SP Plus Q3 2021 Earnings Call Transcript

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Provided by Quartr
October 26, 2021

Key Takeaways

  • Q3 adjusted gross profit recovered to 84% of Q3 2019 levels, supported by easing COVID-19 restrictions and a streamlined cost structure with G&A expenses 20% below pre-pandemic levels.
  • Adjusted EBITDA rose 18% sequentially, and year-to-date free cash flow reached $21 million, leading to a $10 million upward revision in full-year operating and free cash flow guidance.
  • The commercial segment began servicing 69 new locations in Q3, achieved a 91% retention rate over the past 12 months, and launched the Park U Toledo public-private partnership managing over 10,000 spaces.
  • Aviation recovery continued with TSA screenings at 75–80% of 2019 volumes, new parking and shuttle contracts at Reagan National and Dulles, and expanded valet and curbside services at major airports.
  • Sphere technology deployments accelerated to 412 gateless and 119 gated locations, driving a 200% quarter-over-quarter increase in mobile point-of-sale transactions and earning recognition as Innovative Organization of the Year.
AI Generated. May Contain Errors.
Earnings Conference Call
SP Plus Q3 2021
00:00 / 00:00

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Operator

Thank you for standing by. Welcome to the SP Plus Corporation Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Kristopher Roy, Chief Financial Officer. Please go ahead.

Kristopher Roy
Kristopher Roy
CFO at SP Plus

Thank you, Victor, and good afternoon, everyone. As Victor just said, I'm Kris Roy, Chief Financial Officer of SP Plus. Welcome to our conference call following the release of our Third Quarter 2021 Earnings. During the call today, management will make remarks that may be considered forward-looking statements, including statements as to the impact of COVID-19, outlook and expectations for 2021, and statements regarding the company's strategies, plans, intentions, future operations, and expected financial performance. Actual results, performance, and achievements could differ materially from those expressed or implied due to a variety of risks, uncertainties, or other factors, including those described in the company's earnings release issued earlier this afternoon, which is incorporated by reference for purposes of this call and available on the SP Plus website.

Kristopher Roy
Kristopher Roy
CFO at SP Plus

The risk factors in the company's annual report on Form 10-K and quarterly reports on Form 10-Q and other filings with the SEC. In addition, management will discuss non-GAAP financial information during the call. Management believes the presentation of non-GAAP results provides investors with useful supplemental information concerning the company's ongoing operations and is an appropriate way to evaluate the company's performance. They are provided for informational purposes only. A full reconciliation of non-GAAP financial measures to comparable GAAP financial measures were presented in the tables accompanying the earnings release. To the extent other non-GAAP financial measures are discussed on the call, reconciliations to comparable GAAP measure will be posted under the Regulation G tab in the Investor Relations section of the SP Plus website. Please note this call is being broadcast live over the Internet and is being recorded.

Kristopher Roy
Kristopher Roy
CFO at SP Plus

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.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

Hey. Thank you, Kris, and good afternoon, everybody. We're pleased to report on SP Plus' strong Third Quarter Results. Our performance continues to track the ongoing recovery in business conditions and benefits from our streamlined cost structure, specifically the progressive reopening of the economy, consumer preferences for driving their personal vehicles versus mass transit and rideshare options, and improving air travel and hotel occupancy have all led to a broad-based uplift in demand for our services. Third quarter adjusted gross profit reached 84% of what it was in the comparable quarter of 2019, which we see as a strong showing given that parking activity at our same locations as well as overall air travel and hotel occupancy rates remain lower than what it was at this time two years ago pre-pandemic.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

Results for the quarter benefited from our reduced cost structure with adjusted G&A costs 20% below third quarter 2019 levels. The net result is substantial growth in adjusted EBITDA, which was up 18% on a sequential basis. As demand for our services continues to increase, you can expect to see our G&A increase, but we believe much of the cost reduction is sustainable, and we expect to continue to leverage G&A as we grow top-line gross profit. From the onset of the pandemic, we worked to reposition our portfolio, restructuring or exiting certain unprofitable leases and reducing costs in our business model, all while continuing to invest in our Sphere technology initiatives and maintaining an organization that we believe is well-positioned for the recovery that is currently underway.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

With an improved value proposition for our clients, the proven ability to start up new locations quickly, and our industry-leading technology offerings, we've been able to strengthen our leadership position and win new contracts in both our Commercial and Aviation segments. We believe this points to share gains for SP Plus that will support future long-term growth. In our Commercial segment, we began servicing 69 new locations during the third quarter. This success has been a function of SP Plus track record of providing superior service and offering innovative technology solutions. We believe that some of our competitors have not performed up to expectations. Given how we have helped our clients navigate during the pandemic, together with our financial stability and our award-winning innovations, we believe that owners now see us as the provider of choice versus other competitors who they may have considered in the past.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

We're particularly pleased to have recently commenced operations at the University of Toledo under its public-private partnership, ParkUToledo. SP Plus is responsible for day-to-day parking management, customer service, and maintenance for 66 surface lots representing more than 10,000 spaces. Just to clarify, given that we commenced operations in October, these locations are not included in the 69 new Q3 locations that I just referenced. With the success of this P3, we believe there will be renewed enthusiasm for public-private partnerships, particularly in higher education. Complementing robust new business growth in the Commercial segment, location retention was also strong at approximately 91% for the twelve months ended September 30, 2021. Our Commercial segment continues to recover nicely and see its share of new wins.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

While recovery in the office vertical has been slow, we've seen gross profit return to or even exceed pre-pandemic levels at residential locations as more people have purchased cars for the first time during the pandemic. Gross profit at healthcare and large venue locations have also recovered to or near pre-pandemic levels. Many of our new Commercial wins were a direct result of our technology offerings and solutions, as clients recognize that technology can solve some of the challenges resulting from a tightened labor market and as wage inflation has enhanced the return on investment of our technology products. We can offer new clients attractive solutions that reduce staffing needs while boosting their bottom line and generating a healthy return for SP Plus. A win-win all around.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

Turning to Aviation, since July, TSA passenger screenings have been running at about 75%-80% of 2019 levels, suggesting significant additional recovery potential. Our market position continues to grow and has been further enhanced by our recent contract wins, including the parking and shuttle operations at both Reagan National and Dulles International Airports, which started October 1 and cover 32,000 parking spaces and 55 shuttle buses. We've also added valet parking services at our existing Sonoma County Airport operation and curbside management at San Francisco International Airport, where we provide parking and other services. Last quarter, we spoke about our Curbside Concierge program, which combines Bags service offering with Sphere's mobile point-of-sale system to allow us to check-in passengers on multiple airlines for a modest service fee.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

Since we launched this new service in May, we've rolled out 20 Curbside Concierge locations for one airline client and expect to expand to another 20 airports by year-end. Additionally, we're in discussions with several other airlines given their interest in reducing airport and terminal congestion and improving customers' experiences, all the while reducing their operating costs. We continue to rapidly deploy our technology offerings, and to that end, we now have 412 facilities operating with our on-demand gateless solution and expect that we will have at least 450 locations up and running by the end of the year. Deployment of our on-demand gated solution is just starting to ramp up, and we currently have 119 locations either fully installed or pending installation, closing in on our goal of 150 by year-end.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

As a result of the deployment of these gated and gateless solutions, as well as increased reservation activity, third quarter 2021 transactions on parking.com was up 50% over Q2 of this year. The transaction growth is even greater on our mobile point-of-sale platforms, which is up 200% in the third quarter over Q2. I'm pleased to note that SP Plus was honored to be recognized as the innovative organization of the year by the National Parking Association, a leading industry group that counts numerous parking operators and other mobility technology solution providers as its members. This award was in large part a function of their recognition of the strength and sophistication of our Sphere brand of technology products and solutions.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

In addition to strengthening our ability to win new business and add incremental services for existing clients, Sphere also enables us to reduce our costs as well as capture transaction fees that were previously being earned by an outside provider. We'll continue to invest in technology offerings that position SP Plus at the forefront for new and incremental business. Lastly, we expect our full-year gross profit in 2021 to be at the high end of our guidance range of $170 million-$185 million, and we expect our G&A costs to be at the lower end of the $85 million-$90 million range. In addition, we're uplifting our operating cash flow and free cash flow guidance ranges by $10 million, which Kris will discuss more fully in a few minutes.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

We're very pleased with our performance to date in 2021, and we're looking forward to further recovery and overall growth in 2022 as we hopefully put the pandemic behind us, see clients ramping up our service levels and outsourcing more to us, and continue to capture new business opportunities. I'm now gonna turn the call over to Kris for a financial review of the quarter.

Kristopher Roy
Kristopher Roy
CFO at SP Plus

Thank you, Marc. My remarks today will cover adjusted third quarter 2021 results, and I'll also update you on our expectations going forward based on the business developments and trends that Marc shared with you just a moment ago. For those who are listening to our call for the first time, you can find our GAAP results and a full reconciliation of all non-GAAP measures to GAAP measures in our earnings release issued earlier this afternoon. The third quarter of 2021 adjusted gross profit improved sequentially and year-over-year to $49.5 million, a 7% increase sequentially and a 17% increase year-over-year. Just a reminder that the third quarter 2020 number included a $5.6 million benefit from an early termination fee related to certain Aviation contracts.

Kristopher Roy
Kristopher Roy
CFO at SP Plus

Marc Baumann spoke about the overall improving business conditions, and our performance definitely reflects that. Adjusted G&A expenses for the third quarter of 2021 were $20.8 million compared to $15.5 million in the year-ago quarter. This 34% increase year-over-year was due to a number of reasons, but mainly, once our business started to recover, we restored the base salaries that were reduced at the onset of the COVID-19 crisis. In addition, performance-based and long-term compensation, which was not a factor in 2020, is back to more normalized levels. If we compare this year's third quarter adjusted G&A to the pre-pandemic third quarter of 2019, it is 20% below those levels. While we believe a large portion of these cost savings are sustainable, we do expect that G&A will increase as we support and invest in our growing business activity.

Kristopher Roy
Kristopher Roy
CFO at SP Plus

Additionally, we are very pleased to report strong third quarter and year-to-date cash from operations and free cash flow. In the first nine months of 2021, the company generated $30.1 million in cash from operations and free cash flow of $21 million compared to $27.9 million and $18.9 million, respectively, a year ago. 2021 third quarter operating cash flow was $6.8 million, and free cash flow was $3.9 million. This quarter's cash flows reflect the payment of $15.9 million for 2020 payroll taxes that were deferred as part of the CARES Act.

Kristopher Roy
Kristopher Roy
CFO at SP Plus

As Marc already stated, based on our financial performance to date and our outlook for business trends going forward, we are uplifting our full year 2021 operating cash flow and free cash flow guidance ranges for both measures by $10 million. To be exact, operating cash flow is now expected to be in the range of $62 million-$76 million, representing a 72% increase at the midpoint compared to 2020 levels. Free cash flow is now expected to be in the range of $50 million-$60 million or 92% above 2020 levels at the midpoint. Embedded in our forecast is the expectation that we will collect a $20 million income tax refund in the fourth quarter of 2021, the majority of which was contemplated when we provided our original full year guidance.

Kristopher Roy
Kristopher Roy
CFO at SP Plus

The increase in cash flow expectations is truly a function of our business conditions improving. With that, I'll turn the call back over to the operator to begin the Q&A session. Operator, we are now ready for Q&A.

Operator

Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw the question, just press the pound key. Once again, to start with the questions, one moment for questions. Our first question will come from the line of Tim Mulrooney from William Blair. You may begin.

Tim Mulrooney
Tim Mulrooney
Equity Research Analyst at William Blair

Marc, Kris, good afternoon.

Kristopher Roy
Kristopher Roy
CFO at SP Plus

Hey, Tim.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

Hey, Tim.

Tim Mulrooney
Tim Mulrooney
Equity Research Analyst at William Blair

First question, your implied guidance for gross profit, I guess your guidance implies gross profit would be kind of flattish sequentially from the third quarter to the fourth quarter, and EBITDA maybe down a little bit sequentially. Now, the economy is still recovering, so I would have thought there'd be some sequential improvement, but then I thought, you know, maybe there might be some seasonality with the holidays or other mitigating circumstances that you might be able to highlight for us.

Kristopher Roy
Kristopher Roy
CFO at SP Plus

Yeah, Tim, this is Kris. I think if you look at just the base business kind of pre-COVID, I would say that a large majority of our seasonality happens in both the first quarter and the fourth quarter. I think as you look at the business in terms of performance for Q4, certainly you have some recovery that's happening, but you also have some seasonality that's offsetting that. I think as you look at the implied both gross profit and G&A, I think both of those factors have been contemplated as we've looked at our full year guidance.

Tim Mulrooney
Tim Mulrooney
Equity Research Analyst at William Blair

Okay. That's what I suspected. Thanks, Kris. Just one more from me. You know, more than labor inflation, some of my services companies are highlighting labor availability as one of their primary concerns right now. Is this also the case for you guys, or is it less of an issue as you continue to integrate automated technology into your facilities?

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

Well, I think most, like most companies that have hourly workers, you know, there's been challenges in filling open positions, and we're certainly no exception to that. I'd say it has not inhibited our business and our ability to deliver our results. You know, if we have open positions that, because of the shortages that are going on now, as I indicated in my remarks, there is an opportunity to introduce automation and maybe reduce the need for filling some of those open positions. Certainly, that is going on now.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

I would say also what we have to recognize is that in many cases, we're gonna have to put up labor rates in order to be able to attract talent, and particularly in jobs that, you know, as bus drivers and valet attendants and other jobs where automation can't really be a factor. As we do that, you know, our goal is clearly to, you know, recover those increased costs, and we've been able to do that so far, either in the case of lease locations where we're putting up parking rates on our own behalf, and then at management locations, you know, those increased costs are gonna be passed on to our client base for the most part. I think it's a challenge for most businesses right now, but we feel like we're navigating through it pretty well.

Tim Mulrooney
Tim Mulrooney
Equity Research Analyst at William Blair

Great. Thanks for taking my questions.

Operator

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

Daniel Moore
Daniel Moore
Director of Research at CJS Securities

Thanks, Marc. Thanks, Kris. Good afternoon.

Kristopher Roy
Kristopher Roy
CFO at SP Plus

Hey, Dan.

Daniel Moore
Daniel Moore
Director of Research at CJS Securities

Let me start with, this might be a little squishy, but you know, with gross profit approaching 85% of pre-pandemic levels, can you talk about the areas of your business that are still in that reopening phase? I'm thinking of Bags specifically and maybe some of the lease agreements you mentioned, office type locations. Just, you know, what would it take in terms of the macro environment to get back to the 100% of pre-pandemic gross profit levels?

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

Sure. Well, I think if we look at our segments and talk maybe first about our Commercial segment, which is everything besides Airports and Bags, you know, as I indicated, number of our verticals are back to pre-pandemic levels now, and they're the ones that you might imagine they would be. We touched on a couple of them in the comments, but residential in particular and large venues, I think sporting events and other large activities like that have pretty much resumed sort of normal levels of activity. Office buildings are lagging, and certainly, while hotels are growing constantly, and we've added a number of new hotel clients during the quarter, they're still not back to pre-pandemic levels. There's a few verticals like that that are still have a ways to come back in the Commercial segment.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

I think clearly getting people into the offices and not full-time, but, you know, at least on a hybrid schedule, you know, will definitely help. I think as people travel more, both business travel and also leisure travel, we're gonna start to see those hotels fill up. Turning over to the Aviation segment, you know, it's really a function of level of travel that's going on. You know, I referenced the TSA numbers. Clearly there was a strong rebound in the summer with leisure travel that has fallen back a little bit as people have gone back to school, but not fallen back relative to 2019.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

While there's less leisure travel going on now, it's the relationship to 2019 is pretty much the same as it was, you know, earlier a couple months ago. Business travel is lagging, has not come back. Now in our business, we obviously are more focused toward leisure travel, and that's really what it's gonna take for the Bags business to come back fully, is a sustained rebound in leisure travel. I think the good news is that airlines are really excited about the fourth quarter. They're putting on capacity and expecting, you know, people to really wanna make those reconnections over the holidays with family members or maybe go someplace warm if they're in a colder climate.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

I think we'll continue to see improved recovery in the Aviation segment, but you know, there's a ways to go before travel has returned to the levels that it was in 2019, and I think that's really what we need to see to get our own business back to 2019 levels.

Daniel Moore
Daniel Moore
Director of Research at CJS Securities

Very helpful. Appreciate the comments around G&A. When we do get back to more of a full reopening, whatever that looks like, you know, how do we think about a reasonable quarterly or annual run rate for G&A?

Kristopher Roy
Kristopher Roy
CFO at SP Plus

I say, Dan, this is Kris. I think it's probably a little early to give kind of the full perspective around that. Certainly we're, you know, we've taken a lot of costs out of the business structurally as we've looked at processes and really try to drive some incremental costs out of the business. I think as you look at some of the investments we're making on the growth of the business, not just around the Sphere technology, but around business development activities and the like, I think it's probably just a little early. Let us kind of frame that up as we kinda go through our budgeting season, and I think we'll be able to give you a little more perspective on that as we announce our fourth quarter results and our 2022 guidance.

Daniel Moore
Daniel Moore
Director of Research at CJS Securities

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

Kristopher Roy
Kristopher Roy
CFO at SP Plus

I think that's the case. I mean, I don't wanna commit to kinda how much that is, but I think you know, the expectation would be that, you know, next year's G&A would certainly be less than 2019 G&A.

Daniel Moore
Daniel Moore
Director of Research at CJS Securities

Perfect. Lastly, obviously you've done a ton of work over the last 18 months renegotiating leases and contracts on both temporary and permanent basis. You know, at this stage, based on the path of reopening, where are you? You know, what percentage of your agreements are where you would like them to be? I'm just trying to get a sense if there's more work to be done or if you might even benefit from, you know, some lingering underperforming contracts expiring or rolling off in the next year or so. Thank you.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

Sure. Yeah, I think we're principally done with renegotiating deals. That being said, you know, we have a large portfolio of leases. It's over 400 leases, and many are performing very well. Certainly there are quite a few that are back to 2019 levels or beyond. Then we have some that are underperforming still, and some of that is because of COVID and some of it is because of other factors that affect that location. Those will continue to get our attention, and if we can find ways to improve their performance, either by renegotiating or, in other cases, driving our Sphere technology platform through those lease locations to take costs out or drive more revenue, you know, we're gonna be doing all those things.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

I don't think you're gonna see, you know, a radical change in our lease count, you know, as we go forward. We've talked before about the fact that we were more than willing to do leases. We're just not willing to do leases that have long terms and no way out of them. You know, we've been very, very prudent in the leases we've entered into over the past 18 months to try to make sure that we have the flexibility that we need. So, you know, I think we've got the portfolio in a good place. We've talked before about the fact that the remaining term on our lease portfolio is between six and seven years.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

During that time period, for the most part, they're all gonna burn off. If we have any there that are underperforming and that we haven't been able to fix, they're gonna drop away for sure.

Daniel Moore
Daniel Moore
Director of Research at CJS Securities

All right. Thanks for the color. I'll jump back with any follow-ups.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

All right, Dan. Thank you.

Kristopher Roy
Kristopher Roy
CFO at SP Plus

Thanks, Dan.

Operator

Our next question will come from the line of Marc Riddick from Sidoti. You may begin.

Marc Riddick
Marc Riddick
Senior Equity Analyst at Sidoti

Hi, good evening.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

Hey. Hi, Marc.

Kristopher Roy
Kristopher Roy
CFO at SP Plus

Hi, Marc.

Marc Riddick
Marc Riddick
Senior Equity Analyst at Sidoti

I wanted to circle back on one of the things you mentioned in your prepared remarks, which was around wage inflation and how it might, if I heard it correctly, be helping to sort of put forward some of the benefits of the Sphere offerings. I was wondering if you could put a little more on that because it seems as though something that would make sense, but I was wondering if you talk a little bit about that and how that might be a driver for technology service breakthrough going forward.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

Sure. Well, I think, you know, if you look at some of the Sphere capabilities, in many cases, we're enabling a low friction, using your mobile device to conduct your entire transaction. You not only don't have to roll down the window of your car when you're entering the parking facility, you don't have to roll down the window and interact with the cashier when you're leaving. The increased penetration of those type of capabilities, you know, reduce the need for cashiers. There's just no doubt about that. The other thing is that we have productivity needs that we have to manage. We have to manage people pushing wheelchairs. We have to manage valet attendants who are putting cars away and getting cars out for customers.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

We have to manage bus drivers and know where they're at and where they are in their routes. To the extent that we can deploy technology, we can improve the productivity of those people, even though those are not jobs that really could be replaced by automation, we can still help the people that are in those jobs be more productive. Clearly, you know, as I indicated to one of the earlier questions, you know, in some cases, we have to put up wages. I mean, there's just no way around that. We're competing in a marketplace for hourly workers with other organizations, and that's just part of the feature of our business. That's why, in particular, we like our business model, which is predominantly management contracts where those costs are passed on to clients.

Marc Riddick
Marc Riddick
Senior Equity Analyst at Sidoti

Right. I was wondering if you could swing back a little bit around. I appreciate, I think, one of the earlier questions around the timing of the spending on technology offerings and going into the budgetary process. I was wondering if you could talk a little bit about maybe the scope of what you're looking at now versus maybe the beginning of the year. Are you getting the sense that some of the technology offerings that have been well received by customers or that have driven new sales, what have you, has that evolved during the course of the year, or is it along the lines of what you maybe thought when Sphere was first introduced?

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

Well, I think, you know, some aspects of Sphere have been in place for a while. Like, for example, Sphere Remote, where we can remotely manage facilities, and we're now up to over 500 locations on Sphere Remote, and that's up substantially, at least 20% during the pandemic. We're continuing to see demand from clients who are saying, "You know what? I don't need to have staff at the facility, particularly at off hours, nights, and weekends." That's a cost saving. It reduces the pressure on labor availability as well. We expect that will continue to grow. I mean, that's it's a sizable number of locations, but there's a lot more that we can go at.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

Generally speaking, when we bring that service in, we're continuing to earn our typical management fee from a client, and this becomes an additive service that we're providing. Now, some of the other things we've talked about, you know, the Sphere Gateless solution, as we indicated, you know, we're in the 400 range in terms of locations, and those are primarily gonna go into surface lots and places that have not had revenue control equipment. There are still many, many more locations to go. You know, clearly, we've been focused on making sure that if they're leased locations, we've deployed that technology. With management clients, we have to work with them to enable those capabilities.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

There is still, I think, quite a bit of deployment that you'll see us engaging in over the next 12 months. At the same time, we're not standing still. You know, we're looking at the capabilities with Sphere and what functionality do we wanna add to it so that it can become really the parking.com can be the app of choice for people that are looking for places to park.

Marc Riddick
Marc Riddick
Senior Equity Analyst at Sidoti

I guess the last thing for me. Well, I guess I could come up with two, but maybe I'd see if I could fit it in. You made mention of public-private partnership activity, and I was wondering if there was anything in particular, or maybe it's a function of timing or the timing of customers coming out of you know, the pandemic and being in a better position to do these things. I was wondering if there was anything in particular that you saw more recently that was driving greater activity and/or interest or for that to be the call-out.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

Sure. Well, I think if you look back at the history of people, let's just call it privatizing parking, there haven't been that many you know, case studies. You know, maybe there's 12 over the last 20 years, and some have worked out okay, and there have been some, you know, that haven't worked out so well. The Chicago meters here get talked about a lot as being, having been one that didn't really work for the taxpayers and was really maybe not the right way to structure a deal like that. When those things happen, everybody sort of backs away. They sort of wait to see whether there's a better structure or someone wants to try a new idea.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

The underlying pressures that local government has if they're operating their own parking or universities have to find cost savings, to find additional sources of revenue, to find ways of optimizing assets, those are still there. In fact, they're building. I mean, we all read about pension obligations growing and the like. I think there's a need for it and a demand for it, and there's no doubt that any institution, whether it's local government or university, who would wanna go down these paths, is gonna have the opportunity to get some additional cash infusion right out of the chute, not provided by us, but by the financial player who's doing the P3 with us, and then get optimized performance. That's the part that SP Plus provides.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

We optimize the performance of those operations to generate ongoing cash flow. I just think that there's a strong case, but we need to see a few successes in the marketplace, and that's what gets people comfortable that they're not taking a too big of a chance when they go down these paths. I think the demand is there. I think the success, hopefully ParkUToledo will become a wonderful case study of what to do and how to make it work. We'll see others coming along over the next many months.

Marc Riddick
Marc Riddick
Senior Equity Analyst at Sidoti

Sounds good. Thank you very much.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

Thank you.

Operator

Our next question on conference line of Kevin Steinke from Barrington Research. You may begin.

Kevin Steinke
Kevin Steinke
Sell-side Equity Research Analyst at Barrington Research

Hey, good afternoon.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

Hi, Kevin.

Kevin Steinke
Kevin Steinke
Sell-side Equity Research Analyst at Barrington Research

You clearly highlighted some of the new business momentum in the Aviation segment. You also mentioned in the earnings release that you're currently in final renewal negotiations with two major airports. Was that just meant to indicate that you feel like you're gonna close those or you kinda what, you know, what are the status of that, those two negotiations right now?

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

I mean, I would say in general, Kevin, our retention rate with our airport group is the highest. It's really the highest part of our business. You know, we don't always retain everything, but we generally do much more so than in our business in general. I think we're just indicating that we have a couple of nice legacy deals that we're getting. We're in the completion stages of renewing. We'll probably be talking about before long. You know, our main focus for new business is obviously on winning new opportunities, and we talked about some of those. That can be a completely new opportunity, such as the parking and shuttle at Reagan and Dulles, or it can be additional services. You know, we've operated the parking at San Francisco Airport for quite some time.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

We've renewed it many times over the years, but the curbside management was provided by one of our competitors. Our ability to win that contract really enhances, you know, the scope of what we're doing. We're looking around at our current airport portfolio, where we're now running more airports than we ever have in the history of the company. We have continued to add airport locations, and we're looking for opportunities for us to bid on services provided by our competitors at those airports that we already operate some form of parking or other management. 'Cause obviously the clients are already familiar with us and would view us as a qualified bidder. Now that being said, we're also watching the bid lists for new opportunities, and we'll continue to go after new airport operations.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

I think we have plenty of them out there that we could go out and take, particularly because what we're hearing from airport clients that are choosing us is that our digital marketing programs, our technology under the Sphere brand of technology, really offering something that's unique and differentiated in the marketplace, and that's why they're making those decisions to switch to SP Plus from their current operator.

Kevin Steinke
Kevin Steinke
Sell-side Equity Research Analyst at Barrington Research

Okay. Yeah, that's good to hear. You also mentioned in your comments that through parking.com you're seeing a you know really nice growth in the number of transactions there, and you're capturing some fees that might have otherwise gone to third parties in the past. You know, what do you view as kind of the role of the third-party aggregators in your business model going forward? I mean, is that gonna continue to be a piece of your toolkit or, you know, are you gonna just continue to displace that model or just any thoughts on what that looks like longer term?

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

Sure. Well, before I go to that, let me clarify one thing. When we talk about lower fees, it's really not lower fees to those type of players. We're talking about technology partners that we have relied on to build out our platform of capabilities that supported parking.com. What we have identified are opportunities for us to bring some of those capabilities in-house to enter into new arrangements with new third parties that maybe can provide a better service or a more cost-effective service.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

In the case of transactions on parking.com that are through the, you know, what the Sphere Gated and Sphere Gateless solutions to assess a transaction fee to the parking person, the, you know, the customer. We are generating both revenue, new revenue streams from the monetization of those capabilities, but also reducing the costs of providing and operating those platforms by making some changes in the third parties or in some cases bringing it in-house. That's a key focus for us as we invest in technology, is to capture costs that would have been going to others or capture an additional income stream from people parking their vehicles if we can do so. That's not unique to us, other people are doing the same thing.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

I think people parking recognize that paying a modest convenience fee to have some technology enabling their low-friction transaction is a worthwhile trade-off. As far as aggregators, we have built out our own capabilities to identify all of the places that we are selling parking. At a given facility, we are selling parking obviously on the ramp, we're selling parking to monthly parkers, we are selling parking through our parking.com mobile app, and we're selling parking in many cases through aggregators. Those are all useful channels. Now some like anybody who looks at channel management would realize some channels are more profitable than others. Some can have higher costs and some have lower costs.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

Our digital tools that we built enable us to allocate inventory with the view that we will optimize revenue. If we're gonna optimize revenue at a lease, that's for our benefit. If we're optimizing revenue at a management location, that's for the client's benefit. If allocating some inventory to an aggregator is part of the equation of optimizing revenue for a facility, then we will be doing that. If not allocating inventory to an aggregator, it doesn't—if that doesn't make sense, then we're not gonna do that. That's not a change, but we've our digital analytics team has really put in place the tools to enable us to make those decisions using data and analytics, and we share that with our clients so that they can see the decisions and recommendations that need to be made around those sorts of allocation to various channels.

Kevin Steinke
Kevin Steinke
Sell-side Equity Research Analyst at Barrington Research

Okay. Yeah. Okay. Got it. Thanks for the color and the clarification there. Just lastly, obviously, the pandemic has just changed a lot of things recently and you know, kinda thrown a wrench in your growth trajectory temporarily. Obviously things bouncing back now. When we think about the business longer term, I don't know if you've had a chance to revisit or rethink your longer-term targets. You had kinda pre-pan-pandemic, you've been talking about the 3%-4% long-term gross profit target. I mean, is that something we should still think of as valid longer term, or is it kinda too early for you to think about that as you just kind of are managing what's going on with the pandemic here?

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

Yeah. Well, I think my view on this has been fairly consistent through the pandemic. When I went out with, and I think it was 3%-5%, was sort of our long-term growth objective for gross profit, and we talked about that pre-pandemic. In fact, then in 2019, we actually exceeded the top of that range. Some people were saying to me, "Well, maybe now is the time you raise it up." I'm like, "Well, it's a long-term objective. In some years, we will be above that range. In other years, we'll be in that range." Now, clearly right now, we're in a recovery to get back to where we were in 2019, which was a record year for the company on virtually all financial measures.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

That we should be able to grow faster than that until we get back to that level. Ultimately, for the long term, my view hasn't changed at all. I think that's sustainable. That means growing faster than the CPI. It means and to do that, we need to increase our penetration of services with our existing client base. We need to get our existing clients to give us new locations as they become more and more comfortable with us and they see the benefits of our technology offerings. We need to capture market share from other players and continue to roll out new services through our technology umbrella that enable us to, you know, capture income streams like what I was speaking about a few minutes ago. I don't see why that is an unrealistic expectation.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

I don't think the pandemic has really changed anything. Pre-pandemic, people that are going from A to B, whether it's in a car or a bus or at an airport, they wanna reduce friction. They don't like congestion. They don't like to interact with other people to get a transaction done. They wanna use their mobile device for everything. We have put technology at the center of our entire ecosystem as a company, and we've accelerated that by continuing to invest in these things during the pandemic. I think when some of the concerns and fears around social distancing go away, ultimately, people are still back to, "I want a low-friction experience when I am going from A to B." I think we're well-placed to take advantage of that, and there's no reason why we can't grow at those sort of levels over the long haul.

Kevin Steinke
Kevin Steinke
Sell-side Equity Research Analyst at Barrington Research

Okay. Fantastic. Thanks all. That's all I had.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

Okay, Kevin. Thank you.

Kristopher Roy
Kristopher Roy
CFO at SP Plus

Thanks.

Operator

Thank you. Now I'm not showing any further questions in the queue. I'd like to turn the call over to Marc Baumann for any closing remarks.

Marc Baumann
Marc Baumann
Chairman and CEO at SP Plus

Thank you, Victor. Thanks to all of you for joining us today. Obviously, we're thrilled about how the year is panning out for us. Things are certainly a lot better and looking brighter than they did early in the year when we set out on the journey of 2021. Anyway, thank you again for being here today and your interest in us, and we'll look forward to talking to you next time.

Operator

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

Executives
    • Kristopher Roy
      Kristopher Roy
      CFO
    • Marc Baumann
      Marc Baumann
      Chairman and CEO
Analysts
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