SP Plus Corporation (NASDAQ:SP) Q1 2023 Earnings Call Transcript

SP Plus Corporation (NASDAQ:SP) Q1 2023 Earnings Call Transcript May 7, 2023

Operator: Good day, and thank you for standing by. Welcome to the Q1 2023 SP Plus Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference call over to your speaker for today, Kris Roy, Chief Financial Officer. Please go ahead.

Kris Roy: Thank you, Felicia, and good afternoon, everyone. As Felicia just said, I’m Kris Roy, Chief Financial Officer of SP Plus. Welcome to our conference call following the release of our first quarter 2023 earnings. During the call today, management will make remarks that may be considered forward-looking statements, including statements as to the outlook and expectations for 2023 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 and the risk factors in the company’s annual report on Form 10-K and quarterly reports on Form 10-Q and other filings with the SEC.

In addition, management will discuss non-GAAP financial information during the call. Management believes the presentation of non-GAAP results provides investors with useful supplemental information concerning the company’s ongoing operations and is an appropriate way to evaluate the company’s performance. 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.

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: Thank you, Kris, and good afternoon, everyone. First quarter results represented a strong start to 2023, and we made significant progress in a number of areas that support both our full year guidance, as well as our longer-term expectations for accelerated growth. In essence, our pivot toward technology-related growth is working. Gross profit increased at a double-digit rate in both our Commercial and Aviation segments, demonstrating the traction we’re gaining across the three strategic objectives we outlined last quarter. And let me recap those for you now. First, we strengthened our leadership position in the first quarter by doing exactly what we said we would do, namely bringing innovative technology solutions and superior operations to existing and new clients.

Our Commercial segment gross profit increased 14% in the first quarter, underpinned by strong metrics that align with our strategic goals. Notably, same location gross profit in our Commercial segment increased considerably in the first quarter, reflecting success in deploying our Sphere technology solutions across our existing locations, cross-selling and adding new services. At the same time, we saw increased business activity across many of our verticals, particularly hospitality, residential and also the business and commerce vertical, which includes office buildings, retail mixed-use complexes, as well as stand-alone parking facilities. We maintain a location retention rate of 93%, which we believe is the best in our industry. And we were very successful in bringing on new business, adding 71 net new locations in the Commercial segment in the first quarter and reinforcing our market leadership by differentiating our offerings through technology solutions and superior service levels.

Our Aviation segment gross profit increased 11% as travel activity continues to increase and consumer behaviors favor the utilization of our services as passengers travel. Namely, we’re seeing more travelers are driving to airports rather than utilizing rideshares or taxis and the average length of stay is longer, as international travel is returning. As airports and airlines deal with record levels of travel and strong demand for international travel in the midst of infrastructure improvements, our solutions that optimize parking utilization and rates and improve the traveler experience are more important than ever. The level of proposal activity for parking management solutions and luggage handling services, such as curbside concierge and remote airline check-in services is stronger than it has been in recent memory.

Second, we continue to make progress in our objective of expanding our addressable market and realizing cross-selling synergies. In the first quarter, 42% of the new locations that we added in our Commercial segment represented deployments of our stand-alone Sphere technology solutions without any boots on the ground, a clear indication of the appeal of our offerings and how our investments in technology have increased our addressable market. In Aviation, our AeroParker acquisition, which was completed in October of last year, opened up the international market for SP Plus and substantially increased the number of airports at which we perform services. We’re working together with AeroParker on developing joint offerings and have made progress in this area recently that gives us confidence that we’ll be able to capture the significant revenue synergies on the horizon.

The third objective we spoke about on our last call was to leverage and monetize our technology investments. SP Plus is leading the digital transformation of the parking industry and our investments in technology have provided us with a clear competitive edge. We processed 4 million transactions in the first quarter of 2023 on SP Plus enabled technology platforms deployed across airports, on and off-street parking locations, event venues and the like, and that’s up more than 20% from the fourth quarter of 2022. And our technology solutions are adaptable to a broad range of operating situations to meet both consumer and client needs. Additionally, technology is poised to double its contribution to gross profit in 2023, compared to 2022, and this puts us on track to achieve our goal for technology solutions to contribute more than 10% of our gross profit by 2025.

In summary, we’re very pleased with our first quarter performance and our execution on the strategic objectives we laid out a few months ago. Our past and current investments in technology and excellent on-site service levels have enabled us to gain share and to significantly expand our addressable market, two areas that support our expectations for 2023 and beyond. I’ll now turn the call back over to Kris for a financial review. Kris?

Kris Roy: Thank you, Marc. I am pleased to report on our strong start to 2023, which positions us to achieve our guidance for the full-year. Given that our GAAP financials are presented in the release, I will elaborate on our adjusted results as is my usual custom. 2023 first quarter adjusted gross profit, which excludes depreciation, restructuring and integration costs, increased 14% year-over-year to $58.4 million, driven by significant growth at same locations, new business wins, and the deployment of technology solutions. This strong performance was broad-based as evidenced by double-digit growth in both our Commercial and Aviation segments. As we noted last quarter, we’ve been making investments in strategic initiatives and technology innovations to support our 2023 growth, as well as our expectation for sustainable high single-digit gross profit growth beyond this year.

This led to first quarter adjusted G&A, excluding restructuring, integration, and other costs to be $29.3 million, compared to $24.4 million in the first quarter of 2022. First quarter 2023 adjusted earnings per share were $0.58 compared to $0.60 in the year ago first quarter, primarily due to higher interest rates and higher D&A from capital investments, mostly in technology. First quarter 2023 free cash flow was $300,000 compared to $23.8 million in the year ago quarter. As a reminder, the 2022 first quarter benefited from the receipt of a federal income tax refund of $20.5 million. So 2023 first quarter free cash flow is more consistent with our historical trends. For the full-year, we anticipate free cash flow of $60 million to $70 million or approximately ]$3.00 per share] [ph] to $3.50 per share.

2023 free cash flow at the midpoint is 35% above 2022 levels adjusting for the tax refund. This free cash flow guidance also anticipates higher levels of capital expenditures, as we’ll continue to invest in technology. Our strong cash generation, together with our $600 million credit facility, provides us with ample flexibility to fund our capital allocation priorities of investing for organic growth, acquisitions and share repurchases. To that end, during the first quarter of 2023, we repurchased shares totaling $10.4 million. Based on our current visibility, we’re pleased to reaffirm our full-year guidance. More specifically, we still expect full-year 2023 adjusted gross profit to range from $240 million to $260 million, 11% above the 2022 level at the midpoint.

Adjusted EBITDA is expected to range from $125 million to $135 million or 11% ahead of the 2022 at the midpoint. And we continue to expect our adjusted EPS in the range of $2.70 per share to $3.20 per share, approximately 6% above 2022 levels at the midpoint. Now, to help guide you and how we are seeing the rest of the year, keep in mind the following details. First, as we continue to successfully deploy our technology-enabled solutions at both existing and new locations, we expect to see less seasonality in our business than we have historically experienced, with progressive increases in gross profit that are more pronounced in the second half of the year, which is a departure from our historical seasonality trends. Second, on the G&A front, as we have discussed, we continue to expect 2023 G&A to be approximately $15 million higher than 2022, reflecting our investments to support our accelerated growth, as previously mentioned.

Pacing wise, we believe Q1 adjusted G&A is a fairly good run rate for the remainder of the year and expect to leverage our G&A investment throughout the year, thus increasing our gross profit to EBITDA conversion or said in other way, improve our EBITDA margin. With that, I’ll turn the call back over to Marc.

Marc Baumann: Thanks, Kris. We executed very well in the first quarter and continue to be very encouraged by the growth prospects we see on the horizon. In addition to supporting our ability to achieve our full-year 2023 guidance, we believe SP Plus’ first quarter performance demonstrated our new growth trajectory, one that we expect to continue beyond 2023. We have the scale, capabilities, and commitment to capture the substantial opportunities in front of us, which supports our confidence in growing gross profit at a high single-digit rate beyond 2023 and increasing EBITDA and EPS at a greater rate. With that, I’ll turn the call over to the operator to open up the Q&A.

Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Tim Mulrooney from William Blair. Time, your line is open.

Operator: One moment for the next question. The next question comes from the line of Daniel Moore from CJS Securities. Daniel, your line is now open.

Operator: Our next question comes from the line of Kevin Steinke from Barrington Research Associates. Kevin, you line is now open.

A – Marc Baumann: Thanks, Kevin.

Operator: [Operator Instructions] Our next question comes from the line of Marc Riddick of Sidoti. Marc, your line is now open.

Operator: At this time, I would like to turn it back over to Marc Baumann, Chief Executive Officer.

Marc Baumann: Okay. Thank you. And I want to just thank all of you for joining us today. We really appreciate your interest in SP Plus and look forward to speaking with you again next quarter. Take care now.

Operator: Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.