP plus is uniquely positioned to blend innovative technology solutions and superior operational expertise to enable current and prospective clients to meet their varied objectives, whether those objectives are improving the bottom line improving the consumer experience or.
Anything in between our technology solutions enable clients to upgrade their parking assets to align with consumer trends and preferences without making major capital expenditures. While also in many cases, reducing operating costs.
And if there is an existing technology infrastructure, we provide highly trained people and the know how to operate and optimize the use of that infrastructure. This compelling value proposition has been a key element of our success in winning new business over the last two years. Additionally.
Additionally, the deployment of our technology across our existing footprint has increased the stickiness of our services, which we believe will continue to benefit our retention rate.
In terms of expanding our addressable market and realizing revenue synergies our suite of technology solutions include software as a service or platform as a service options that can be deployed whether or not SP plus as the operator, our solutions also enable an asset owner to optimize the value of their asset by converting traditional.
On the free parking to paid parking or employing dynamic pricing techniques to maximize revenues and the recent acquisition of Arrow Parker gives us plus a global presence together with SP plus Aero Parker now has the support and resources to further expand its industry, leading position and we'll have opportunities to lever.
Their premier technology to drive cross selling synergies.
And finally, a key focus in 2023 and beyond will be accelerating the deployment of our comprehensive portfolio of technology offerings to take advantage of substantial opportunities to leverage and monetize our technology, which we believe is an important component of our future profit growth.
We're currently processing 1 million digital transactions per month on SP, plus enabled technology platforms deployed across airports on and off Street parking locations event, then used retail and entertainment complexes and the like unlike other one size fits all options our technology solutions are adaptable to abroad.
Range of operating situations to meet both consumer and client needs.
While technology solutions today contribute less than 2% of our gross profit our objective is to grow that to at least 10% of our gross profit by 2025.
We believe these three strategic initiatives support the guidance, we've given for 2023 and position SP plus to achieve high single digit gross profit growth in subsequent years.
And if we look further ahead, we see SP plus playing an increasingly important role in the development of smart cities as parking assets have the capability to become multi use mobility hubs, while still in the very early stages, we believe that our industry, leading technology capabilities will enable us to work cohesively with our clients to increase the <unk>.
<unk> of their parking assets as the roadmap for smart cities evolves.
At this point I'd like to turn the call back over to Chris for a financial review.
Thank you Marc will discuss our operating and financial performance for the fourth quarter and full year 2022, and our outlook for strong growth in 2023.
We exited the year with 16% year over year growth in adjusted gross profit for the fourth quarter of 2022.
Several factors drove this performance our team executed effectively growing our existing contracts improving our already strong retention rates and winning new business.
Fourth quarter 2022, adjusted G&A expenses were up 20% year over year.
Largely largely due to the decision to make strategic investments in business development technology and other resources that we believe will enable us to capture and support accelerated growth in 2023 and beyond.
Resulting adjusted EBITDA increased by 11% over the year ago quarter, and Q4 2022 adjusted earnings per share were <unk> 56.
Which was 10% higher year over year.
Now summarizing our full year 2022 performance adjusted gross profit was up 22% year over year, reflecting the improved business environment and our success in adding new contracts, including technology only locations made possible by our sphere technology.
Full year adjusted G&A expenses in 2022 increased 21% year over year, primarily reflecting our strategic decision to make early investments to capture future growth.
Full year 2022, adjusted EBITDA was 24% ahead of 2021 and adjusted earnings per share increased 44% year over year to $2 70.
Switching to cash flow full year 2022 cash flow increased 64% year over year.
As a reminder, 2022 free cash flow benefited from a 25 million dollar U S. Federal income tax refund, which offset higher capital expenditures compared to the prior year at.
At the end of December we had over $200 million of availability under our senior credit facility.
During 2022, we spent $49 3 million.
To repurchase 115 million shares.
Leaving just over $10 million remaining under the May 2022 authorization as of December 31, 2022.
Last week, our board approved a new additional $60 million share repurchase authorization.
Our free cash flow gives us the financial flexibility to pursue a capital allocation strategy that includes organic investments to support growth acquisitions and share repurchases, while managing our debt levels, all with a goal of creating additional shareholder value.
Our performance in 2022, and our significant investments in technology over the last several years have laid the foundation for our accelerated growth in 2023 and beyond.
As a result, we expect full year 2023, adjusted gross profit to range from $240 million to $260 million, which at the midpoint represents year over year growth of approximately 11%.
We expect adjusted EBITDA to be $125 million to $135 million also 11% ahead of 2022 at the midpoint.
And for adjusted EPS, We expect a range of $2 70.
To $3 20 per share approximately 6% above 2022 levels at the midpoint. We also anticipate free cash flow of $60 million to $70 million or approximately $3 to $3 50 per share.
2023 free cash flow at the midpoint is expected to be 35% above 2022, if you exclude the $25 million 2022 federal income tax refund.
Additionally, I wanted to share some additional insights on other aspects of our business for mono for modeling purposes.
We continue to expect to see some seasonality with Q2 and Q3 typically being our strongest quarters of the year.
On the G&A front, we've made significant investments in 2022, which is reflected in our fourth quarter 2020.
2022 results. So Q4 of 2022 is a pretty good run rate. If you also layer in some additional incremental investments in early 2023.
In terms of interest rates and corresponding interest expense our senior debt is currently priced at 175 basis points above the sofa.
We anticipate to peak and maintained at 470, 475% in 2023, resulting in an all in interest rate of approximately six 5% and full year interest expense of $24 million to $26 million.
Additionally, given the levels of capital expenditures in 2022, and 2023, our DNA is expected to range from $34 million to $36 million, which includes the impact of purchase accounting related to the recent acquisitions with that I will turn the call back over to Mark.
Hey, Thank you Chris to sum up we're pleased with our strong performance in 2022, and even more encouraged by our growth prospects for 2023 and beyond we've made strategic investments to support our accelerated growth and we expect to leverage them beginning in 2020 for SG&A growth moderates in my 22 years.
That SP plus I've never seen the breadth of growth opportunities that we have in front of US today now it's all about execution as we seek to make every moment matter for a world on the go we're confident that our new president of commercial and aviation will successfully lead their teams and building on the momentum from 2020 Q2.
Chief sustainable accelerated growth in 2023 and beyond.
I would now like to open the call to questions.
Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press star one on your telephone.
Again to ask a question. Please press star one one our first question comes from Tim Mulrooney of William Blair. Your line is open.
Hey, good afternoon Kim.
Mark and Chris Good afternoon, Thanks for taking my questions and congrats on a nice quarter and a pretty healthy outlook, which is why I wanted to start I mean.
You've taken up your growth outlook for gross profit pretty dramatically here, we typically think about SP, plus and that 3% to 4% range, but our long term target in the high single digit range essentially implies a doubling.
And that target growth rate.
Can you walk us through how you get to that step up in your outlook and Mark I know you discussed technology is one component, but curious what the other primary factors are and maybe you could also talk about your confidence level around the sustainability of that target.
Sure I'd be glad to Tim and of course, we've talked about our growth rates for quite a long time and as you recall pre pandemic, we put that target out of 3% to 4% gross profit growth rate and yet in 2019, we achieved over 5% growth.
And that was a record for the company in terms of the performance of 2019 and of course, the pandemic has created lots of fog and coming out of it.
Experienced faster growth as we've recovered, but as we look at 2022 and evaluate what it means going forward I think it's worth drilling in a little bit on some of the details as I mentioned in my prepared remarks for our commercial segment 2022 represented our best second best New business year ever.
And that was really a reflection I think of the fact that we are offering up an array of capabilities. A lot of those are fundamental operating capabilities theyre not just technology to our client base, who are looking at what we're bringing to the marketplace and saying I'm going to choose SP plus over one of its competitors and we have a very very strong pipeline.
There are opportunities as we look forward and we believe that we can continue to bring on new additional business as we look forward. The other thing is that as we do talk about technology. It's often part of the conversation in a client, making a decision and we might bring technology only us and offering we might bring.
<unk> technology, along with our operating expertise or we might talk about doing something with technology down the road and technology has a couple of opportunities for US one is.
We're offering something to the client to help them.
Capture more revenue to reduce their cost in many cases clients have aging existing technology that needs to be replaced and we're saying to them instead of going the traditional route and spending an awful lot of capital upfront. We can bring technology solutions that are going to be more cost effective or might not call.
Cost you anything to sort of replace their aging infrastructure and I think technology also offers us as I indicated in my remarks, the opportunity to bring paid parking to places that had free parking. So we're really expanding the addressable market and in prior calls we've talked a little about that we're a retail shopping center.
Hotels in other places often have no charge for parking, but there are some great locations near the door that people are willing to pay a premium to pocket. So I could go on and on within the commercial segment, but I think honestly theres lots of opportunities to deploy technology to capture more transactions and to really show clients.
That we have the cutting edge solutions that are going to reduce friction for the people utilizing their services. When you flip over to aviation I think theres a couple of things that are worth commenting on one is prior to the pandemic as you know we acquired <unk> and as we turn the corner into 2019, we started introducing the bags.
Technology and operating capabilities to the SP plus airports client base and we had a lot of really great interest in that and then of course, just as we are about to.
Start to deploy some of these new solutions to our clients. The pandemic came along and it put a hold on all of that and so as we recovered from the pandemic our clients have recovered from the pandemic. It gives us an opportunity to reintroduce.
The bank's capabilities to the airport clients and of course with the recent acquisition with <unk> Parker, we can bring that into the equation as well and so for example.
In.
North America, SP, plus legacy SP, plus meaning without Eric Parker and bags.
<unk> provides services at 93 airports.
Seven of those airports Aero Parker is providing services. So what that really means is that there are 86 airports, where SP plus through its own airport operations or through bags have relationships with those airport clients and we can be talking to them about the capabilities of Aero Parker on the flip side because.
Zero Parker is based in the UK and has numerous.
Almost 60 airports outside of North America. They are now in a position to bundle in their conversations the capabilities of bags or maybe some of the other SP plus technologies and their discussions with their client phase II. So I think I think for us as we look at the cross selling growth synergy between them.
<unk> Aero Parker and the traditional SP plus business, we see lots of opportunity for growth.
Finally say what.
We are also seeing is in the competitive space.
For operations within North America, and aviation, we have some clients who have not meet our competitors I should say you have not made the investments in technology, who are perceived to be lagging the cutting edge in the minds of airport clients or prospective airport clients and they are receptive to someone coming in both with technology solutions.
<unk> operating expertise, but at the same time marketing strategies for them to drive revenue into those airports. So I think all of those things really give us the confidence to expect our business to grow at a faster clip.
We look into the future.
Alright, Thats really helpful. Thanks, Martin, It's technology cross selling in aviation and maybe some market share gains on the competitive side, so understood and I appreciate all the color there.
Switching gears you Chris.
The guide you said implies SG&A expense of $15 million higher but some of that was placed in 2022 I. Appreciate your commentary you gave during your prepared remarks, but I'm just curious how much of that 15 million was was in 2022 and how much do you actually expect to layer in during 2023.
Yes, if you look at the investments we started to make I'd say, we've started to make those in late Q3 and certainly into Q4, we made some of those additional investments I think if you look at that run rate in Q4, certainly thats a pretty good run rate, we're going to make some additional investments in.
And so I would see that if you will.
Look at Q4 to be slightly above that as it relates to let's say a first quarter and then you'll probably see a little bit of a bump in terms of G&A on top of that and kind of Q2 Q3 and Q4. So I think in the earnings release, there was some commentary there.
Look at.
A spend in 2022 was about $105 million and we kind of mentioned that we can put into bringing approximately an additional $15 million into 2023. So that gives you about $120 million in terms of G&A for 2023, and I think what we're trying to do is just give you a little color.
In terms of how we're looking at the cadence of that G&A.
Yeah, Perfect and then lastly last one from me and I'll hop back in the queue.
Lots of questions here.
How much did acquisitions.
How much did they contribute to gross profit in the fourth quarter and then what is your expectation for contribution from acquisitions to gross profit in 2023.
Yes, I would say if you look at Q4, given that the acquisitions were a little later in the year I wouldn't say, it's a meaningful amount.
Contributed into Q4, what I would say is I think what we're really excited about the opportunities that these acquisitions per se in terms of both sphere, but also in A&P in terms of the revenue synergies that Mark mentioned, if you kind of look at what it might mean from a 2023.
Perspective in terms of growth.
You might look at let's say.
Say about 2% of gross profit.
The.
<unk> related to our acquisitions in terms of inorganic and I would say, it's kind of two percentage points in terms of.
At gross profit so.
I think it's not necessarily what it is in 'twenty three I think its what it can become in the outer years as we continue to look at Kmt in the opportunities that are there.
Chris said, it well and I mean, if you look back to the remarks that both of US made we're guiding to 11% gross profit growth at the midpoint in 'twenty three but then we're saying beyond that it's a sort of high single digits. So clearly in 'twenty three we get a little blip from the full year effect of those acquisitions.
Yes.
That makes sense because that's consistent then basically high single digit organic gross profit growth right in line with your long term outlook. So it all lined up all right.
Well that's great. Thanks for thanks for all the color I'll hop back in the queue.
Thanks, Tim Thanks, Tim.
Thank you one moment please.
Our next question comes from the line of Daniel Moore of CJS Securities. Your line is open.
Hi, This is Ryan.
Sorry, Hi, this is Ross has been in place for Dan Moore.
I was just wondering.
SP is always fared well in recessions you were aggressively renegotiate your contracts in 2020 end of 2021, how would you say SP is positioned to weather an economic storm theres been a lot of mixed signals from the overall macro economy macroeconomic view, whether and how would you say that kind of effect.
Your end markets and your customers and contracts.
Sure I'd be glad to touch on that I mean, if you.
You look back at past recessions and I don't think the pandemic is really what you would call a recession that was one of those I'm very unusual events, but in a typical recessionary period, the number of miles driven by people only very various sorry varies about 5%. So people even in a recessionary time are driving places.
Clearly some of that those miles driven are going to vary because of the recession, maybe there'll be a few discretionary trips people don't take.
I think because our business is broad based across geography, and broad based across verticals. We haven't generally seen the kind of impact that other businesses do if there's a little slowdown in activity. The other thing I would like to remind you of is that the bulk of our portfolio our management contracts within the commercial segment.
And consequently, we're not directly tied to the utilization of the parking facilities. We're generally getting our management fee now clearly within aviation there is a travel and leisure component. That's present, there and if a recession were to impact travel and leisure, we'll definitely see some slowdown in our services the thing that I think.
We talk about internally with our team is despite our size, we really have a very small market share in any vertical or for any service and so one of the ways that we can get growth and do get growth even in a recessionary environment is we either increase the penetration of the array of services that we provide at the locations we already.
D operate or we go out and get additional clients and a lot of times when a recession clients are feeling their own financial pressures of prospective clients and thats. When they are often receptive to new ideas, new innovation using technology to create efficiency or drive demand or reduce costs. So while we would all prefer.
Not to have a recession I think we have a nice business model that performs well in recessionary environments.
So you would say that you guys could be technology heavy alternatives.
Uses there new capabilities to create efficiencies for customers. So in many cases youre the cheaper alternatives.
We could well be and I mean, I think as you might imagine there's lots of components to the technology one of the things that we expanded a lot. We did this before the pandemic, we expanded anymore and thats remotely managing parking facilities and so theirs is probably around 600 facilities, where we are remotely monitoring are managing.
At some point in the day part and so one option during a recessionary period.
Our clients is to say, let's let's reduce the staffing levels, let's do more remote management more with technology with our mobile point of sale and other technologies, you don't necessarily need the staffing levels that you might have needed in the past and so I think the utilization of technology and the acceleration of the deployment of it is that way.
For our clients to mitigate the effects of recession on their business, but also enables us to get that growth from deploying those technologies.
You help your clients or mitigate labor cost at least in that situation that makes a lot of sense and I guess following on that thread would you say there is any kind of.
Technology offering you guys have made.
Three of acquisitions over the last couple of years.
Your clients are really excited about that are excited to have rolled out in their businesses is really gaining penetration really quickly and making you guys attracted to new clients.
Sure well I think Theres, a couple of things that could comment on there one is that clients their objectives are often.
Directly financial in nature, but they are also interested in providing a certain experience for their customers for the most part.
Client is cares about the consumer experience is looking to reduce friction and hassle and problems and complaints and so by deploying our mobile app and our.
On the southbound or some of the technologies that we're now using where you don't have to actually download our mobile app and create a credential you can simply scan a QR code or text to pay from your smartphone where really reducing the friction in the transaction and we're making it easy for somebody to <unk>.
Conductor transaction with us and Thats, a very very inexpensive thing to deploy and so I think that makes some of these offerings very very attractive we know that a high proportion of our clients operate older equipment and this might be investments that they've made some time five six sometimes 10 years ago or more.
And a lot of this equipment requires a lot of maintenance costs a lot of support costs skilled.
Skilled technicians, sometimes have to come out to fix it and address problems and part of our technology offering.
Coming from US just really in the last 12 months is our ability to bring our own hardware and software solution to replace that aging technology and in many cases, we're able to offer that at low or no cost to the client so as opposed to their traditional I've got a problem. It's costing me a lot of money I don't really have the capital.
Funds to make that upgrade it's a recessionary environment Im looking for every penny we can come in and say, let us deploy our solutions and we're going to avoid you are having to make that outlay and at the same time, we're going to capture more of the revenue and drive drive lower operating costs for your facility.
Got it that makes a lot of sense. So I guess the key takeaways are that you can help customers reduce labor costs and also minimize maintenance and refurbishment costs by rolling out you guys knew seamlessly deploy technologies kind of I really appreciate about over there I'm going to hop back on the queue. Thank you.
Okay, Rob Thank you.
Thank you again, ladies and gentlemen, I'd like to ask a question. Please press star one on your telephone again to ask a question. Please press star one one or.
Our next question comes from the line of Kevin Spanky Bear.
Barrington Your line is open.
Hey, good afternoon, guys. Thanks, Chris.
Good afternoon.
Good afternoon to you I wanted to.
Focus on one.
Raise your hand.
Sure.
This release and prepared remarks.
When you said in 2000 22023, a key focus.
We will be accelerating the deployment of our.
A comprehensive portfolio of technology offerings to capitalize on it.
Industry, and consumer trends and realize revenue synergies from zero Parker.
Can you just give a little more detail or color on exactly the steps you'll be taking there too.
Accelerate deployment of your technology offerings in.
Capitalize on the revenue synergies and maybe than any sort of detail.
Detail on.
Vestments.
Behind those efforts with Novelis those objectives.
Sure be glad to Kevin.
Again, I think it's probably useful to distinguish between our commercial business and our aviation business.
In the commercial business, we have a large footprint as we've talked about we operate over 3100 locations now and so one way for us to.
The player technology is what I was just explaining to Rob on the last question and that's really replacing aging equipment with our technology offerings and in some cases that means bringing hardware and software in other cases, we would just spring hardware too.
And plug.
Plug that in if you will see the existing parking equipment, there, but all with the idea that we will allow consumers to transact.
Lower friction more efficient way.
And we are in many cases able to capture a consumer fee off of that transaction and thats. The way that we would get paid off with some of those transactions. So we see ourselves as being able to drive growth in the commercial segment by bringing those capabilities.
We also as we've talked earlier as I commented on the call in my prepared remarks and earlier question.
We're expanding our addressable market, there's lots of places that don't have technology, now, where it's free parking and where we can bring our solutions at low or no cost to the client and we can generate revenue for the client and revenue for ourselves again, primarily through these consumer fees. So I think we see a lot of growth opportunity.
Within our established footprint within commercial of 3100 locations now likewise, we have the potential to go get new clients and as I indicated it was our second best year ever in the commercial segment for new business and we have a very robust pipeline of opportunities out there and clearly we're seeing that.
The combination of our operating expertise our technology offerings are really resonating with clients, who are looking to improve the experience of their customers gained better control over revenue and to have.
Better environment in general from the point of view of the services being offered so I think all of those are ways that we see ourselves getting growth within that segment I think in aviation. It's a lot of the same story, but the additive is that because we have <unk> Parker now we have an additional.
Service line that we can bring to clients and we had some recently where we've gone to some of our established airport clients and we've said we'd like to tell you about <unk> Parker and liquid it can do it can provide reservation functionality for people who want to make those arrangements in advance it can.
Can provide other convenience for e-commerce and other solutions that clients are looking to provide again for people traveling to an airport to reduce friction make the travel experience better for them and I think there's been a lot of receptivity to that Arrow Parker is out selling it services on its own has done very very well prior to.
Joining forces with us, but I think as we look at those 86 airports in North America, where we operate either.
Either SP plus airports, where bags, we can now be planning to introduce arrow Parker to all of those clients and vice versa. In Europe . So I think within aviation we had the same thing. It go sell additional services. It's also acquiring and winning new deals and at the same time the cross sell synergy that comes from.
These three different platforms, if you will.
Capabilities that we can bring to clients.
Okay, Great and if you also could.
Just to touch on.
Maybe some of the investments you're making to you.
Neither accomplish those objectives you were just discussing or.
Other investments in 2023.
But do you think youre going to help set you up for that.
The rate of growth.
In 2023 and beyond.
What's contributing to that $15 million increase in G&A.
Yes, I mean, Kevin as you look at it I think what we really want to focus on in terms of bringing cost into the businesses can we accelerate that growth in our business and I think everything that we're doing as it relates to our G&A and our G&A cost is really looking to say, what's the ROI on.
And how can we deploy those costs. So that we can accelerate the pace of our growth. So I think you would look at it on a technology side.
Bringing individuals into the organization that can help support the deployment of our technology solutions, both across the commercial segment as well as the aviation segment, I think bringing in new business development individuals that can further.
Allow us to get maybe a little bit deeper into clients, maybe we haven't had a relationship with before or maybe not we haven't had the relationship at the same level that we've had before and then bringing in new individuals.
That can help us continue to grow the business and then lastly.
Support functions that can allow us to grow in terms of the gross profit growth and support that gross profit growth.
The only thing I would add to what Chris is saying is that from the point of view of the development of the sphere platform.
Aero Parker and bags.
The peak development is sort of behind us now.
<unk> seen us ramp up over the past few years. Once we started on this strategy and while we will need to continue investing to develop to make sure that these products are at the cutting edge. That's how we win new businesses by demonstrating that we have capabilities that others don't have our main focus in 2023 and youll see it in.
More of this as we move into 2024 is to leverage the investments we've made already in technology and in G&A and try to accelerate our growth by the deployment of those capabilities and that's really the kind of our focus during the pandemic and before the pandemic a lot of our focus was on <unk>.
Developing the capabilities and while we've done a lot of deployment.
'twenty three is really our key focus is on execution and we see that being the way that we get that.
Double digit gross profit growth on an ongoing basis as the continued deployment I think one thing that is important we've introduced.
New metric, which is really to let you know that our scale and reach around our airport footprint.
As well as some other data that's in our investor presentation, but the thing to bear in mind, we're providing some kind of a service or another at almost 160 global airports, but in a lot of cases, it's one service in some cases, it's several services. So we have growth opportunities within aviation by simply deploying.
Technology, where we're only operating or additional operating services or additional technology, where we may only be providing one or two services. So even without going in getting additional airports to provide our services, we see opportunities to create sustained growth within the portfolio of clients that we already know and who knows.
Okay, Great. That's helpful color and I also wanted to ask in terms of.
Leverage I guess you referenced in your press release.
In the future you think.
High single digit growth gross profit growth beyond 2023 will lead to significant operating leverage and accelerated growth.
EBITDA and EPS.
I know youre not providing.
Guidance beyond 2023, but just kind of as you think about it strategically do you feel like 2023 is more of an investment year.
Like you guided to EBITDA grows in line with gross profit and then beyond that you start to.
See more of that.
Operating leverage in 2024 and beyond.
Kevin This is Chris I would say the answer the short answer is yes, I think as we look at 2023, certainly there is some it's a little bit of an investment year in terms of bringing additional resources into the organization that can support and generate faster growth I think if you were to look at.
Kind of that G&A ratio to GDP ratio, our GPA to G&A ratio that we've kind of historically if you look at and this gives a little bit of a sense just in terms of where it's at relative to where we've been if you look at the midpoint of.
$200 million.
And you look.
Look at G&A in terms of a $120 million, which is kind of what we said in their earnings releases.
$105 million.
There are additional cost that gives you a 48% of 48% G&A to GP ratio now if you go back to kind of that 2019 year on a pre COVID-19 basis.
We're kind of right at that same levels were right around 48, 49%. So I think while we've made a lot of investments in our G&A I don't think it's been kind of outsized to where we've been historically.
Right Okay.
Oh I get one more question here.
You talked about.
The goal of.
10% of your gross profit.
<unk> from.
Technology solutions by 2025, and it's only about.
2% now can you just.
Fine.
Exactly what you mean by technology solutions I know technologies.
Infused into a lot of your services and your solutions, but are you specifically, referring just to those.
Recurring transaction fees.
That's kind of where that 10% number come strong.
Okay.
Yes, I mean, I think in a nutshell, we're talking about trying to.
Capture.
For monetizing our technology and that might be software it might be.
Where it might be hardware and software and as you say Kevin technology in our operating businesses are very intertwined and so but we also see that the consumer is prepared to pay a fee and call. It a convenience fee a processing fee some sort of a modest fee for the benefit of convenient source.
Service and so we see we're getting these fees now we see others in the marketplace charging fees like that so we know that consumers readily accept that and we see that as an area, where we can grow and that growth really comes on the back of deploying the technology that we have already developed and so thats, what I meant about executing against the plan.
We have the technology that can do those things, we don't need to do significant additional development. So that we can capture those kind of fees now the job is really to get it out there into the marketplace as much as possible and to be positioned to capture those fees as we go forward.
Okay.
Alright, great. Thank you for taking the questions I'll turn it over.
Okay. Thanks, Kevin Thanks, Kevin.
Thank you one moment please.
Our next question comes from the line of Marc Riddick of Sidoti Your line is open.
Good afternoon Mark.
Hello.
Good evening, everyone. So I know you've covered quite a bit first of all and I want to thank you for all the detail that you provided both in prepared remarks as well as the.
The slides I was wonder if you could talk a little bit maybe more big picture.
<unk>.
And specifically around maybe what youre seeing with the return to office trends and maybe how that is.
Working through your expectations in working through into the 2020 guidance commentary.
Okay sure I'd be glad to Marc and of course, it's my commute to the office is any indicator everybody must be back at work because.
The extra time at least in the Chicago area are every bit as significant as they were back pre pandemic, but we do know because theres a lot of data out there that most companies have settled into a hybrid model for office.
And clearly hybrid models in order to optimize the revenue for our client base requires people that have cutting edge technology can offer unique solutions to what consumers are looking for because a lot of people aren't prepared to buy monthly parking if they are only coming into three or even four days a week and so on.
Technology platforms can enable those sorts of transactions and of course, our digital marketing and other marketing services can enable us to attract parkers to the client locations that we serve so we actually feel very good about the office environment and don't really expect to see a significant additional return.
The office space that beyond what we are seeing now its like 50% 60%.
In most major cities and certainly uncertain peak days like Wednesday, Thursday, it might even be more than that and its pretty dead at Monday, and Friday, but in terms of our growth that we saw this in our new location growth, we probably we brought out almost as many offices in <unk>.
<unk> of new clients in 2022, as we did any vertical within commercial and I think that just indicates to us that the.
The owners and property managers of office properties look at our operating capabilities and our technology capabilities and say these are going to help me optimize the value of my asset.
Alright that makes that makes perfect sense and then I was wondering if you could talk a little bit around the.
Because it certainly seems as though you kind of have this under control, but maybe you could sort of talk a little bit more about the concept of labor inflation and maybe what youre seeing there.
Because it certainly seems as though you've been able to manage that.
The.
Throughout the entire post pandemic environment, but certainly it seems as though you're feeling fairly comfortable about what you expect to see you know despite the inflationary environment going into and through 2030. So maybe you can talk a little bit about maybe what youre seeing there from a labor.
The area that sort of gives you that level of cover.
Yeah, Mark this is Chris I think.
Back on it.
I know, we talked about this kind of a couple of quarters ago, but we really did take a look at our kind of labor.
As you look at the workforce, we really looked at it on a more.
Market by market approach in terms of what is that market. What is the demand on that market and how do we try and help our operational folks get people into the organization in terms of workforce I think as you look at some of the.
Inflationary pressures that happened either through.
Individuals' feeling a little bit of a pension their pocketbooks.
Or becoming more comfortable with kind of returned to work given.
The pandemic is behind US I think youre seeing folks get back into the labor for us and I think that certainly.
Opening up more opportunities to bring in folks into the organization as well as tamped down kind of that inflationary pressure that we saw kind of earlier in the year in terms of flavor right. So I think all in all things seem to be going pretty well I think they've gone well historically for us, but I think we're in a pretty good spot from a late.
Their participation.
Okay, Great and then another just another big picture kind of question I was sort of thinking about it and I was wondering if there's something that you're seeing as of yet or if it's if it's part of your current.
Forecast.
Are there any thoughts as to maybe what youre seeing with municipalities.
And the.
<unk>, you may or may not see eventually from them spending more.
From infrastructure funding or other funding availability are you beginning to see more of that type of activity or do you forecast that being something that could be a benefit down the road.
Well municipalities definitely have financial pressures on them as we all know.
Including in the cities, we live in and a lot of those are just the demand for services pension obligations and the like and so clearly I think municipal leaders are looking for options to improve and to generate more revenue and to do so in an effective way and so it would be approximately 90 municipalities that we provide.
<unk> on Street.
And that would be cities like Los Angeles, or New Orleans, or Atlanta, Georgia, We're bringing again the same cutting edge technology as a low friction solutions text to pay scan to pay using their mobile device.
<unk> facilitated transaction and when we bring those things to bear what the client's experiences a higher capture rate of the revenue because people are it makes it so easy to pay its almost like well I might as well do it and so youre compliance levels are very high and so there's definitely renewed into.
And what can we do there and in many many cities for.
Our country still has a traditional single has parking meters that except coins and if they do and there's about 3000 cities out there that.
We have on street parking there's huge opportunities for them to simply outsource their operation to somebody like us. So we can do it all we can bring the technology. We can write parking tickets, we can do enforcement.
Whole array of services are there, but you mentioned financing or or other options and we are seeing this it hasnt resumed in the in the municipality space yet by universities are really looking at these same some of the same issues and we partner with some financial backers for <unk>.
<unk> privatization at the University of Toledo last year.
Which has gone exceptionally well and where the university was getting both upfront cash flow from investors, but also sharing in an increased revenue stream. That's been brought about by us bringing in our technology, capturing more of the revenue and so they have an ongoing higher revenue stream than they had previously plus this.
Upfront payment and I think once you get a couple of the success stories being known in the.
Out there in the World if you will.
Going to be others clamoring to do the same thing. So we're actively working with the same financial partner to talk to other perspective universities, who now can see the value its almost a little bit like having your cake you needed to I can get needed upfront funds that maybe help me with something that I need, but I can also have a higher revenue stream.
I had before when I was doing it myself.
Great and then the last one from me I promise because I know, we can go and we are up against it now I was wonder if you can talk a little bit about the pricing.
The dynamic that Youre seeing.
Both with exist.
Existing customers new customers and then you know maybe some.
Those thoughts into maybe what the consumer price increases may sort of play out as to how that sort of played into the setting of your 2000 and for me guys. Thanks.
Sure well I think I mean, when you talk we'd like to talk about the people who own the assets or manage the assets that we operate as clients and those people.
Clearly if you can demonstrate value to them. If you can show them that bringing operating expertise marketing strategies digital strategy digital solutions in the form of hardware and software that create both a better experience for their consumers and also more money to their bottom line their prepare.
To pay a fair fee for that and so we.
We have never started as a business to try to be the low cost solution and.
And we've always thought to be the people that provide solutions that create the most value for asset owners and if we do that and we find that we're able to be paid fairly for those services with respect to the public itself I think there is.
There's been a lot of inflationary increases in parking rates in most cities and a lot of it has been driven by the fact that a lot of folks are not comfortable yet riding on mass transit.
They often in the past also had monthly passes on for mass transit and so there we've gotten used to maybe being in their car and so there is a lot more travel and commuting to work and to other places by car than there was before Uber and Lyft rates have gone higher are often waiting times are higher and so it's a car.
<unk>.
There is definitely the ability to raise parking rates, but at the same time convert more of the parking facilities for daily parking as opposed to monthly parking and then of course monthly parking is discounted parking so from the vantage point of clients from the vantage point of ourselves, where we're operating lease locations. If we can bring in more <unk>.
Daily Parkers and fewer monthly parkers, we can actually generate more bottom line profit for those facilities. So those dynamics are still going on but like inflation generally in our economy that were big increases coming out of the pandemic that is leveling off now, but we have web tools that we've done.
Relative to where we are scraping competitive parking rates around the facilities, we operate and that enables us to recommend changes to pricing to our clients or for ourselves that our lease locations. So we're monitoring it very carefully and constantly for opportunities to increase parking rates and generate more profit for clients and more bottomley.
And for ourselves.
Excellent. Thank you very much.
Thanks, Mark Thanks, Mark Thank.
Thank you I'm showing no further questions at this time I will turn the call back over to Marc Baumann for any closing remarks.
Great well, thank you and thanks to all of you for joining US today, we are excited about the prospects for our future. We've tried to lay out some new metrics and targets. So that you can get a better idea of what we're working on and how we see things panning out and we look forward to bringing you. Another update after Q1 in early May take care and have a good evening.
<unk>.
Thank you ladies and gentlemen, this does conclude today's conference. Thank you all participating you may now disconnect have a great day.
The conference will begin shortly.
Lower Johan during Q&A, you can dial one one.
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