Q3 2024 Mobile Infrastructure Corp Earnings Call
Speaker Change: Good day and welcome to the Mobile Infrastructure Corporation 3rd Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation there will be an opportunity to ask questions.
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Please note, this event is being recorded.
Speaker Change: I would now like to turn the conference over to Casey Kotary, Investor Relations Representative. Please go ahead.
Casey Kotary: Thank you, Operator. Good afternoon, everyone, and thank you for joining us to review Mobile's third quarter 2024 performance.
Casey Kotary: With us today from mobile are Manuel Chavez, CEO, and Stephanie Hogue, President.
Casey Kotary: In a moment, we will hear management statements about the company's results of operations as of the third quarter of 2024.
Speaker Change: Before we begin, we would like to remind everyone that today's discussion includes forward-looking statements, including projections and estimates of future events, business or industry trends, or business or financial results.
Speaker Change: Actual results may vary significantly from those statements and may be affected by the risks Mobile has identified in today's press release and those identified in its filings with the SEC, including Mobile's most recent annual report on Form 10-K and its most recent quarterly report on Form 10-Q.
Speaker Change: Mobile assumes no obligation and does not intend to update or comment on forward-looking statements made on this call.
Speaker Change: Mobile's earnings release and the most recent quarterly report on Form 10-Q provide a reconciliation of these measures to the most directly comparable gap measures and a list of the reasons why Mobile uses these measures.
Speaker Change: I will now turn the call over to Mobile's CEO, Manuel Chavez, to discuss third quarter 2024 performance. Manuel?
Manuel Chavez: Thank You Casey and thanks to all participating in today's call to review our third quarter results and discuss our business outlook.
Manuel Chavez: We continue to make operational and financial progress in the third quarter, increasing our net operating income, or NOI, by 3.8% to bring year-to-date NOI growth to 9.5%, in line with high single-digit guidance we provided at the beginning of this year.
Manuel Chavez: Revenue growth of 21% reflects the year-to-date conversion of 29 of our 41 parking assets to managed contracts from leases, as well as a modest contribution from organic growth.
Manuel Chavez: This strategic shift has strengthened our operating model in several ways.
Manuel Chavez: We now have greater access to parking data, which we are using to increase utilization, and the real-time insight we are gaining into marketplace conditions informs our marketing and pricing decisions.
Manuel Chavez: Additionally, we now have more ability to control expenses at the asset level, which has enabled us to use our resources more efficiently.
Manuel Chavez: We are pleased to see third quarter recurring contract parking volumes increase year-on-year for the second consecutive quarter.
Manuel Chavez: offsetting sluggish transient parking demand at hospitality and event locations and our markets.
Manuel Chavez: In fact, we believe we are at an inflection point as COVID-related cancellations of corporate parking contracts, which have masked the success we have had in bringing on new business for much of 2024, are mostly behind us.
Manuel Chavez: It appears that by now, most of the corporates located in our markets have resolved their policies with respect to the number of days that employees are required to spend in the offices, which provides us with a baseline of occupancy for our nearby parking facilities.
Manuel Chavez: In the third quarter, our revenue per available stall, or REVPAS, showed a year-on-year growth for the first time this year, which is a good indication of the improved performance of our underlying assets.
Manuel Chavez: In addition to the wind-down of COVID-related corporate contract cancellations, two other secular trends have begun to emerge that should modestly benefit our results in the fourth quarter and have a more meaningful positive impact on our 2025 performance.
Manuel Chavez: First, we are seeing early indications of return-to-office trends in our markets.
Manuel Chavez: This has been particularly notable in the healthcare, professional services, and food and beverage sectors, building on the strength we have seen earlier this year from employees returning to in-person work at social services and municipal offices.
Manuel Chavez: Second, and even more potentially impactful, is the conversion of Class B downtown commercial offices to residential apartment living, which is taking place across several of our markets with specific strength near many of our Midwestern locations.
Manuel Chavez: The first of these projects will begin delivering space in Q4, creating a pickup and demand at our adjacent parking location where we have substantial capacity.
Manuel Chavez: These conversions represent an important demand driver for our company as the shift from the previous commercial usage of 8 a.m. to 5 p.m.
Manuel Chavez: parking access to 24 seven parking access should result in a significant increase in utilization and revenue. And in addition to the residential aspect certain of these projects.
include hotels and new amenity rich commercial spaces.
Manuel Chavez: The pace of these conversions has accelerated since the beginning of the year, and there are a number of similar projects under construction in our markets that are scheduled for completion in 2025 and 2026.
Manuel Chavez: And the developers of these new residential units are keen to offer parking as part of their sales proposition.
our analytics
Manuel Chavez: expertise and micro market relationships and well-located downtown parking assets have given the company a first-mover advantage to capture these new growth opportunities and we are actively engaged in discussions on pricing and number of required spaces with developers.
Manuel Chavez: As we work to increase the utilization and profitability of our assets, we are also keeping a close eye on opportunities to capture premiums on our asset values.
This was the case with one of our parking lots.
Manuel Chavez: in the third quarter in Indianapolis, which was just sold for
over 4.6 million dollars.
Manuel Chavez: higher value for other uses and when this reaches a level that makes sense
Manuel Chavez: We are willing to sell to optimize value far above the net asset value of $7.25 per share that is based on what is deemed the fair market value of our assets minus outstanding debt.
Manuel Chavez: When there is a motivated buyer who is assembling downtown real estate, we are in a strong position to benefit.
Manuel Chavez: We also continue to evaluate opportunities to expand our portfolio with assets that have multiple demand drivers and where we can leverage our market expertise.
Manuel Chavez: In summary, we like our market positioning and see several opportunities for upside, namely newer residential projects close to our location and greater consistency in demand for parking.
Speaker Change: I will now turn the call over to Mobile's President, Stephanie Hogue, who will provide a more detailed review of our third quarter operating and business results.
stephanie
Stephanie Hogue: Thank you, Manuel, and good morning, everyone. I am pleased to discuss the financial details of our third quarter 2024 results.
Stephanie Hogue: We are happy to report that within a few weeks of our Q2 earnings conference call, we took decisive strategic actions designated to enhance long-term shareholder value and narrow the gap between our net asset value, or NAB, of $7.25 per share and our share price.
Stephanie Hogue: First we established a 40 million dollar line of credit to provide capital flexibility specifically for initiatives such as repurchasing the company's preferred and common shares.
Stephanie Hogue: Previously, when preferred shares were redeemed, they were converted to common shares, which often found their way to the equity market quickly, putting unnecessary pressure on our share price.
Stephanie Hogue: The conversion essentially had us issuing shares at a significant discount to our intrinsic value, making the new shares highly diluted. With our new credit line, we have shifted to redeeming preferred shares for cash.
Stephanie Hogue: Since implementation, we have drawn $7.8 million to redeem preferred shares. We have made good headway and now have $23.7 million of preferred shares remaining, down from $39.5 million at the start of the year.
Stephanie Hogue: In addition, we have caught up on accrued distributions on outstanding preferred shares. By bringing distributions current, we believe that the pace of redemption may slow, as investors are again realizing a current return from ongoing distributions.
Stephanie Hogue: Together, these actions highlight both our positive outlook and our efforts to achieve a share price that is more in line with the value of our asset portfolio.
Now let's turn to the third quarter.
Stephanie Hogue: Revenue of $9.8 million in the third quarter increased 21% year-over-year, from $8.1 million in the third quarter of 2023. Over the past year, revenue has benefited from the conversion of 29 assets to management contracts, including two that were completed in the third quarter.
Stephanie Hogue: As a reminder, the conversion results in higher revenue, as we recognize revenue based on volumes and rates, rather than cash collections from operators, which do not typically occur on a straight line basis.
Stephanie Hogue: We view accrual-based revenue recognition for management contracts as a reliable metric for investors to monitor our underlying business trends. We continue to work to convert additional facilities to management contracts and expect further progress as more leases roll over in 2026 and 2027.
Stephanie Hogue: In our third quarter earnings release, we introduced Revenue Per Available Stall, or REVPAS.
Stephanie Hogue: RevPath is a key metric we use within our portfolio. As we convert additional locations to management contracts, RevPath will provide investors a view of our ability to improve location performance.
Speaker Change: As Manuel mentioned, Same Location Rest Past reached an inflection point in the third quarter, turning positive on a year-over-year basis for the first time in 2024.
Speaker Change: While there are some seasonal and other factors that can impact rep paths, we look forward to sharing more with you on our topline performance via this metric which we plan to report quarterly going forward.
Speaker Change: Property operating expenses were $1.8 million compared to $400,000 in last year's third quarter. The increase primarily resulted from the shift to management contracts and the related accounting treatment of recognizing asset-level expenses within our financial statement.
Property taxes were 1.8 million dollars, flat with last year.
Speaker Change: NOI represented 62% of third quarter 2024 revenue, with the bulk of the growth derived from our managed locations, underscoring the benefit of our shift in the business model.
Speaker Change: General and administrative expenses of $2.7 million were down from $4.2 million in last year's third quarter.
Speaker Change: This included non-cash compensation of $1.3 million in the current year quarter compared with $3.1 million of non-cash comp in the prior year quarter.
Speaker Change: As we have mentioned in the past, mobile infrastructure benefits from significant operating leverage and can grow without significant Q&A increases as our infrastructure can readily support a larger asset base.
Speaker Change: Adjusted EBITDA was $4.5 million, up 2.2% from $4.4 million last year, and Adjusted EBITDA margin was 46.2%.
Speaker Change: Looking at our balance sheet, mobile infrastructure had $14.3 million in cash and restricted cash at the end of the quarter. Total debt outstanding was $203.3 million, up from $192.9 million at the end of 2023, reflecting cash used for the strategic shareholder actions I mentioned earlier.
Speaker Change: We have several active initiatives underway on refinancing and expect to have more to report before year-end.
Speaker Change: Our year-to-date results position us to reaffirm our prior 2024 guidance and we continue to expect revenue in the range of $38 to $40 million, which includes the benefit of our shift from leases to management contracts together with modest organic growth.
Speaker Change: Our revenue guidance is based on gross revenue, which includes sales tax and credit card fees, typically around 10%. We report on a net revenue basis, which excludes these fees.
Speaker Change: Finally, as you know, in managing our business, we focus significantly on NOI. Our NOI guidance
Speaker Change: which we are reaffirming as well, is for NOI in the range of $22.5 million to $23.25 million. And with that, I will turn the call back over to Manuel for his closing remarks.
Manuel Chavez: To sum up, we are pleased with our year-to-date performance as it puts us on track to reach the full year 2024 guidance we provided at the beginning of this year.
Manuel Chavez: At that time, we described 2024 as a year in which we would focus on operational improvement as we work to further strengthen the performance of our existing asset portfolio.
Manuel Chavez: We have done just that and have succeeded in increasing our net operating income by almost 10% amid challenging market conditions.
Manuel Chavez: Longer term, we expect to build on our proven operating model to become the acquirer of choice in the fragmented parking industry.
Operator, let's open the call for questions.
i
We will now begin the question and answer session.
Manuel Chavez: To ask a question, you may press star, then 1 on a touch-tone phone.
Manuel Chavez: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.
Speaker Change: The first question today comes from Brian Meagher with B Riley. Please go ahead.
Thank you and good morning, Mary.
Stephanie Hogue: Hi everyone, Stephanie. First of all I want to start off by thanking you for the much improved earnings deck with that data. Very, very helpful for modeling. Kind of moving on, the earnings deck says replacement cost is significantly higher than NAV.
Stephanie Hogue: Can you quantify that? How are you coming up with that number? Is it appraisals? Is it, you know, cost to purchase? Give us more color on that, please
Speaker Change: So replacement costs would include a combination of land value and construction costs.
Speaker Change: And so, is that something you're monitoring across your portfolio to make that?
statement? Yes.
Speaker Change: Yes, we are out in the market talking to talking to construction and engineers to monitor the replacement cost of each market.
Speaker Change: Okay, and then when we think about your acquisition pipeline, which is pretty big.
Speaker Change: What are the risks of somebody else acquiring those properties in front of you? How should we think about that? Who are the sellers? What are their motivations?
Speaker Change: Right, so it's important to note that our acquisition pipeline is not stagnant. So while we may refer to it as, you know, three, three or four hundred, five hundred million dollars,
Speaker Change: across the U.S. Those assets are constantly changing. Some of them are trading.
Speaker Change: and some of them aren't. And frankly, if they're trading at values where we don't see upside or we don't see material accretion, we're okay with that. We're going to be patient and disciplined buyers.
Speaker Change: But the important thing is that we have our heads up and our eyes open. We're in the market. We're constantly talking to buyers and sellers. And so we are growing that pipeline.
Okay, and when you are looking at...
Speaker Change: properties to buy. Is your preference to do more of a lot transaction or a garage transaction and why?
Speaker Change: So we like both asset types. Primarily we are underwriting to parking income. Oftentimes when parking lots trade they trade off land value which could be well in excess of a parking income.
Speaker Change: Okay, and then just last for me, on the Indianapolis property you sold, was that something that you marketed or was that an unsolicited offer?
Speaker Change: No, so we were out in the market talking to stakeholders and developers. We had a parking investor.
Speaker Change: make us an unsolicited offer that was less than half of what we eventually sold it for. And so being disciplined in our sale process and understanding that we buy properties and assets off of parking income and we sell them.
Speaker Change: to stakeholder premiums and for developer multiples. And so we're able to identify a stakeholder and developer that valued the site at land value. And so that's where we transacted.
Okay, thank you. That's all for me. Thank you.
Speaker Change: The next question comes from Mark Riddick with Sidotium Company. Please go ahead.
Thank you, and good morning.
Good morning.
Speaker Change: So I was wondering if you could talk a little bit more about the Red Cross measure and some of the components there. I guess maybe, why don't we start with the, so we're able to see growth in the third quarter year over year on the same location.
Speaker Change: Can you talk a little bit about maybe some of the the the puts and takes involved there as far as what led to the growth year over year and and what areas that you sort of you know that investors should target?
Speaker Change: Yeah, sure. So RevPath is a combination of utilization and average rate. Both drive that number.
Speaker Change: At the beginning of the year we had some significant sort of COVID cancellations and these are actually people that or companies that made commitments to us in the latter part of 2023.
Speaker Change: and then changed their mind on how they were going to conduct sort of return to office.
Speaker Change: from either the number of people or days of week or just not return at all. And that's certainly, you know, a trend that we saw throughout 2022 and 2023.
Speaker Change: What we've seen is, so that hit us in the first quarter, which created a significant headwind.
Since the first quarter, we've seen
the lessening of those COVID cancellations.
Speaker Change: And so while we've been growing sort of in the background, we've been growing against this headwind. And so finally in the third quarter, we were able to outpace those cancellations in the latter part of Q4 and then Q1 of 2024.
Speaker Change: So it's reasonable to say that the year-over-year growth in this measure for the third quarter, I guess specifically, is more a reflection of utilization growth.
as opposed to the revenue component? Yes, it is.
Speaker Change: Okay, okay, great. And then, Stephanie, I think in your prepared remarks you made...
Stephanie Hogue: a comment on on seasonality or or or pacing I don't want I don't want to
Speaker Change: I was wondering if you could talk a little bit about that and how we should think about it, whether that's seasonality within a quarter and then maybe what the factors are that might be there. I would imagine revenue might have something to do with it, but maybe you can expand on that for us.
Speaker Change: Yeah, that's a great question. So there is there's seasonality in the business
Speaker Change: which is one of the reasons we really like the trailing 12-month REV Pass because it gives you a clear view of how sticky revenue is.
Speaker Change: But if you look at the numbers on the page, you know, first quarter is typically our lowest and that has, to your point, there's a lower mix of
travel, hotel, events.
Speaker Change: and they are really more kind of in that transient daily and monthly category. As you go through the year,
Speaker Change: Third quarter is the peak in terms of the mix of events and uses of a parking asset. And second and fourth quarter are roughly comparable in terms of usage, utilization, and the dynamic changes of the daily use of the asset.
Speaker Change: Okay great and then last one for me and this might be a little squishy but forgive me if it is. I seem to recall last year it felt like, and you can tell me if I'm wrong about this, it felt like we had a really healthy actually very strong amount of
Speaker Change: of events and concerts and major artists touring and things of that nature. I'm not sure if that was necessarily...
Speaker Change: That's a great question. In 2023, we saw across our portfolio, it was sort of a COVID-related lockdown.
Speaker Change: bounce back in experiential spending. So, you know, movement around travel, event, even food and beverage type demand drivers, we saw a lot of sort of a, you know, bounce back that was bigger than historically.
Speaker Change: which would be the norm and I think in 2024 we've seen sort of a reversion to that norm and we would expect now we would sort of be back on that pace of single-digit top-line growth in our transient
Robbindale
Thank you very much. Thank you, Mark.
Speaker Change: The next question comes from Michael Diana with Maxim Group. Please go ahead.
Speaker Change: Okay, thank you. On your revenue drivers, you talk about early indications of return to office. Could you give us some either anecdotal evidence or any particular geographies that you're seeing this?
Speaker Change: Yeah, we're seeing, I mean, certainly return to office trends are stronger in the southwest and in the Midwest than they are on the coast.
Speaker Change: We are seeing Tuesdays as the peak days for return to office and Fridays as the as the trough.
We have been seeing a transition of people that...
Speaker Change: have been slowly coming back to the CBD Corps, back to their office and buying daily parking. We've been seeing a transition.
Speaker Change: from that into monthly contract parking which is positive for us.
Speaker Change: And then I would say that the continued sort of re-aminatized or re-aminatization of
Speaker Change: Class A office towers into sort of these more experiential lobbies.
Speaker Change: has also sort of expedited that return to office movement. So we're closely tracking where developers are deploying capital and getting out in front of that return.
Speaker Change: Okay, thank you. And then conversion of downtown office space to residential rentals.
Speaker Change: Can you tell us which market that first conversion was in, or if not, just generally where you see this happening? Yeah. Thank you. Bye-bye.
Speaker Change: That timeline varies, and it varies considerably, up to 12 to 18 months.
So we're really focused on when these projects
are zoned.
Speaker Change: They get building permits, they're financed, and then they actually break ground on it.
Indianapolis as well.
Speaker Change: Okay, and I guess you in certain cases you say you've started negotiating with the developers of those conversions to actually use your parking services.
Speaker Change: Yes, yes we have and some cases the developers want to control the cost of the parking for their
Speaker Change: for their renter and so they'll go on and make longer-term commitments to us and in other cases the developer just wants to sort of point their renter in our direction and negotiate their own their own parking rate.
Speaker Change: If there's a significant offset of risk with the developer taking on sort of longer term at an appropriate price,
Speaker Change: then we're happy to sort of shift that risk in exchange for reoccurring income. If there's not, then we're also very, very happy and most times actually happier to just supply spaces on the open market.
Okay, very interesting.
Speaker Change: On the expense side, you mentioned that you're, quote, gaining additional oversight on expense. I guess you mean as...
Speaker Change: you get more properties moving from leases to managed contracts. And you also mentioned operating leverage. What is the opportunity here on the expense side, do you think?
Yeah, so you're exactly right.
Speaker Change: The conversion from leases to management contracts gives us greater visibility and transparency into what's happening at the asset, and therefore allows us to work with the operator to maintain an expense margin pretty tightly.
That's the key in terms of the business strategy shift.
Speaker Change: The operating leverage that I referenced in the remarks is really around...
around the business strategy and so
Speaker Change: Having third-party operators allows us to scale the company pretty quickly with an asset base without scaling the corporate overhead Our operators are great partners for us. They are additional boots on the ground And so it allows us to scale materially without adding you know twice the overhead
Speaker Change: Okay, great, thanks. And then finally, do you have any updates on either your use of technology or ancillary revenue?
Thank you. Bye.
Speaker Change: yes so we work with a we work with a number of different operators and as you've seen because it's been
Speaker Change: It's been in the news as a lot lately There's been an enormous amount of venture capital money deployed in sort of parking technology providers
Speaker Change: and parking operators that are actually developing their own technology now. So we work closely with our operators and service and hardware providers.
Speaker Change: to make sure that we're staying on top of the latest in terms of validation, revenue control, wayfinding, etc.
Okay, great. And anything on ancillary revenue?
Speaker Change: In that similar area, revenue, we're continuing to talk with whether it's, you know, EV charging, we have talks with cell storage, with cell phone towers.
Speaker Change: We still see a lot of opportunity with that. We are looking at opportunities to really analyze best partners, impact, and then analyze sort of the longer term impact on our assets as well.
Okay, great. Thank you very much. Thank you.
Speaker Change: concludes our question-and-answer session. I would like to turn the conference back over for any closing remarks.
Thank you all for attending. Have a good day.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.