SP Plus Corporation (NASDAQ:SP) Q4 2022 Earnings Call Transcript

SP Plus Corporation (NASDAQ:SP) Q4 2022 Earnings Call Transcript February 22, 2023

Operator: Thank you for standing by. And welcome to the Q4 2022 SP Plus Corporation Earnings Conference Call. At this time, all participants are in listen only mode. After the speaker’s presentation, there will be a question-and-answer session. As a reminder, today’s conference call is being recorded. I will now turn the conference to your host, Mr. Kris Roy, Chief Financial Officer. Please begin.

Kris Roy: Thank you, Valerie, and good afternoon, everyone. As Valerie just said, I am Kris Roy, Chief Financial Officer of SP Plus. Welcome to our conference call following the release of our fourth quarter 2022 earnings. During the call today, management will make remarks that may be considered forward-looking statements, including those statements as to the outlook and expectations for 2023 and statements regarding the company’s strategies, plans, intentions and future operations and expected financial performance. Actual results, performance and achievements could differ materially from those expressed or implied due to a variety of risks, uncertainties or other factors including those described in the company’s earnings release 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, 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, everybody. I am pleased to share highlights from a strong finish to a year of substantial double-digit growth for SP Plus and to discuss the business trends and initiatives that support our new growth targets. To begin, our performance in the fourth quarter demonstrated our industry leadership and kept a year of considerable year-on-year growth across all key financial metrics. We continued to effectively execute on our strategy by growing our existing contracts, improving our outstanding retention rate and winning new business, while also accelerating the deployment of our award-winning Sphere and AeroParker technology solutions. We saw robust gross profit growth in the fourth quarter and full year, and this strong performance was broad-based across our segments, verticals and geographies.

In the Commercial segment, adjusted gross profit growth of 11% in the quarter and 18% for the year was led by our Commercial large venue and hospitality verticals, reflecting increased leisure activity and favorable return to office trends and the ongoing rollout and successful adoption of Sphere. In fact, 2022 results reflect a record level of adjusted gross profit in our Commercial segment. In the Aviation segment, 30% of adjusted gross profit growth in the fourth quarter and 34% for the year was a function of an increase in the number of airports served and a significant uptick in travel activity. And lastly, measures reflecting our scale and reach in both our segments hit new record levels in 2022. We processed $4 billion of gross parking revenues, this is combined from our lease facilities and on behalf of our clients, if it’s a management contract.

We transported 51 million passengers on shuttle buses and handles over 6.5 million pieces of checked luggage last year. Our Commercial segment is comprised over 3,100 locations, which reflects the 106 net new locations added over the last 12 months. In fact, we have achieved net location growth over the last seven consecutive quarters further demonstrating our success in growing our market share. Gross profit from new business in the Commercial segment was the second highest level ever achieved and we approved our location retention rate to 93%. On the Aviation side, we have expanded our presence to 158 global airports and in 69 net new airports to our portfolio in 2022, including 65 unique airports from the acquisition of AeroParker. These are airports where we did not previously have a presence with either SP Plus airports or Bags and we are now providing our Curbside Concierge Services for two airlines at 40 airports.

If you haven’t done so already, you might want to check out the updated investor presentation that we have just published on our Investor Relations website where we have broken out some of these size metrics by vertical market. This positive momentum is continuing in 2023 and marks an inflection point in terms of our growth trajectory. Our work over the last several years has helped position SP Plus as a leader in the digital transformation of our industry and now we are well positioned to capture the growth opportunities presented by our technology innovation. As we noted in our earnings release, we expect another strong year of growth in 2023 with adjusted gross profit growth of 11% at the midpoint, of which approximately 2 percentage points reflects the full year impact of AeroParker acquisition and our expected adjusted EBITDA growth, which is also 11% in 2023 at the midpoint of our guidance range anticipates additional investments in G&A that we believe will set the foundation for achieving accelerated gross profit growth.

Over the last several years, we have been making investments to build the leading edge technology solutions we have today. In addition to our internal development efforts, in 2022 we significantly enhanced our technology position with two strategic acquisitions. AeroParker’s industry leading SaaS platform is poised to generate recurring technology revenues at 80 airports worldwide. This acquisition provides expanded opportunities to realize cross-selling synergies across our entire Aviation portfolio as we leverage relationships and capabilities to grow our traditional parking and transportation business, as well as Bags suite of services and now AeroParker’s technology. As part of the AeroParker acquisition, we also acquired KMP Digitata, an award winning digital marketing agency with an impressive client base both in and outside of the Aviation space.

With Divrt we acquired a partner whose technology solutions we deployed since 2020 as part of Sphere’s platform, just as importantly, this acquisition lay the foundation for the establishment of the SP Plus Technology Innovation Lab based in India, which we believe will enable us to accelerate our progress along our technology roadmap. As we head into 2023, we are executing on our multifaceted growth strategy, which includes; one, strengthening our leadership position; two, expanding our addressable market and gaining revenue synergies from our recent acquisitions; and three, taking advantage of substantial opportunities to leverage and monetize our technology. With respect to our leadership position, SP Plus is uniquely positioned to blend innovative technology solutions and superior operational expertise to enable current and prospective clients to meet their varied objectives, whether those objectives are moving to the bottomline, improving the consumer experience or anything in between.

Our technology solutions enable clients to upgrade their parking assets to align with consumer trends and preferences without making major capital expenditures, while also, in many cases, reducing operating costs. And if there is an existing technology infrastructure, we provide highly trained people and the know-how to operate and optimize the use of that infrastructure. This compelling value proposition has been a key element of our success in winning new business over the last two years. Additionally, the deployment of our technology across our existing footprint has increased the stickiness of our services, which we believe will continue to benefit our retention rate. In terms of expanding our addressable market and realizing revenue synergies, our suite of technology solutions includes software-as-a-service or platform-as-a-service options that can be deployed whether or not SP Plus is the operator.

Our solution is also enabling asset owner to optimize the value of their assets by converting traditionally free parking to paid parking or employing dynamic pricing techniques to maximize revenues and the recent acquisition of AeroParker gives SP Plus a global presence. Together with SP Plus, AeroParker now has the support and resources to further expand its industry leading position and we will have opportunities to leverage their premier technology to drive cross-selling synergies. And finally, a key focus in 2023 and beyond will be accelerating the deployment of our comprehensive portfolio of technology offerings to take advantage of substantial opportunities to leverage and monetize our technology, which we believe is an important component of our future profit growth.

We are currently processing 1 million digital transactions per month on SP Plus-enabled technology platforms deployed across airports, on and off street parking locations, event venues, retail and entertainment complexes and the like. Unlike other one size fits all options our technology solutions are adaptable to a broad range of operating situations to meet both consumer and client needs. While technology solutions today contribute less than 2% of our gross profit, our objective is to grow that to at least 10% of our gross profit by 2025. We believe these three strategic initiatives support the guidance we have given for 2023 and position SP Plus to achieve high single-digit gross profit growth in subsequent years. And if we look further ahead, we see SP Plus playing an increasingly important role in the development of smart cities as parking assets have the capability to become multi use mobility hubs.

While still in the very early stages, we believe that our industry-leading technology capabilities will enable us to work cohesively with our clients to increase the value of their parking assets as roadmap for smart cities evolves. At this point, I’d like to turn the call back over to Kris for a financial review.

Kris Roy: Thank you, Marc. I will discuss our operating and financial performance for the fourth quarter and full year 2022, and our outlook for strong growth in 2023. We exited the year with 16% year-over-year growth in adjusted gross profit for the fourth quarter of 2022. Several factors drove this performance, our team executed effectively, growing our existing contracts, improving our already strong retention rates and winning new business. Fourth quarter 2022 adjusted G&A expenses were up 20% year-over-year largely due to the decision to make strategic investments in business development, technology and other resources that we believe will enable us to capture and support accelerated growth in 2023 and beyond. Resulting adjusted EBITDA increased by 11% over the year ago quarter and Q4 2022 adjusted earnings per share were $0.56, which was 10% higher year-over-year.

Now summarizing our full year 2022 performance, adjusted gross profit was up 22% year-over-year, reflecting the improved business environment and our success in adding new contracts including technology-only locations made possible by our Sphere technology. Full year adjusted G&A expenses in 2022 increased 21% year-over-year, primarily reflecting our strategic decision to make early investments to capital for growth. Full year 2022 adjusted EBITDA was 24% ahead of 2021 and adjusted earnings per share increased 44% year-over-year to $2.78. Switching to cash flow, full year 2022 cash flow increased 64% year-over-year. As a reminder, 2022 free cash flow benefited from a $20.5 million U.S. federal income tax refund, which offset higher capital expenditures compared to the prior year.

At the end of December, we had over $200 million of availability under our senior credit facility. During 2022, we spent $49.3 million to repurchase 1.5 million shares leaving just over $10 million remaining under the May 2022 authorization as of December 31, 2022. Last week, our Board approved a new additional $60 million share repurchase authorization. Our free cash flow gives us the financial flexibility to pursue a capital allocation strategy that includes organic investments to support growth, acquisitions and share repurchases, while managing our debt levels, all with the goal of creating additional shareholder value. Our performance in 2022 and our significant investments in technology over the last several years have laid the foundation for our accelerated growth in 2023 and beyond.

As a result, we expect full year 2023 adjusted gross profit to range from $240 million to $260 million, which at the midpoint represents year-over-year growth of approximately 11%. We expect adjusted EBITDA to be $125 million to $135 million also 11% ahead of 2022 at the midpoint and for adjusted EPS, we expect a range of $2.70 per share to $3.20 per share, approximately 6% above 2022 levels at the midpoint. We also anticipate free cash flow of $60 million to $70 million or approximately $3 per share to $3.50 per share. 2023 free cash flow as the midpoint is expected to be 35% above 2022 if you exclude the $20.5 million 2022 federal income tax refund. Additionally, I wanted to share some additional insights on other aspects of our business for modeling purposes.

First, we continued to expect to see some seasonality with Q2 and Q3, typically being our strongest quarters of the year. On the G&A front, we have made significant investments in 2022, which is reflected in our fourth quarter 2022 results. So Q4 of 2022 is a pretty good run rate if you also layer in some additional incremental investments in early 2023. In terms of interest rates and corresponding interest expense, our senior debt is currently priced at 175 basis points above SOFR. We anticipate to peak and maintain at 4.75% in 2023, resulting in an all-in interest rate of approximately 6.5% and full year interest expense of $24 million to $26 million. Additionally given the levels of capital expenditures in 2022 and 2023, our D&A is expected to range from $34 million to $36 million, which includes the impact of purchase accounting related to the recent acquisitions.

With that, I will turn the call back over to Marc.

Marc Baumann: Hey. Thank you, Kris. To sum up, we are pleased with our strong performance in 2022 and even more encouraged by our growth prospects for 2023 and beyond. We have made strategic investments to support our accelerated growth and we expect to leverage them beginning in 2024 SG&A growth moderates. In my 22 years at SP Plus, I have never seen the breadth of growth opportunities that we have in front of us today. Now it’s all about execution as we seek to make every moment matter for a world on the go. We are confident that our new President of Commercial and Aviation will successfully lead their teams in building on the momentum from 2022 to achieve sustainable accelerated growth in 2023 and beyond. Valerie, I’d now like to open the call to questions.

Q&A Session

Operator: Thank you. Our first question comes from Tim Mulrooney of William Blair. Your line is open.

Marc Baumann: Good morning, Tim.

Kris Roy: Hi, Tim.

Tim Mulrooney: Marc and Kris, good afternoon. Thanks for taking my questions and congrats on a nice quarter and pretty healthy outlook, which is where I want to start. I mean you have taken up your growth outlook for gross profit pretty dramatically here, we typically think about SP Plus in that 3% to 4% range, but a long-term target in the high single-digit range, essentially implies doubling in that target growth rate. Can you walk us through how you get to that step up in your outlook? And Marc, I know you discussed technology is one component, but curious what the other primary factors are and maybe you could also talk about your confidence level around the sustainability of that target?

Marc Baumann: Sure. I’d be glad to Tim, and of course, we have talked about our growth rates for quite a long time. And as you recall, pre-pandemic, we put that target out of 3% to 4% gross profit growth rate and yet in 2019, we achieved over 5% growth and that was a record for the company in terms of the performance of 2019. And of course, the pandemic has created a lot of fog and coming out of it, we have experienced faster growth as we have recovered. But as we look at 2022 and evaluate what it means going forward. I think it’s worth drilling in a little bit on some of the details. As I mentioned in my prepared remarks, for our Commercial segment, 2022 represented our best — second best new business year ever and that was really a reflection I think of the fact that we are offering up an array of capabilities, a lot of those are fundamental operating capabilities.

They are not just technology to a client base who are looking at what we are bringing into the marketplace, and saying, I am going to choose SP Plus over one of its competitors. And we have a very, very strong pipeline of opportunities as we look forward and we believe that we can continue to bring on new additional business as we look forward. And the other thing is that, as we do talk about technology, it’s often part of the conversation in a client making a decision and we might bring technology-only as an offering, we might bring technology along with our operating expertise or we might talk about doing something with technology down the road and technology has a couple of opportunities for us. One is, we are offering something to the clients to help them capture more revenue to reduce their costs.

In many cases, clients have aging existing technology that needs to be replaced and we are saying to them, instead of going the traditional route and spending an awful lot of capital upfront, we can bring technology solutions that are going to be more cost effective or might not cost you anything to sort of replace their aging infrastructure. And I think technology also offers us, as I indicated in my remarks, the opportunity to bring pace parking in places that had free parking. So we are really expanding the addressable market. In prior calls, we have talked a little about that where retail shopping center, hotels and other places, often have no charge for parking, but there are some great locations near the door that people are willing to pay a premium to park it.

So I could go on and on, within the Commercial segment, but I think honestly there’s lots of opportunities to deploy technology to capture more transactions and to really show clients that we have the cutting edge solutions that are going to reduce friction for the people utilizing their services. When you flip over to Aviation, I think, there’s a couple of things that are worth commenting on. One is prior to the pandemic, as you know, we acquired Bags and as we turn the corner into 2019, we started introducing the Bags technology and operating capabilities to the SP Plus airports client base and we had a lot of really great interest in that. And then of course, just as we are about to start to deploy some of these new solutions to our clients, the pandemic came along and it put a hold on all of that.

And so as we recovered from the pandemic, our clients have recovered from the pandemic, it gives us an opportunity to reintroduce the Bags capabilities to the airport clients. And of course, with the recent acquisition with AeroParker, we can bring that into the equation as well. And so, for example, in North America, SP Plus — legacy SP Plus meaning without AeroParker and Bags provide services at 93 airports and there are seven of those airports AeroParker is providing services. So what that really means is that, there are 86 airports where SP Plus through its own airport operations or through Bags have relationships with those airport clients and we can be talking to them about the capabilities of AeroParker. On the flip side, because the AeroParker is based in the U.K. and has numerous, over — almost 60 airports outside of North America, they are now in a position to bundle in their conversation since the capabilities of Bags or maybe some of the other SP Plus technologies in their discussions with their client base too.

So I think for us as we look at the cross-selling gross synergy between Bags, AeroParker and the traditional SP Plus business, we see lots of opportunity for growth. And now just finally to say, what we are also seeing is in the competitive space for operations within North America in Aviation, we have some clients who have not made — competitors, I should say, you have not made the investments in technology, who are perceived to be lagging the cutting edge in the minds of airport clients or prospective airport clients and they are receptive to someone coming in both with technology solutions, operating expertise, but at the same time marketing strategies for them to drive revenue into those airports. So I think all of those things really give us the confidence to expect our business to grow at a faster clip as we look into the future.

Tim Mulrooney: All right. That’s really helpful. Thanks. I mean it’s the technology cross-selling in Aviation and maybe some market share gains on the competitive side. So understood and appreciate all the color there. Switching gears, Kris, the guide you said implies SG&A expense of $15 million higher, but some of that was placed in 2022. I appreciate your commentary you gave during your prepared remarks, but I am just curious how much of that $15 million was in 2022 and how much do you actually expect to layer in during 2023?

Kris Roy: Yeah. If you look at the investments, we started to make, I’d say, we started to make those in late Q3 and certainly into Q4, we made some of those additional investments. I think if you look at that run rate in Q4, certainly that’s a pretty good run rate. We are going to make some additional investments in early 2023 and so I would see that. If you look at Q4, it would be slightly above that, as it relates to, let’s say, first quarter and then you will probably see a little bit of a bump in terms of G&A on top of that and kind of Q2, Q3 and Q4. So I think in the earnings release, there was some commentary that, if you look at our overall G&A spend in 2022 was about $105 million and we kind of mentioned that we going to bring in approximately an additional $15 million into 2023.

So that gives you about $120 million in terms of G&A for 2023. And I think what we are trying to do is just give you a little color in terms of how we are looking at the cadence of that G&A.

Tim Mulrooney: Yeah. Perfect. And then last one for me and I will hop back in the queue. Lots of questions here, but how much did acquisitions — how much did they contribute to gross profit in the fourth quarter and then what is your expectation for contribution from acquisition gross profit in 2023?

Kris Roy: Yeah. I would say, if you look at Q4, given that the acquisitions were a little later in the year, I wouldn’t say, it was a meaningful market contributed into Q4. What I would say is, I think, we are really excited about the opportunities that these acquisitions present in terms of both Sphere, but also in KMP, in terms of the revenue synergies that Marc mentioned. If you kind of look out what it might mean from a 2023 perspective in terms of growth, you might look at, let’s say, I’d say, about 2% of gross profit would be related to our acquisitions in terms of inorganic, and I would say, it’s kind of 2 percentage points in terms of that gross profit. So I think it’s not necessarily what it is in 2023. I think it’s what it can be common in these outer years as we continue to look at KMP and the opportunities that are there.

Marc Baumann: Yeah. I think Kris has said it well and I mean if you look back to the remarks that both of us made, we are guiding you 11% gross profit growth at the midpoint in 2023, but then we are saying beyond that it’s the sort of high single-digit. So clearly in 2023, we get a little blip from the full year effect of those acquisitions.

Tim Mulrooney: Yeah. But — that makes sense, because that’s consistent then basically high single-digit organic gross profit growth right in line with your long-term outlook, so it all ended right.

Marc Baumann: Right.

Kris Roy: Yeah.

Tim Mulrooney: Well, that’s great. Thanks for all the color. I will hop back in the queue.

Marc Baumann: Thanks, Tim.

Kris Roy: Thanks Tim.

Operator: Thank you. One moment please. Our next question comes from the line of Daniel Moore of CJS Securities. Your line is open.

Unidentified Analyst: Hi. This is

Marc Baumann: Hi, Dan.

Kris Roy: Hello.

Unidentified Analyst: Oh! Sorry. Hi. This is Rob in place for Dan Moore. I was just wondering SP has always fared well in recessions and you aggressively renegotiated your contracts in 2020 and 2021. How would you say SP is positioned to weather an economic storm? There has been a lot of mixed signals from the overall macroeconomic view where there — how would you say that kind of affects your end markets and your customers and contracts?

Marc Baumann: Sure. I’d be glad to touch on that. I mean if you look back at past recessions and I don’t think the pandemic is really what you would call a recession, that was one of those, very unusual event. But in a typical recessionary period, the number of miles driven by people only vary €“ varies, sorry, varies about 5%. So people even in a recessionary time are driving places, clearly some of those miles driven are going to vary because of recession, maybe there will be a few discretionary trips people don’t take. But I think we are — because our business is broad-based across geography and broad-based across verticals, we haven’t generally seen the kind of impact that other businesses do, if there is a little slowdown in activity.

The other thing I’d like to remind you of is that, the bulk of our portfolio, our management contracts within the Commercial segment, and consequently, we are not directly tied to the utilization of the parking facilities, we are generally getting our management fee. Now clearly within Aviation, there is a travel and leisure component that’s present there and if a recession were to impact travel and leisure, will definitely see some slowdown in our services. The thing I think we talk about internally with our team is, despite our size, we really have a very small market share in any vertical or for any service and so one of the ways that we can get growth and do get growth even in a recessionary environment is we either increase the penetration of the array of services that we provide at the location we already operate or we go out and get additional clients.

And a lot of times in a recession, clients are feeling their own financial pressures of prospective clients and that’s when they are often receptive to new ideas, new innovation, using technology to create efficiency or drive demand or reduce costs. So while we would all prefer not to have a recession, I think, we have a nice business model that performs well in recessionary environments.

Unidentified Analyst: So you would say that you guys could be a technology heavy alternative that uses their new capabilities to create efficiencies for customers, so in many cases you are the cheaper alternative?

Marc Baumann: We could well be, I mean, I think, as you might imagine, there’s lots of component to technology. One of the things that we expanded a lot, we did this before the pandemic, we expanded it more and that’s remotely managing parking facilities and so there is probably around 600 facilities where we are remotely monitoring or managing at some point in the day part. And so one option drilling the recessionary period for clients is to, say, let’s reduce the staffing levels, let’s do more remote management, more with technology with our mobile point-of-sale and other technologies you don’t necessarily need the staffing levels that you might have needed in the past. And so, I think, the utilization of technology and the acceleration of the deployment of it is a way for our clients to mitigate the effects of recession on their business, but also enable us to get that growth from deploying those technologies.

Unidentified Analyst: You help your clients or mitigate labor costs at least in that situation. That makes a lot of sense.

Marc Baumann: Absolutely.

Unidentified Analyst: And I guess

Marc Baumann: Absolutely.

Unidentified Analyst: pulling on that thread, would you say, if there’s any kind of technology offerings you guys have made a plethora of acquisitions over the last couple of years that your clients are really excited about that are excited to have rolled out in their businesses or is really gained penetration really quickly and making you guys attracted to new clients?

Marc Baumann: Sure. Well, I think, there’s a couple of things I could comment on there, Rob, one is, clients — their objectives are often directly financial in nature, but they are also interested in providing a certain experience for their customers. For the most part, the client is cares about the consumer experience, is looking to reduce friction and has some problems and complaints. And so by deploying our mobile app on the cell phone or some of the technologies that we are now using where you don’t have to actually download our mobile app and create a credential, you can simply scan a QR code or text to pay from your smartphone, we are really reducing the friction in a transaction and we are making it easy for somebody to conduct a transaction with us and that’s a very, very inexpensive thing to deploy.

And so I think that makes some of these offerings, very, very attractive. We know that a high proportion of our clients operate older equipment and this might be investments that they have made some time five years, six years and sometimes 10 years ago or more. And a lot of this equipment requires a lot of maintenance costs, a lot of support costs, skilled technicians sometimes have to come out to fix it and address problems, and part of our technology offering that’s coming from us just really in the last 12 months is our ability to bring our own hardware and software solution to replace that aging technology, and in many cases, we are able to offer that at low or no cost to the clients. So as opposed to their traditional, I have got a problem, it is costing me a lot of money, I don’t really have the capital funds to make that upgrade, it’s a recessionary environment I am looking for every penny, we can come in and say, let us deploy our solutions and we are going to avoid you are having to make that outlay.

And at the same time we are going to capture more of the revenue and drive lower operating costs for your facility.

Unidentified Analyst: Got it. That makes lot of sense. So I guess the key takeaways are that you can help customers reduce labor costs and also minimize maintenance and refurbishment costs by rolling out you guys knew seamlessly deploy technologies. Got it. I really appreciate color there.

Marc Baumann: Absolutely.

Unidentified Analyst: I am going to hop back on the queue. Thank you.

Marc Baumann: Okay, Rob. Thank you.

Operator: Thank you. Our next question comes from the line of Kevin Steinke of Barrington. Your line is open.

Kevin Steinke: Hey. Good afternoon

Marc Baumann: Hi, Kevin.

Kris Roy: Hi, Kevin.

Kevin Steinke: Marc and Kris. I wanted to

Marc Baumann: Good afternoon.

Kevin Steinke: Good afternoon to you. I wanted to focus on one the phrase you had in your press release and prepared remarks when you said in 2023 a key focus will be accelerating the deployment of our comprehensive portfolio of technology offerings to capitalize on industry and consumer trends and realize revenue synergies from AeroParker. Can you just give a little more detail or color on exactly the steps you will be taking there to accelerate deployment of technology offerings and capitalize on the revenue synergies and maybe then any sort of detail on investments behind those efforts to accomplish those objectives?

Marc Baumann: Sure. I will be glad to, Kevin. Again, I think, it’s probably useful to distinguish between our Commercial business and our Aviation business. In the Commercial business, we have a large footprint. As we have talked about, we operate over 3,100 locations now. And so one way for us to deploy our technology is what I was just explaining to Rob on the last question and that’s really replacing aging equipment with our technology offerings. And in some cases, that means bringing hardware and software, in other cases, we would just bring hardware to and plug that in, if you will, through the existing parking equipment there. But all with the idea that we will allow consumers to transact lower friction in more efficient way and we are in many cases able to capture a consumer fee off of that transaction and that’s the way that we would get paid off with some of those transactions.

So we see ourselves as being able to drive growth in the Commercial segment by bringing those capabilities in. We also — as we have talked earlier, as I commented on the call in my prepared remarks, an earlier question, we are expanding our addressable market. There’s lots of places that don’t have technology now where it’s free parking and where we can bring our solutions at low or no cost to the client and we can generate revenue for the client and revenue for ourselves, again primarily through these consumer fees. So I think we see a lot of growth opportunity within our established footprint within Commercial of 3,100 locations. Now likewise, we have the potential to go get new clients, and as I indicated, it was our second best year ever in the Commercial segment for new business and we have a very robust pipeline of opportunities out there.

And clearly, we are seeing that the combination of our operating expertise, our technology offerings are really resonating with clients who are looking to improve the experience of their customers, gain better control over revenue and to have a better environment in general from the point of view of the services being offered. So I think all of those are ways that we see ourselves getting growth within that segment. I think in Aviation, it’s a lot of the same story, but the additive is that, because we have AeroParker now, we have an additional service line that we can bring to clients and we had some recently where we have gone to some of our established airport clients, and we have said, we would like to tell you about AeroParker and look what it can do, it can provide reservation, functionality for people who want to make those arrangements in advance, it can provide other convenience, e-commerce and other solutions that clients are looking to provide, again for people traveling to an airport to reduce friction, make the travel experience better for them.

And I think there’s been a lot of receptivity to that. AeroParker is out selling its services on its own has done very, very well prior to joining forces with us. But I think as we look at those 86 airports in North America where we operate either SP Plus airports or Bags, we can now be planning to introduce AeroParker to all of those clients and vice versa in Europe. So I think was in Aviation, we have the same thing, cross-sell additional services, it’s also acquiring and winning on new deals, and at the same time, the cross-sell synergies that comes from having these three different platforms, if you will, as capabilities that we can bring to clients.

Kevin Steinke: Okay. Great. And if you also could just touch on, yeah, maybe some of the investments you are making to either accomplish those objectives you were just discussing or just other investments in 2023 that you think are going to help set you up for that faster rate of growth in 2023 and beyond or maybe what’s contributing to that $15 million increase in G&A?

Kris Roy: Yeah. I mean, Kevin, as you look at it, I think, what we really want to focus on in terms of bringing costs into the businesses, can we accelerate the growth in our business and I think everything that we are doing as it relates to our G&A and our G&A costs is really looking to say what’s the ROI on that and how can we deploy those costs, so that we can accelerate the pace of our growth. So I think you would look at it on the technology side, bringing individuals into the organization that can help support the deployment of our technology solutions both across the Commercial segment, as well as the Aviation segment. I think, bringing in new business development individuals that can further allow us to get maybe a little bit deeper into clients, maybe we haven’t had a relationship with before or maybe not, we haven’t had the relationship at the same level that we have had before and then bringing in new individuals that can help us continue to grow the business and then lastly support functions that can allow us to grow in terms of overall gross profit growth and support gross profit growth.

Marc Baumann: I mean, the only thing I would add to what Kris is saying is that from the point of view of the development of the Sphere platform, AeroParker and Bags, the peak development is sort of behind us now. You have seen us ramp up over the past few years once we started on this strategy and while we will need to continue investing to develop to make sure that these products are at the cutting edge, that’s how we win new business by demonstrating that we have capabilities that others don’t have. Our main focus in 2023 and you will see even more of this as we move into 2024 is to leverage the investments we have made already in technology and in G&A and try to accelerate our growth by the deployment of those capabilities.

That’s really kind of our focus during the pandemic and before the pandemic, a lot of our focus was on developing the capabilities and while we have done a lot of deployment, 2023 is really a key focus is on execution and we see that being the way that we get that single-digit gross profit growth on an ongoing basis is that continued deployment. I think one thing is important, we have introduced a new metric, which is really to let you know that our scale and reach around our airport footprint, as well as some other data that’s in our investor presentation. But the thing to bear in mind, we are providing some kind of a service or another to almost 160 global airports, but in a lot of cases it’s one service. In some cases, it’s several services.

So we have growth opportunities within Aviation by simply deploying technology where we are only operating or additional operating services or additional technology where we may only be providing one or two services. So even without going and getting additional airports to provide our services, we see opportunities to create sustained growth within the portfolio of clients that we already know and who know us.

Kevin Steinke: Okay. Great. That’s helpful color. And I also wanted to ask, in terms of leverage, I guess, you referenced in your press release, in the future, you think the high single-digit growth — gross profit growth beyond 2023 will lead to significant operating leverage and accelerated rate of growth in EBITDA and EPS. So I know you are not providing guidance beyond 2023, but just kind of as you think about it strategically do you feel like 2023 is more of an investment year where like you guided to EBITDA grows in line with gross profit and then beyond that, you start to see more of it operating leverage in 2024 and beyond?

Kris Roy: Kevin, this is Kris. I would say the answer — the short answer is yes. So I think as we look at 2023, certainly there is some — it’s a little bit of an investment year in terms of bringing additional resources into the organization that can support and generate faster growth. I think if you were to look out kind of that G&A ratio to GP ratio or GP to G&A ratio that we are kind of historically at. If you look at and this gives a little bit of a sense just in terms of where it’s at relative to where we have been, if you look at the midpoint of gross profit of $260 million and you look at G&A in terms of $120 million, which is kind of what we said in our earnings releases and we are at $105 million and we expect about $15 million of additional cost that gives you a 48% of — 48% G&A to GP ratio.

Now if you go back to 2019 year on a pre-COVID basis, we are kind of right at that same levels. We were right around 48%, 49%. So I think while we have made a lot of investments in our G&A, I don’t think it’s been kind of outsized to where we have been historically.

Kevin Steinke: Right. Okay. I have got one more question here. You talked about the goal of a 10% of your gross profit coming from technology solutions by 2025 and it’s only about 2% now. Can you just define exactly what you mean by technology solutions. I know technology is infused into a lot of your services and your solutions, but are you specifically referring just to those recurring transaction fees, is that kind of where the 10% number comes from?

Marc Baumann: Yes. I mean I think in a nutshell, we are talking about trying to capture fee for monetizing our technology and that might be software, it might be hardware, it might be hardware and software. And as we say, Kevin, technology in our operating businesses are very intertwined and so, but we also see that the consumer is prepared to pay a fee, you call it a convenience fee or processing fee, some sort of a modest fee for the benefit of convenience or service. And so we see we are getting these fees now. We see others in the marketplace charging fees like that. So we know that consumers readily accept that and we see that as an area where we can grow and that growth really comes on the back of deploying the technology that we have already developed and so that’s what I meant about executing against the plan.

We have the technology that can do those things. We don’t need to do significant additional developments, so that we can capture those kind of fees. Now the job is really to get it out there into the marketplace as much as possible and to be in a position to capture those fees as we go forward.

Kevin Steinke: All right. Great. Thank you for taking the questions. I will turn it over.

Marc Baumann: Okay. Thanks, Kevin.

Kris Roy: Thanks, Kevin.

Operator: Thank you. One moment please. Our next question comes from the line of Marc Riddick of Sidoti. Your line is open.

Marc Baumann: Good afternoon, Marc.

Kris Roy: Hello.

Marc Riddick: Good evening, everyone. So I know you have covered quite a bit. First of all, I want to thank you for all the detail that you have provided both in prepared remarks, as well as the slides. I was wondering if you could talk a little bit maybe more big picture in the — specifically around maybe what you are seeing with the return to office trends and maybe how that is working through your expectations and working through into the 2023 guidance commentary?

Marc Baumann: Okay. Sure. I will be glad to, Marc. And of course, if my commute to the office is any indicator, everybody must be back at work, because generally the actual commute time at least in the Chicago area are every bit as significant as they were back pre-pandemic. But we do know because there’s a lot of data out there that most companies have settled into a hybrid model for office and clearly hybrid model scenario to optimize the revenue for our client base requires people that have cutting edge technology can offer a unique solutions to what consumers are looking forward, because a lot of people aren’t prepared to buy monthly parking, if they are only coming in two days, three days or even four days a week. And so our technology platforms can enable those types of transactions, and of course, our digital marketing and other marketing services can enable us to attract parkers to the client locations that we serve.

So we actually feel very good about the office environment and don’t really expect to see a significant additional return to office based — beyond what we are seeing now. It’s like 50%, 60% in most major cities and certainly on certain peak days like Wednesday, Thursday, it might even be more than that and it’s pretty dead on Monday and Friday. But in terms of our growth that we saw this in our new location growth, we probably — we brought out almost as many offices in terms of new clients in 2022 as we did any vertical within Commercial. And I think that just indicates to us that the owners and property managers of office properties look at our operating capabilities and our technology capabilities, and say, these are going to help me optimize the value of my asset.

Marc Riddick: All right. That makes perfect sense. And then I was wondering if you could talk a little bit around the — because it certainly seems as though you kind of had this under control, but maybe you can sort of talk a little bit more about the concept of labor inflation and maybe what you are seeing there, because it certainly seems as though you have been able to manage that from the — throughout the entire post-pandemic environment, but certainly it seems as though you are feeling fairly comfortable about what you expect to see despite the inflationary environment going into 2023? So maybe you can talk a little bit about maybe what you are seeing there from a labor area that’s sort of gives you that level of comfort?

Kris Roy: Yeah. Marc, this is Kris. I think if you go back and

Marc Riddick: Hi, Kris.

Kris Roy: I know we have talked about this kind of a couple of quarters ago, but we really did take a look at our kind of labor as you look at the workforce. We really looked at it on a more market-by-market approach, in terms of what is that market, what is the demand on that market and how do we try and help our operational folks, get people into the organization, in terms of workforce. I think as you look at some of the inflationary pressures that have happened either through individuals feeling a little bit of pension in their pocket books or becoming more comfortable with kind of return to work given the pandemic is behind us. I think you are seeing folks get back into the labor force. And I think that’s certainly opening up more opportunities to bring in folks into the organization, as well as tamp down kind of that inflationary pressure that we saw kind of earlier in the year in terms of labor rate.

So, I think, all in all, things seemed to be going pretty well. I think they have gone well historically for us, but I think we are in a pretty good spot from a labor participation.

Marc Riddick: Okay. Great. And then another — just another big picture kind of question, I am sort of thinking about and I was wondering if that’s something that you are seeing as of yet or if it’s part of your current forecast. Are there any thoughts as to maybe what you are seeing with municipalities and the benefit you may or may not see eventually from them spending more from infrastructure funding or other funding availabilities? Are you beginning to see more of that type of activity or do you forecast that being something that could be a benefit down the road?

Marc Baumann: Well, municipalities definitely have financial pressures on them as we all know including in the cities we live in and a lot of those are just the demand for services, pension obligations and the like. And so, clearly, I think, municipal leaders are looking for options to improve and to generate more revenue and to do so in an effective way. And so it’s the approximately 90 municipalities where we provide services on street and that would be cities like Los Angeles and New Orleans or Atlanta, Georgia. We are bringing again the same cutting-edge technologies or low friction solutions, text-to-pay, scan-to-pay using your mobile device to facilitate a transaction. And when we bring those things to bear, what the client experiences a higher capture rate of the revenue, because people are — make it so easy to pay, it’s almost like, well, I am able to do it and so your compliance levels are very high.

And so there’s definitely renewed interest and what can we do there and many, many cities throughout the country still have a traditional single parking meters that except coins and if they do and there is about 3,000 cities out there that have on street parking, there is huge opportunities for them to simply outsource their operation to somebody like us. So we can do it all. We can bring the technology. We can write parking tickets. We can do enforcement. Our whole array of services are there. But you mentioned financing or other options and we are seeing this, it hasn’t resumed in the municipality space yet, but universities are really looking at the same — some of these same issues and we were €“ we partnered with some financial backers for — in effect a P3 privatization at University at Toledo last year, which has gone exceptionally well and where the university was getting both upfront cash flow from investors, but also sharing an increased revenue stream that’s been brought about by us bringing in our technology, capturing more of the revenue and so they have an ongoing higher revenue stream than they had previously plus this upfront payment.

And I think once you get a couple of these success stories being known in the — out there in the world, if you will, there’s going to be others clamoring to do the same thing. So we are actively working with the same financial partner to talk to other prospective universities who now can see the value, it’s almost a little bit like having your cake you needed too, I can get from needed upfront funds that maybe help me with something that I need, but I can also have a higher revenue stream that I had before when I was doing it myself.

Marc Riddick: Great. And then the last one from me, I promise, because I know we have been going, we are up against an hour. I was wondering if you talk a little bit about the pricing dynamic that you are seeing both with existing customers, new customers and then maybe some, probably, those thoughts into maybe what the consumer price increases may sort of play out as to how that sort of played into the setting of your 2023 guidance? Thanks.

Marc Baumann: Sure. Well, I think, I mean, when you talk, we would like to talk about the people who own the assets or manage the assets that we operate as clients and those people clearly, if you can demonstrate value to them, if you can show them that bringing operating expertise, marketing strategies, digital strategies, digital solutions in the form of hardware and software that create both a better experience for their consumers and also more money to their bottomline. They are prepared to pay a fair fee for that. And so — and we have never started as a business to try to be the low cost solution and we have always thought to be the people that provide solutions that creates the most value for asset owners. And if we do that, then we find that we are able to be paid fairly for those services.

With respect to the public itself, I think, there’s been a lot of inflationary increases in parking rates in most cities and a lot of that has been driven by the fact that a lot of folks are not comfortable yet writing on mass transit. They often in the past also had monthly passes on for mass transit and so they have gotten used to maybe being in their car. And so there is a lot more travel and commuting to work and to other places by cards than there was before, Uber and Lyft, rates have gone higher or often waiting times are higher and so as a consequence, there is definitely the ability to raise parking rates. But at the same time convert more of the parking facilities for daily parking as opposed to monthly parking, and of course, monthly parking is discounted parking.

So from the advantage point of clients, from the advantage point of ourselves where we are operating leased locations, if we can bring in more daily parkers and fewer monthly parkers, we can actually generate more bottomline profit for those facilities. So those dynamics are still going on, but like inflation, generally in our economy, there were big increases coming out of the pandemic that’s a leveling off now. But we have web tools that we have developed where we are scraping, competitive parking rates around the facilities we operate and that enables us to recommend changes to pricing to our clients or for ourselves at our leased locations. So we are monitoring it very carefully and constantly for opportunities to increase parking rates and generate more profit for clients and more bottomline for ourselves.

Marc Riddick: Excellent. Thank you very much.

Marc Baumann: Thanks, Marc.

Kris Roy: Thanks Marc.

Marc Baumann: You too.

Operator: Thank you. I am showing no further questions at this time. I turn the call back over to Marc Baumann for any closing remarks.

Marc Baumann: Great. Well, thank you and thanks to all of you for joining us today. We are excited about the prospects for our future, we have tried to lay out some new metrics and targets so that you can get a better idea of what we are working on and how we see things panning out and we look forward to bringing you another update after Q1 in early May. Take care and have a good evening.

Operator: Thank you. Ladies and gentlemen, this does conclude today’s conference. Thank you all for participating. You may now disconnect. Have a great day.