SP Plus Corporation (NASDAQ:SP) Q2 2023 Earnings Call Transcript

SP Plus Corporation (NASDAQ:SP) Q2 2023 Earnings Call Transcript August 2, 2023

SP Plus Corporation beats earnings expectations. Reported EPS is $0.78, expectations were $0.64.

Operator: Good day and thank you for standing by. Welcome to the Second Quarter 2023 SP Plus Corporations 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 over to your speaker today, Kris Roy, Chief Financial Officer. Please go ahead.

Kris Roy: Thank you, Catherine, and good afternoon everyone. As Catherine just said, I’m Kris Roy, Chief Financial Officer of SP Plus. Welcome to our conference call following the release of our second 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: Hey, thank you, Kris, and good afternoon, everyone. This is another strong quarter for SP Plus. Adjusted gross profit and adjusted EBITDA were at record levels for both the second quarter and first half of this year. By combining innovative technology solutions with a highly trained workforce, we continue to build in our competitive advantages, expand our adjustable market, and execute effectively on our long-term growth strategy. Adjusted growth profit increased at a double-digit rate, reaching a second quarter record for SP Plus driven by solid growth in both our commercial segment, which was up almost 9% year-on-year, and our aviation segment, which was up 24% above last year’s second quarter. This strong performance is largely due to our continued success in winning new business, growing net new locations, as well expanding the scope of services we provide at existing locations.

Commercial segment adjusted gross profit growth was achieved across nearly all verticals led by hospitality, healthcare, and large event venues. The breadth of capabilities we bring to clients is exceptional, positioning SP Plus as a leader in the digital transformation of our industry. We added 126 net new locations during the first half of 2023 with 55 net new locations added in the second quarter, our ninth consecutive quarter of net new location growth. At the same time, we succeeded in increasing our location retention rate to 94% the highest in recent memory. Turning to aviation, Q2 adjusted gross profit increased 24% year-over-year, reflecting both organic and acquisition growth as we benefited from new contract wind and renewals, as well as expanded services, we provided 160 global airports.

Notably, our curbside concierge service continues to gain traction. The pilot program we launched with a second airline is performing above expectations and we anticipate to rollout this service at additional airports with this airline in the near term. Also, we expect to bring additional airlines onto the program, which provides a cost-effective way to ease congestion and enhance the travel experience. Gross profit from technology solutions continued to grow in the second quarter, and we are on track to double the 2022 contribution as a percentage of adjusted gross profit for the full year 2023. More than a quarter of the new locations added during the second quarter were for standalone Sphere deployments, where we currently do not provide other SP Plus services illustrating the appeal of our technology solutions, and the way they’re expanding our addressable market.

In addition to achieving strong financial performance, we succeeded in effectively executing on our long-term growth strategy in the second quarter. First, we strengthened our leadership position by bringing innovative technology solutions and superior operations to existing and new clients. A great example of this is the technology overhaul we implemented for the city of Richmond, Virginia. We replaced outdated equipment with our Sphere technology solutions, which has already resulted in increased transactions as well as a significant boost in revenue. Other benefits include improved operating performance, reduced operating costs, and a completely digital frictionless consumer experience that eliminates the need for paper tickets. In Baltimore, SP Plus was chosen to design an ambitious and tech-forward parking plan for a large scale development project to transform a former industrial port into a vibrant shopping and entertainment hub.

Also, the city of Los Angeles, where we already operate one of the largest on street meter programs in the United States recently awarded us an add-on contract to manage the parking for an additional 23 facilities consisting of off street surface lots and parking structures, demonstrating how well our solutions and services are meeting the needs of the city. We’re experiencing similar positive momentum in our aviation business. Recent new awards in the aviation segment include Omaha and West Palm Beach airports and contract renewals were secured at San Francisco, Detroit Metropolitan, and Buffalo Airports. In addition, we’re beginning to regain traction with our sponsored remote airline check-in service. We recently started up operations at the Orlando Airport, and we’ll shortly begin to provide remote airline check-in services at an airport serving a major tourist destination on the West Coast.

We hope to be able to talk to you more about this win on our next call. And with the addition of one additional airline, our remote check-in services are now available to passengers traveling on eight airlines, which account for 96% of domestic travel. Secondly, we continue to increase our addressable market and achieve revenue synergies in the second quarter. SP Plus is working together with public-private partnerships or P3s that are helping universities monetize their assets with our role to bring being to manage their parking operations. The program has been so successful at one large university in Ohio that another university in the state has asked us to replicate and expand upon it on their campus. Our technology is designed to enable students, faculty, staff, and visitors to pay by phone, QR code, or via text.

Based on the success of our initial P3 deployment, we’re seeing strong inbound activity to replicate the success, and we expect this area of opportunity to continue to grow. With respect to revenue synergies we recently launched our Arrow Parker online parking reservation system at Houston’s Intercontinental and Hobby Airports, where SP Plus was already providing parking management services. We’re working together with our Arrow Parker colleagues to further leverage our relationships and combined expertise to gain additional synergies. Third, we continue to leverage and monetize our technology investments. In the second quarter, we processed 5.4 million transactions on SP Plus technology platforms up 36% sequentially. Transactions in June are up almost 70% over December, 2022.

These transactions include reservations and on-demand transactions for both on and off street parking, as well as at large venues and payment processing for remote airline check-in and curbside concierge. These examples indicate how well our services are aligned with client demand and consumer preferences. And finally, last week we announced the acquisition of certain assets of Roker, a provider of fully integrated parking solutions that simplify permit violation and enforcement management for organizations and municipalities. We believe this transaction will enable SP Plus to take advantage of the demand from municipal clients for a comprehensive mobility solution that helps them leverage smart city applications, and from healthcare and university clients looking to digitize the complex permitting requirements that are common on their campuses.

This is the third technology acquisition we’ve made in the last nine months demonstrating our commitment to accelerate the pace of deployment, of cutting edge technology offerings, which is a key element of our continued growth. Now, I’m going to turn the call back over to Kris for financial review. Kris?

Kris Roy: Thank you, Mark. Strong business momentum continued in the second quarter, enabling us to reaffirm our full year guidance. Consistent with prior quarters, comments about our financial performance and outlook, we’ll focus on our adjusted results. Adjusted gross profit and adjusted EBITDA were at record levels in the second quarter. Adjusted gross profit, which excludes depreciation as well as integration and restructuring costs increased 12% year over year to $66 million attributable to a number of factors, namely increased profitability at same locations, new business wins and successful deployment of technology enabled solutions at both existing and new locations. Adjusted EBITDA increased 9% to record $34.4 million compared to $31.7 million in the same period last year.

This is particularly impressive given we continue to invest in G&A to support technology solutions that position us to deliver sustainable long-term gross profit growth. Second quarter adjusted G&A excluding acquisition integration and other costs was $30.6 million compared to $26.3 million in last year’s second quarter. This level was consistent with our comments on last earnings call. Note, this level was consistent with our comments on the last earnings call during that Q1 adjusted G&A was a good run rate for the remainder of the year. Our expectation remains unchanged for the balance of the year. As a result of higher interest rates and increased G&A expenses from technology related capital investments, second quarter 2023 adjusted earnings per share were $0.78 compared to $0.81 in the second quarter of last year.

This was another solid quarter of cash flow generation, bringing our year to date operating cash flow to 21 million and free cash flow to $8.3 million compared to 35.7 million and $25.5 million in the year growth period respectively. As a reminder, 2022 included the receipt of a one-time federal income tax refund of $20.5 million. Adjusting for this operating cash flow in the first half was up 38% and free cash flow increased 66% year over year. Based on our visibility into the second half and our anticipation of continued investments for technology related capital expenditures, we reaffirm our free cash flow gains of 60 million to $70 million, or approximately $3 to $3.50 per share, which at the midpoint is 35% above 2022 levels adjusting for the tax refund.

We expect to deploy our healthy cash flows coupled with our $600 million credit facility to fund our capital allocation priorities, which include organic growth, acquisitions and share repurchases. With regard to our expectations for full year 2023, we are reaffirming our guidance on all metrics. Adjusted gross profit is expected to range from $240 million to $260 million, 11% above 2022 level at the midpoint. Adjusted EBITDA is expected to be in the range of $125 million to $135 million, 11% above are ahead of 2022 at the midpoint, and we’re forecasting adjusted EPS to range from $2.70 to $3.20 per share, approximately 6% above 2022 levels at the midpoint. As you update your models, I do want to point out that year-to-date revenues excluding reimbursed management contract expenses increased 15%, and adjusted gross profit increased 13%.

Based on our increased gross profit contribution from higher margin technology services and a greater proportion of management fee contracts, we expect this close correlation of revenue and gross profit trend to continue. Additionally, we still forecast 2023 G&A to be approximately 15 million higher than 2022, primarily due to technology related investments that support future growth. With that, I’ll turn the call back over to Marc.

Marc Baumann: Hey, thanks, Kris. First half results together with our current visibility underpin our confidence that 2023 will be a record year for SP Plus in terms of adjusted gross profit and adjusted EBITDA performance. While we continue to make investments to support our multifaceted growth strategy, SP Plus continues to build its market leadership within a business environment where commercial, retail, and travel activity is increasing, and where clients and consumers are seeking solutions and services that reduce congestion and offer low friction transaction options. Through our ongoing investments in technology and people, we’re leading the digital transformation of our industry and positioning SP Plus to capture the considerable growth opportunities ahead, providing innovative solutions to make every moment matter for a world on the go. Operator, let’s open the line for questions.

Q&A Session

Operator: [Operator Instructions] Our first question comes from Daniel Moore with CJS Securities. Your line is open.

Daniel Moore: Let me start with — maybe I believe it’s pronounced — you pronounced it Marc, Roker. Maybe talk a little bit more that opportunity, if there’s anything you can disclose in terms of purchase price kind of run rate revenue, but more importantly, the revenue model and, and what are the exact capabilities that they bring to the table that would maybe, would’ve been more difficult to build in-house.

Marc Baumann: Sure. No, I’d be happy to, and I mean, you do have it right as Roker and we at SP Plus have been working in the areas that we talked about for some time. We have many municipal clients, university clients and others. And what we have found is that there is some functionality out there that we really would like to add to the Sphere platform. And a bit like, what we told you last year when we were acquiring DIVRT, acquiring Roker gives us the ability to accelerate the deployment of additional functionality and in some cases bring those things to market more quickly than we would have before. This is an early-stage company. Mostly, we were acquiring the capability to add to our platform, and it really is around digital permitting, citations and enforcements.

And in some areas the complexity of some of the client requirements weren’t met by the current Sphere platform. So, this will roll into the Sphere platform. We expect to integrate it fairly quickly, and be out in the market place proposing on opportunities that will enable us to sell this additional functionality. It’s not a big acquisition. It certainly doesn’t contribute anything meaningfully to our P&L in the short run. It’s more about making this Sphere platform more compelling in the marketplace.

Daniel Moore: Very helpful. Maybe switching gears a little bit and can use the recent contract extension in McCormick Place as an example perhaps. Maybe talk about how Sphere is changing your positioning or leveraging and negotiating renewals. Are there specific examples of kind of cross-selling opportunities, incremental services that you’re winning as these renewals come up?

Marc Baumann: Yes. Well, as you point out, we did get a five-year extension with McCormick Place in Chicago. It’s a client we’ve served for many, many years. It’s a very complex operation, and I’m sure they recognize that we operate their facilities very, very efficiently, and that was really a key ingredient for us in the renewal. But in general clients are looking to reduce congestion and friction. And whether that’s in an event venue like a McCormick Place convention center, or just in the everyday movement of people in and around airports and away from curbs where we can bring technology solutions either through Sphere or bags we’re actually solving a problem for the traveling public. And what we’ve learned in large venues a big consideration for those clients is really getting people in before the activity starts and not having people leave before it’s over.

So a lot of it is actually making it easy for people to get in and out. It’s as simple as that. And of course, do that with our legacy operating business, but with technology, we have the tools to process transactions, to check credentials and to get people in and out more quickly than before.

Daniel Moore: Excellent. Last for me, and I’ll jump out back in queue, sounds like curbside concierge is starting to gain significant traction. I think you alluded to some additional airports, but also probably as critical expect additional airline agreements in the coming months, quarters. Any more detail on kind of the pace of those conversations? Thanks again.

Marc Baumann: Yes, Sure. I’d be glad to address that. And I think as you know, from the conversations we’ve had over the years in particularly pre-pandemic the proprietary remote check-in tool, which as I commented, can now accommodate eight airlines instead of seven airlines. And that represents 96% of domestic deployments offers the ability to get people checked in some cases at the curb of the airport, but also in parking garages or other parking lots and other facilities away from the curb. So it’s about reducing congestion through technology. And prior to the pandemic, the business model was to go to airports or cruise lines or ports and ask them to sponsor a model. So provide a free service for the traveling public. And there’s a lot of interest in this tool, but in, in many cases, the concern that the sponsor was facing was, do I want to pay on behalf of the public?

Do I want to be pay on behalf of other stakeholders that might be benefiting from the service? And so coming out of the pandemic, our beg leadership team recognized that there’s a consumer pay model that really works and that’s what consumer or curbside concierge really is. And we’ve rolled it out to 40 airports with one airline. We are having a successful pilot with a second airline and believe that we are on the verge of adding additional airports there. But as congestion continues to build and travel volumes go to levels above the pre-pandemic period, we we’re getting some inbound interest for the first time from other airlines that would like to join in. And particularly because this service can be offered free to the airline, it doesn’t cost them anything for this to be provided.

But we’re also seeing, and I mentioned this in the prepared remarks, that the sponsored model’s coming back, there’s many airports that have construction going on, or the travel volumes are just way beyond the pre pandemic levels. And so, they’re willing to entertain, once again, the idea of the sponsored model. And so, we’re now bringing a couple of those out as well. But fortunately for us, it’s the same technology in either case. And the only question of whether the public is going to be paying for it, whether the client might pay for it or potentially even a hybrid model where it’s subsidized by an airport or an airline on behalf of the public, and then the public pays the rest. So, I think we feel very confident we have the right tool for reducing congestion, the check-in experience.

And what’s exciting for us is to see that I think both pricing models are now gaining traction in the marketplace.

Operator: Thank you. And our next question comes from Tim Mulrooney with William Blair. Your line is open.

Tim Mulrooney: Kris, I’m looking at the SG&A, and I appreciate all the color you gave, but if I just step back and I look at SG&A as a percent of sales, it’s like 13% in the first half of ’23, similar to 2022, but well above the pre pandemic levels of around 9%, 10%, 11%. My question is, is this a temporary increase due to investments in technology or should we expect SG&A levels to remain around that, like 13% to 14% beyond the short term guide that you gave for this year? Like, has there been a structural change in your cost structure?

Kris Roy: Yes, I mean, Tim, this is — that the short answer is no. I think, where we have seen opportunities in terms of growth, in terms of new business wins technology, we really want to make some of those investments. Those investments don’t immediately contribute to gross profit on day one. And so these are things that we think are out there in terms of providing for us to be able to deliver that kind of high single digit growth in the long term. So, there are some investments this year that will pay off in the latter part of this year and into next year. So, I don’t see that this is not a trend that’s going to continue where we’re going to continue to dump the P&L with G&A and investments. We think there’s going to be some operating leverage as we kind of move forward through this year and into next year.

Tim Mulrooney: Same question on CapEx. I see, I look back at your P&L I see 10 million, 10 million, 8 million, 9 million, and then 22 million in 2022. It’s going to be another 20 million this year. Is that kind of the same story as with SG&A, like you’re making the investments now, but as a percentage of sales that CapEx should go down over time? Or are we in a structurally different situation here?

Kris Roy: I think, we’ve certainly made some large investments last year. I think it was around ’21, ’22, uh, right around there in terms of CapEx this year. Certainly, if you look at it on a trend basis, we’re kind of getting to that same point this year as it relates to CapEx. I think in the back part of the schedules, we kind of said 19 million to 21 million or so in terms of a range. I think that’s a good range for this year. I think as we look at future CapEx, you’re going to probably see CapEx maybe come down a bit. I don’t see that kind of upper levels, sustaining through these next couple years. But certainly, I think we really want to be focused on is, are there things, and Marc has mentioned this before, are there things that we can develop that we think will benefit the clients and allow us to grow faster?

And so, while I say I would expect it to come down slightly, I don’t want to also take off the table those opportunities to make investments that we think can facilitate faster growth.

Tim Mulrooney: Understood. We wouldn’t want you to do that either. That makes sense. Just one more for me on your retention levels, I mean, 94%, it’s really high near the highest I think we’ve ever seen. Do your technology solutions make your services stickier or is it too early to say that those solutions are having a tangible impact on retention rates and it’s just more about execution?

Marc Baumann: Well, I think our thesis is that they will make us stickier. The more things that we provide for a client and do so successfully, the fewer options they have in terms of looking elsewhere to provide those services. And there’s nothing easier for a client than they have a one-stop shop to do everything. And so whether a client needs boots on the ground or wants needs, technology needs both, we are there to provide it, and we’re not just providing it in a simple scenario above surface parking lot or parking garage, but really all the various verticals and permutations of where people are parking. And so, I think our ability to manage complex environments and bring technology along if that’s what the situation requires, I think does make us more-sticky to the client.

We’re also benefiting, I think, from the fact that some of our competitors have not invested in technology and many are lagging in technology, and there’s others who are struggling operationally, and aren’t really delivering value to the client base. And so, our new business wins and the retention of our existing business, I think there were a reflection that when clients are thinking about who is best positioned to deliver against my objectives, they’re thinking SP Plus.

Operator: Thank you. [Operator Instructions] And our next question will come from Marc Riddick with Sidoti. Your line is open.

Marc Riddick: So, I was wondering if you could talk maybe sort of stretching out on the retention question, because certainly 94% is obviously really, really good. What, if you talk a little bit about maybe some of the pricing dynamics that you’re seeing as far as renewals, as well as, and certainly appreciate you providing color on net new wins and the technology contributions, Spears contributions to the new wins. So maybe you talk a little bit about sort of the pricing dynamic when renewals come up, and as well, maybe they could talk, and then segue into maybe the labor environment inflationary realities. Thanks.

Marc Baumann: Sure. I mean, I would say that the competitive dynamic and pricing hasn’t really changed much for a long, long time. And I think that’s partly we’re talking about the pricing of what we charge for our services as opposed to what the consumer pays. And the reality is that what we are charging a client to manage their facility or bring in technology solutions is a very small amount as a percentage of revenue. And so, I think when a client is looking at who’s going to provide the services, they’re really looking at who is best poised to execute and deliver the value that the client’s looking, whether it’s a low friction consumer experience, updated technology or maximizing profit. And so I don’t think that that competitive pricing environment has changed much.

One of the things that’s new for us is that as we have developed the Sphere platform, we’re able to offer it to clients at little or no upfront cost if the transaction volumes are high and a lower cost than maybe some of the traditional parking equipment companies are charging for those locations that don’t have a lot of transactions. And that’s because we’re asking the consumer to pay a transaction fee. And so it, and a client or a prospective client has the ability to upgrade antiquated technology, capture more revenue and have more reliability in their tech platform, and not have to make the capital outlays that they might have. And of course, as we as people feel financial pressures or higher interest rates and the like, not having to make capital outlays is an important priority for a lot of both of our current clients and prospective clients.

I think the labor challenges have moderated significantly. Obviously coming out of the pandemic, there was a big reset that went on in terms of people weren’t in the workforce wage rates rose significantly in many places. And of course there’s a lot of demand for delivery drivers and the like, I think some of those industries, they have plateaued in terms of their growth trajectories. And so, we’re finding in general that the labor market is in much better condition than it was say a year or two years ago. But that being said it’s another attraction of our business model where we are heavily skewed toward management type contracts. And of course, as you know, on the fixed fee contracts increases in labor costs are passed on to the client, and so they don’t affect our P&L directly.

Marc Riddick: Great. And then I was wondering if we could shift gears. It seems as though from the prepared remarks as well as the press release that the strength that you’re seeing in the activity that you’re seeing is quite broad based when it comes to industry vertical customers and the like. I was wondering if you could sort of maybe touch us bring us up to date on, are you seeing any particular geographies that are maybe a little more active than others, as far as bringing on new business wins, or are there any sort of it seems there’s a lot of green shoots, but wondering if there are any areas that are little greener than others?

Marc Baumann: Yes, no, that’s a great point. You know, I’d say it’s fairly broad based. I mean, there’s strong economic activity everywhere and of course, we’re seeing for the most part the hybrid working model has, I think, become the new normal. And so there’s certain days of the week that have a lot of parking demand and there’s other days of the week that have less demand. But certainly as those, as the people that serve people traveling for work have looked at their businesses. They’re saying, where do I bring new technology to drive costs out of my business operation? Do I have technology solutions that are innovative and can deal with the fact that there are fewer monthly parkers now and more daily parkers? And so, interestingly a lot of our growth in new locations is really coming from, you know, commercial office buildings, hotels, retail, mixed use and residential properties.

So, I think these are the people that are super excited about how do we drive efficiency with technology, maybe take operating costs out of the business, and how do we ensure that we have optimally priced the parking and of course through our digital tools, our parking.com mobile app, our web scraping tools for and our yield management experts and analysts are able to advise clients on what the optimal parking rates should be and really are able, we are able to drive through our digital marketing programs, to creative solutions to drive demand to the parking facilities that we operate. And in these economic times that’s a major focal point for our client base or our prospective client base. Obviously, many markets are experiencing more congestion because of migration.

The Southeast and the Southwest have a lot, had a big uptick in people. But even in some of our legacy markets, we’re seeing places like New York and others we’re seeing nice same store growth taking place across our portfolio. And I think, it’s just reflection of the fact that people are out and about and are, have pretty much returned to normal now that the pandemic is behind us.

Marc Riddick: And then last one for me, I think, the announcement of the Roker acquisition I think was like the day after we did our preview notes. So I did want to sort of ask though, if you could sort of bring us up to date as to kind of what you’re seeing as far as the potential acquisition pipeline out there. It’s certainly technology is certainly one of the key priority areas, but I wonder if you talk a little bit about what the pipeline kind of looks like and valuations and it seems as though there’s more room to grow there, but maybe you sort of bring us up to date on what you’re seeing out there.

Marc Baumann: Yes. Well, I think we’re definitely — I’ll comment on the technology space, and Chris can maybe comment more broadly. But certainly, what we are seeing is that there have been a number of early-stage technology companies that have developed some functionality that actually is useful in the marketplace. But what they’re finding is that it’s a long slow slog to go sell clients one at a time. That is the challenge because the ownership or the property management in our industry is very fragmented, and so I think some of them are realizing that in order to get the value out of their innovation, they really need to sell their business to somebody like us that already has a large geographic footprint, and so realistically, we’re seeing quite a bit of inbound activity around technology, and people are saying, “Hey, we’re going to come to market with this.

So we’re looking at selling our business, and unfortunately, because we have a tech road map for our business, we have the discipline to say, is this really going to accelerate our growth. We’re not looking to acquire technology for its own sake, but if we can accelerate the deployment of our Sphere platform, the capabilities of the Sphere platform, ensure that it can provide capabilities that other people can’t provide, then an acquisition makes sense, provide that we can get it at a good value. That doesn’t mean we’re not interested in operating businesses as well. But I think Certainly, we’ve seen because of this changing market dynamic opportunities over the past year to acquire technology businesses at valuations that enable us to really create value for our shareholders by making that acquisition, and on the operating business side, I would say we continue to keep our eyes and ears open in terms of opportunities that are out there.

I think we’ve mentioned this on prior calls that what we don’t want to do is acquire an operating business that is kind of a slow-growing version of who we are. What we really want to find as opportunities where we can speed up or continue to grow our business at that high single-digit basis, and maybe that could be through the deployment of our technology solutions into that operating business that maybe hasn’t leveraged the technology that is there or available, and so I think there are some opportunities. We continue to look for those, and we continue to keep our eyes and ears open.

Operator: We’ll move for our next question. We have a question from Kevin Steinke with Barrington Research Associates.

Kevin Steinke: So I think on your first quarter conference call, you talked about expecting gross profit to grow on a quarterly sequential basis throughout 2023, with more significant sequential growth in the second half of 2023, and so we had a really nice sequential growth in gross profit here in the second quarter of about 13%, and if I just assume pretty modest sequential growth in gross profit here over the next two quarters, it’s led to the high end or a little bit above the high end of your adjusted gross profit guidance range for 2023. So I mean, is there any reason we should think about the sequential comparisons kind of flattening out as we get into the second half of 2023? Or is there may be just a little bit of conservatism and the fact that you maintain that guidance?

Kris Roy: Yes, Kevin, this is Chris. I think if you look at our traditional Q2, that’s typically our strongest quarter, and certainly, we have a lot of new robust wins as it relates to the operating business as well as technology. And certainly, we had some strong same-store location growth. So certainly, that is contributing to it. I would say there’s maybe a little bit of pull forward in terms of some new business that we expected in the back part of the year. I think what I mentioned on the Q2 call is that we would expect to see some continued growth in the business that would be over the seasonality would be overshadowed by the growth in the business. I think if you look at — and I mentioned this on the Q1 call, I still think Q4 is going to be our strongest quarter, if you were to look at gross profit.

So I think if you look at kind of how we’re going to sequence up the remainder of the year. Q3 is generally a slower quarter for us. Q4 is typically maybe number two and Q2 is always number one. So I think if you think about it in terms of that in terms of a sequence basis, I think that would help.

Kevin Steinke: Okay. Great. That’s very helpful, and I wanted to follow up on your comments about adjusted gross profit and revenue for — or excluding reimbursed expenses growing at a similar pace in the first half of the year and that you would expect that trend to continue, I guess, both growing at a similar rate. But does that imply some sort of stabilization in the lease contract base just given the revenue recognition dynamics there, the different contract types, Normally, when you switch from a lease to a management fee contract, revenue will go down just based on the recognition, even though the gross profit might be very similar. So just wondering, if that makes sense or if you’ve seen some sort of stabilization on the lease side.

Kris Roy: Yes. I think — Kevin, I think we are. I think if you look at the lease location numbers, that certainly has been somewhat of a static number. It’s kind of been in that 410 to 420 locations in terms of leases for the last few quarters. So I would definitely feel — I definitely feel like that’s kind of static. We certainly have nice momentum on our management contracts, and I think that gives us increased visibility in terms of how we’re seeing the revenue come into the business. I think from time to time, we do get questions around what does the revenue trend look like for SP, and I think what we’re trying to provide here is a little bit of guidance around not necessarily guiding to revenue, but giving some color around how we’re seeing the business evolve and mature in terms of that revenue growth and trying to link that into the gross profit.

So I think that’s close correlation from a gross profit perspective to revenue is there, and I think it’s primarily due to the management contracts. — that we have, the technology and the contributions for technology and that our lease portfolio is somewhat static in terms of the number of locations we have.

Kevin Steinke: Okay. Great. And you mentioned their visibility and you talked about in your earnings release, how year-to-date new business wins and the robust business development pipeline are supporting your high single-digit long-term gross profit growth outlook. Does that imply that you’re starting to get some decent visibility into what 2024 could look like? Or at what point do you start to get better visibility, I guess, into the next year?

Kris Roy: I think if you look at this year, certainly, it’s a really good year for us. I mean I think what we said is we would deliver in the low double digits in terms of gross profit growth and high single digits on a go-forward basis, and I think that’s still the case. I think we feel really good with our business in terms of where we’re at. I think as we look out into the horizon, I would still reiterate we feel really comfortable with that high single-digit gross profit growth in terms of growth in the business.

Operator: I’m showing no other questions in the queue. I’d like to turn the call back to Mr. Marc Baumann for closing remarks.

Marc Baumann: Thank you, Catherine, and thank you, everyone, for joining us. We’re obviously very excited about our results for Q2 and particularly because they reflect the fastest organic growth rate we’ve ever delivered as a management team. So we’re very excited about that and the prospects for a successful year, and we look forward to talking to you again next quarter. Thank you.

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.