SP Plus Corporation
Q2 2018 Earnings Call Transcript

Published: 1 Aug 2018

[Operator:]

Good morning, ladies and gentlemen, and welcome to the Q2 2018 SP Plus Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host Vance Johnston, Chief Financial Officer.

[Vance Johnston:]

Thank you, Andrew, and good morning everybody. As Andrew just said, I am Vance Johnston, Chief Financial Officer at SP Plus. Welcome to the conference call for the second quarter of 2018. I hope all of you have had a chance to review our earnings announcement that was released last evening. We'll begin our call today with a brief overview by Marc Baumann, our President and Chief Executive Officer, then I'll discuss our financial performance in a little more detail. After that, we will open up the call for a Q&A session. During the call, we'll make some remarks that will be considered forward-looking statements including statements as to our 2018 outlook and guidance 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 and/or implied by these forward-looking statements due to a variety of risks, uncertainties or other factors, including those described in our earnings release issued yesterday, which is incorporated by reference for purposes of this call and is available on our SP Plus website. I would also like to refer you to the Risk Factor disclosures made in the Company's filings with the Securities and Exchange Commission. In addition, as we had in the past, our commentary will focus on adjusted results. A full reconciliation of all non-GAAP measures to their nearest GAAP measures was presented in tables accompanying last night’s earnings release which is incorporated by reference for purposes of this call and is available on our SP Plus website. Also to the extent we answer specific questions about 2018 guidance involving non-GAAP financial measures, reconciliations maybe found under the Regulation G tab in the Investor Relations section of the SP Plus website. Finally, before we get started, I want to mention that this call is being broadcast live over the Internet and then a replay will be available on our SP Plus website for 30 days from now. With that, I'll turn the call over to Marc.

[Marc Baumann:]

Okay, thanks, Vance, and good morning, everybody. As you saw in the earnings release we issued last night our performance in 2018 remains strong. The Airport Division continues to deliver solid year-over-year growth in the second quarter as employments in parking demand increased at key airport locations. In the Commercial division, we saw good growth in gross profit at same locations overall and across most markets. To give you a brief update on the status of our New York operations, we continue to see incremental performance improvements driven by our new leadership team, as well as the various revenue and expense optimization programs we’ve put in place. We experienced a favorable reduction in prior year casualty loss reserve estimates in the second quarter of this year which we believe is attributable to our consistent focus on safety and risk programs to drive down the total cost of risk. While we expect overall loss reserve estimates to continue to decrease, the timing, direction either favorable or unfavorable movements and the magnitude of these changes are difficult to predict and certainly can fluctuate from quarter-to-quarter and year-to-year. New business activity remains strong and we highlighted a couple of recent wins in last night’s earnings release with nice additions in our targeted vertical markets, as well as through expanding our existing relationships. Generating new business remains a key focus area for us and successful execution will help us accelerate gross profit growth and increase location counts. In other metrics, our location retention for the twelve months ended June 30 was 90% which is down from 92% at the end of the second quarter last year and 91% as of the first quarter of this year. In the second quarter of 2018, we lost two contracts representing almost 70 operating locations. While large in terms of location counts, the loss does have a meaningful impact on gross profit. As we previously discussed, we do have a handful of contracts that represent a large number of locations and the loss of these contracts can cause location retention to fluctuate from time-to-time. Importantly, gross profit retention from same operating location increased by almost 4% in the same – in the second quarter of 2018. Finally, we continue to be focused on a balanced capital allocation approach to drive shareholder value. To that end, and as previously discussed, we are now more focused on evaluating potential acquisition opportunities as one of our initiatives. As noted in our earnings release, over the last several months, we have incurred some costs related to exploring a few potential opportunities. We’ll continue to keep you updated on our capital allocation plans including acquisitions. With that, I’ll turn the call over to Vance to lead you through a more detailed discussion of our second quarter and our year-to-date 2018 financial performance.

[Vance Johnston:]

Thanks, Marc. I’d like to spend a few minutes reviewing our financial results in more detail. Second quarter 2018 adjusted gross profit increased $2.2 million or 4% from the second quarter of 2017. As Marc discussed, we realized a larger favorable adjustment in prior year casualty loss reserve estimates in the second quarter of this year, compared to last year’s second quarter. In addition to casualty loss reserves, strong performance in the Airport division was the other primary driver of adjusted gross profit growth. Adjusted G&A for the second quarter of 2018 was $20.7 million, down $0.7 million or 3% from the second quarter of last year. In addition to continued cost management discipline, we also received a $1.7 million cost recovery from a vendor partner that offset a higher accrual for performance-based compensations. Resulting adjusted EBITDA for the second quarter of 2018 increased $3.2 million or 12% over the same period of last year, driven by the factors affecting adjusted gross profit growth and adjusted G&A that I just discussed. Adjusted EPS was $0.73 for the second quarter of 2018, as compared to $0.53 for the second quarter of 2017 in addition to higher adjusted EBITDA, a lower effective tax rate resulting from the 2017 Tax Reform Act contributed to the 38% year-over-year increase in adjusted EPS. Next I would like to touch briefly on the year-to-date results. Adjusted gross profit for the first half of 2018 increased $1 million over the same period of 2017. Lower healthcare program cost, a larger favorable adjustment in prior year in casualty loss reserve estimate, as well as strong results from the Airport division were the primary drivers of growth and were partially offset by the early termination of the long-term lease contracts that resulted in a $1.7 million, non-cash write-off of an acquired lease contract rights in the first quarter of 2018 which we discussed during the first quarter call. Adjusted G&A for the half quarter of 2018 decreased by $900,000 or 2% from the same period of 2017, high accruals for performance-based compensation were more than offset by a $1.7 million vendor cost recovery and continued disciplined cost management. Resulting adjusted EBITDA for the first half of 2018 increased $2.2 million or 5% over the same period of 2017. Adjusted EPS for the first half of 2018 was $1.12, an increase of $0.32 per share or 40% as compared to the first half of 2017, in addition to adjusted EBITDA growth and a lower effective tax rate resulting from the 2017 Tax Reform Act, lower D&A expenses, primarily due to the burn-off of certain acquisition-related intangible assets in 2017 contributed to the increase in adjusted EPS. The company generated free cash flow of $21 million during the first half of 2018, which was somewhat lower than expected primarily due to some unfavorable movements in working capital as well as unplanned expenditures related to evaluating potential acquisitions. We continue to believe that much of the unfavorable movements in working capital are temporary at this point and expect free cash flow for the year will be within the previously provided guidance range. Given our year-to-date performance, we are reaffirming our previously provided full year guidance on all measures. This concludes our formal comments. I’ll turn the call back over to Andrew to begin the Q&A.

[Operator:]

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

[Daniel Moore:]

Good morning. Thanks for taking the questions, Marc, and Vance.

[Marc Baumann:]

Good morning.

[Daniel Moore:]

I want to start with the strength that you are seeing on the Airport side. What’s – just maybe a little bit more color on what’s changed there. Is it stronger renewals, higher retention rate or is it simply more business on lease contracts at existing locations?

[Marc Baumann:]

It’s really a combination of things, Dan. So, first and foremost, we are seeing strong growth in employments across many of our airport locations. There is a lot of travel going on out there and I think it bodes well for people, obviously parking their cars at the airport. So, that’s a very important contributor. We’ve had an excellent year for renewals and have been doing a nice job of hanging on to the contracts that we have that have come up for renewal this year. And as you mentioned lease contracts, certainly, in a strong environment where there is a lot of demand, it gives us the ability to put up parking rates and some of that will nurse to us some of that will nurse to the benefit of our airport clients in the form of higher rent. So, all in all, it’s a good fairly buoyant period in the airport space.

[Daniel Moore:]

Very helpful. Appreciated. And New York, obviously continue to make good progress with the change in management in that market as well. Maybe any additional color you’d want to provide on the steps that you are taking and it’s where we are kind of what inning there. Headwinds are dissipating or we can start to see more meaningful growth?

[Marc Baumann:]

Well, I think, as we’ve talked on prior calls, we are certainly seeing some improvement on a year-over-year basis in revenue. And so, and when I talk about that I talk about our lease locations. The issue in New York has primarily been around a number of lease locations. We have management contracts there as well, that are performing well and have for many years. So, our issues in New York were really around the impact of performance at some of our lease locations and what we have seen and this has continued is a - the relative performance of revenue with those lease locations has gotten better compared to prior year and that’s been going on really for the last year. And we've certainly talked in prior calls as well about our marketing efforts, expansion of our digital activities, trying to bring online channels to – as a way to sell additional parking in New York. I think, we weren’t as effective with that in that the past. We were doing some other things in the marketing and the analytical space. But the most important change is that, we’ve brought in a new leader this year to – a veteran of our company to come in and take a look at how we operate in New York and there is a lot of little details, day-to-day things, do we have the right management in place at a location? Are we setting the right expectations? Are we controlling over time? Are we budgeting correctly and forecasting demand, so that we can make sure that we are providing good service? Are we working collaboratively with the whole organization to provide support and take out a necessary costs? And that, those activities really commenced a couple of months, probably near the beginning of the second quarter. And so, it’s very early days. These are multi-month exercises, but I am encouraged by the steps that have been taken already and as we move forward through the rest of this year and into 2019. I think you will start to see a noticeable difference in the performance of those leases that I was talking about.

[Daniel Moore:]

Great, very helpful and one more if I may on G&A front. You called out $1.6 million I think in merger restructuring – merger and restructuring. Is that entirely or primarily related to exploring M&A? And if it is, are those opportunities that you are exploring still in the pipeline and would you say you are closer today than perhaps three or six months ago? Thanks guys.

[Vance Johnston:]

Hi, Dan, this is Vance. So, just, I’ll start by answering, trying to answer the first part of your question. So the vast majority of items are restructuring-related and merger and acquisition-related costs that we are adjusting out are related to exploring of potential acquisition opportunities. As it relates to kind of how we are going forward and thinking about it. I think as we’ve alluded to on recent calls, one, we want to have a focus on a balanced capital allocation approach. And so as part of that, we are also spending more time focused on evaluating acquisition opportunities and maybe we had over the last couple of years as the integration was central and then kind of immediately post that exercise. So I think we really now turned our attention to o capital allocation in general and as part of that evaluating acquisition opportunities, I think that’s probably the way to think about it.

[Daniel Moore:]

Got it. Thank you. Appreciate the color. I’ll jump back in the queue.

[Vance Johnston:]

Thanks, Dan.

[Operator:]

Our next question comes from the line of Tim Mulrooney with William Blair. Your line is open.

[Tim Mulrooney:]

Good morning.

[Vance Johnston:]

Morning.

[Marc Baumann:]

Good morning, Tim.

[Tim Mulrooney:]

Can you guys talk a little bit – a little more about your M&A pipeline? What it actually looks like today. I mean, with labor costs rising and the pressures from ridesharing, I met with some of your competitors who might be getting squeezed more so than in the past and most don’t have the balance sheet that you guys have. Has the pipeline changed at all over the last year? Are you having more active discussions?

[Marc Baumann:]

I think, we could say, is what our concept is that we’ve talked about in the past and that is that we are eager to explore opportunities to acquire other parking companies. People in our industry, people that we know well, and have relationships with through the National Parking Association. But, those are opportunistic and said, someone has to decide, it’s time to sell my business and that time might be now, that time might be later or that might be never. So, my goal for us is to make sure that the owners of those businesses are aware of our interest in speaking with them about possible acquisitions by us. And so we are actively pursuing and looking at any opportunities of those that come along. At the same time, we do a lot of things that are ancillary to parking, whether it’s ground transportation or other facility maintenance and other services that we currently do, or others that we might potentially do, that have a similar client base to our client base, we are putting fillers out to companies in those spaces. So that we can get to know what’s going on there and understand the dynamics of those industries and look for opportunities to potentially acquire somebody and scale up any ancillary service. One of the things we’ve learned over many years is that, when we can offer our client more than one service that’s received very, very positively and we’ve done that for many years, particularly with parking and ground transportation and it simplifies life of the client. It gives them one point of contact. It’s generally a lot more cost-effective because he don’t have duplicative management and all of those sort of things. And so, as we look out to the future, one of the things that we want to do is that, what could we add to the portfolio of things that we do, that draw the expertise that we already have as a company in managing people and desperate locations that are providing services to our existing client base. So we are very, very actively looking at those things. And I think the fact that, we’ve disclosed to you that we are spending money, means that we are spending a lot of time doing that and we are obviously using some outsiders to help us too. I think the thing you remember is what Vance said and that is that, we have a disciplined approach to this. And so, that doesn’t mean that everything that we look at or everything that we spend money on is going to actually result in a transaction. It’s quite important to us to – for the point of view of our investors that we are – if we do acquisitions that we are delivering real value to shareholders and that requires a discipline to walk away from things that we might have liked conceptually, but if we can’t get them at the right price, or if there is some other issues that come out in a review process, we are not going to just go forward because we want to buy companies.

[Tim Mulrooney:]

Okay, okay. Thanks, Marc. And shifting gears a little bit, could you just give us an update, and I apologize if you said this in your prepared remarks, but I was curious to hear about your revenue management program. I know, it was a pilot program. You were thinking about, I think pushing it out to a few more locations. Can you talk about the progress? What the scope of the project is today and what your plans are?

[Marc Baumann:]

Sure. I mean, I think within the umbrella of revenue management there are a number of activities that we are doing. One of which is to get paid up from a facility and to try to use that data to understand the different types of customers that are parking there and when they – and what they are paying in revenue for parking and that might be different types of monthly parkers, because there is monthly parkers that are in effect storing their vehicles and there is others that are commuters from the suburbs and so forth. And there is of course people that are coming for evening activities, day time activities. So, we are trying to build some models around customer behavior at facilities using that data. And the question that we are looking to answer is, can we influence that behavior by changes to pricing using that data. And this is a long-term project. We are doing it in one geographic market. There will b e many iterations before we have something that we could roll out generally for transient customers, for people that are driving up to this facility. We have learned a lot about how to influence people that are going online to choose parking. And one of our focal points over the past is to enable more of our locations to sell inventory online, so that we have the ability to reach those people and I think, just like people who are planning a trip at an airline, or planning a stay at a hotel, the online people are planning ahead. And so the ability to influence them with pricing models and alternatives is a little bit easier than the people that are just driving up to the facility. So, we are starting to expand what we do more in online. I think other things under the revenue management umbrella really involve channel management. We talked before about the fact that people in the past and I am going to say, people, I mean parking operators like us, we basically make sure we were running a really clean, well lit, safe, well trained employees kind of environment and we just try to get those locations and we waited for people to show up. I think in the marketplace and the world we live in today, people are being valued to a location with their smartphone or their in dash activities or they may be planning ahead before they even leave on their journey. There is lots of different channels and of course, we have aggregators out there as well who are also acquiring customers and wanting to sell them inventory. So, an expertise that we’ve developed in our business over the past 18 months is really to try to optimize the allocation across channels of our inventory, is otherwise we are not necessarily stretching the maximum revenue out of a customer for the benefit of our clients if it’s management location or at a lease location, if it’s our location. We are doing systems in other IT developments, so that we can automate more and more of that and manage that more seamlessly. But I think, the fact that we are focusing on that puts us in a position that only one or two of our competitors are doing and if they are doing it all. So, I think this is really the future in our industry. It's partly about optimizing price, but it’s also optimizing the allocation of inventories to customers who bring with them different profiles of gross profit opportunities.

[Tim Mulrooney:]

Yes, okay, all right. Thanks very much guys.

[Marc Baumann:]

All right, Tim. Thank you.

[Vance Johnston:]

Thanks, Tim.

[Operator:]

[Operator Instructions] Your next question comes from the line of Kevin Steinke with Barrington Research. Your line is open.

[Kevin Steinke:]

Good morning.

[Vance Johnston:]

Good morning, Kevin.

[Kevin Steinke:]

So, you talked about new business activity being strong and can you just update us on your efforts there in terms of maybe adding new development - new business development people? You talked about your efforts in the hotel and hospitality market before as you continue to target new markets with new people. Are you adding people to address municipal, university and hospitals in the markets you talked about targeting more this year. So, any update on the new business development efforts would be helpful.

[Marc Baumann:]

Yes, we are happy to do that, Kevin. And I would say we are still in a building phase. We have talked before as you indicate about our interest in hospitality and growing that space and we have added some resources there. We’ve also added in general some new business development resources that can work across multiple verticals and we’ve also added more marketing resources, because one of the things that we are learning is that, when we talk about what we are doing with marketing programs, websites, digital platforms, we have a client-facing dashboard now, which we are pulling under the umbrella of SP Plus inside analytics that we can offer to clients. It's helpful to have people that have expertise and knowledge and that’s how our organization presents that to clients and show them the value of going with SP Plus as an operator as compared to some of our competitors. So, all of that is underway. I think, the other kind of major thing that has happened is that, we’ve recognized that, consulting is often the way into a client relationship and not just consulting around our SP Plus Game Day business which is primarily a consulting business, helping clients manage large sporting events, but that – we’ve had some – added some additional resources in that space, because we see the way into relationships with university clients in particular, it's through a consulting relationship that helps them deal with an acute problem that might have to do with a particular situation that they have and then that leads to a broader discussion around the parking relationship. And we have several of those where we have started out with a consulting relationship and we are now expanding into a broader parking management relationship with them. And to that end, we’ve added some additional resources within our consulting group and we will be adding some more as we go forward over the next few months. The other kind of major national account and I think, historically, we’ve operated and still do to a large extent as a geographically base business. And so, we cultivate relationships in local cities and sometimes, we’ll have an executive over multiple cities in the same part of the country and they’ll cultivate relationships with the same companies in multiple cities. But we haven’t focused as much as we are now, in the past on trying to cultivate national relationships. And so, we identified about thirty organizations that are national in reach that we have relationships with already in certain cities or maybe in more than one city. And we’ve developed national planning and a national approach to these clients, so that we can try to leverage the success we’ve had with them in one or two cities and get locations from them in other cities and that’s starting to now bear fruits. And I think, I was just talking with our Commercial Division’s Chief Business Development Officer yesterday about some of his upcoming plans and meetings and things that are scheduled. And I think as we look forward over the next six to twelve months, we’ll start to be able to talk about situations where we had a local relationship with a national company in market A and that’s now leading our ability to add in market B, and market C and market D. And these national companies are increasingly receptive to the message that we are giving because, given our size and scale, we can serve them everywhere that they operate. And in some cases, they may have multiple operators or a local operator in certain parts of the country that doesn’t have national reach. And then, we talked about some of the things that we are doing that I mentioned with revenue management, with the analytics dashboards and the ability to bring data to their desktops that brings across all of their locations. These are the kind of things that they are really seeking. So, I think, that will continue to be a major thrust. We’ve added some resources to support that effort and as we look to move forward we started our planning for the balance of the year for our plans for 2019. I think you’ll see us add additional resources in some of these areas as we move into the coming year.

[Kevin Steinke:]

Okay, that’s great. So, and you called out also the favorable casualty loss reserve estimates in the quarter and you tied that to your safety and risk management initiatives. How much more room do you think there is to go on the safety and risk fronts in terms of improving gross profits? Just any update on the safety and risk management initiative overall?

[Marc Baumann:]

Well, I would say, if we have even one incident that involves in an injury to a person, whether it’s a customer, a client or an employee, we can prevent this. We don’t subscribe to the view that we’ll have accidents and that's just part of our business. We look to try to understand every accident and if there are patterns or preventive measures of things that we can change, then we are going to do those things and other companies that have made this one of their top two or three or four priorities. They have seen sustained reduction in accidents over many, many years. And so, I would say, we are always reexamining whether there was – or additional steps we should take. We are doing an awful lot of safety audits when we started down this path. A couple of years ago, we only had one or two people doing safety audits and now we’ve expanded that team. We’ve more than doubled the size. We’ll probably expand it further as we look forward. So I think in terms of the focus on safety and eliminating preventing incidents that can lead to accidents and injuries, it’s a well worked and it’s one of those things that has a double benefit. It’s good for the bottom-line, but it also prevents a serious tragedy in the lives of individuals. So, it’s a good thing for our organization to embrace. As far as loss reserve adjustments, as I indicated in my remarks, you never know what’s going to happen in a given quarter. You’ve been following us a long time and you’ve seen the long-term trend. But I think we try very hard to set expectations, so that we don’t have large unpleasant surprises. We don’t want to have those and so my hope would be that with our continued efforts as we go forward, we will continue to see positive adjustments. But I would say, $2 million in one quarter is an awfully big number. If you go back and look at the last five or six years, it’s a bit larger than normal and no doubt, some of what we might have expected to see later this year has come through now. So, I think, you can’t – I wouldn’t be living off of these kinds of magnitudes, but our efforts should result in continued favorable, on a long-term basis movement.

[Kevin Steinke:]

Okay, that’s helpful. And, you had – you called out again, one particular contract that you didn’t renew with a fair number of locations, but not a lot of profitability associated with it. As you look across the whole contract portfolio, what’s the state of it right now in terms of – how many contracts are still out there? Or maybe you are not generating acceptable profitability in terms of lease portfolio or any other management contracts and is that’s something we should continue to expect from time-to-time going forward that maybe you don’t renew some of these and just because the profitability isn’t there?

[Marc Baumann:]

Well, I would say, first of all, in terms of it Kevin, when we talked about, I wouldn’t say that it was an insignificant profit in aggregate. I think that is the point that we would make is that, on a per location basis, the profit is very low. That doesn’t mean we don’t want to keep that contract, but we are not to a competitive bidding process and we were unable – unsuccessful in retaining, which is unfortunate. But I think, just like we can lose a contract that has many locations and the profit per location is not really significant, we can also win contracts that have multiple locations as well. And so, I think, it’s not a one way street here. One of the focal points that we have is our - in our business development efforts is to try to acquire locations. We have done a fantastic job of driving up same location performance and you see that in our results. But in order to have sustained growth over the long-haul, we also have to drive up our location count and so, we don’t like to ever lose anything. But I think our efforts are focused on winning a contract and winning it and making adequate amount of money to make it a worthwhile thing for us to pursue and when that happens, if it’s one location, then that will be great. But if it’s multiple locations then that will help our location count as well. So I think, our focus remains on getting growth and to have sustained growth, we need to have locations.

[Kevin Steinke:]

Okay. In terms of the adjusted G&A expense in the quarter, you had that $1.7 million cost recovery. So, if you factor that out, your G&A on an adjusted basis was –would have been $22.4 million. Is that a kind of level we should expect over the next couple of quarters? Or was that just driven higher by the performance-based compensation? And just any thoughts on the G&A as we move forward? I mean, I guess, if you continue to perform, at a good level would we see more of those performance accruals or how are you thinking about the G&A?

[Vance Johnston:]

Yes, Kevin, this is Vance. So, a good question. So, you are correct in assuming that there was some increased performance-based compensation accruals that impacted – that we accrued for that impacted the second quarter G&A. And you are right, depending on kind of we true that up on a quarterly basis. So depending on how we perform throughout the rest of the year or we could either increase or decrease our G&A based on those accruals and that’s one element of it. I think the – you alluded to the other element which was cost recovery. You haven’t said all of that. We typically don’t provide specific guidance on G&A as you know, but I think we feel quite comfortable with kind of the current trend line for G&A that we’ve seen over the last couple quarters and we would expect it to be kind of at a similar rate moving through the rest of the year.

[Kevin Steinke:]

Okay. Thank you. That’s all I had.

[Marc Baumann:]

Thanks, Kevin.

[Operator:]

Your next question comes from the line of Marc Riddick with Sidoti. Your line is open.

[Marc Riddick:]

Hi, good morning.

[Marc Baumann:]

Good morning, Marc.

[Marc Riddick:]

I really appreciate all the color given on the opportunities that you are pursuing. I was curious as to whether or not there is some areas that you are looking at potentially deemphasizing whether it’s – I mean particular verticals or regional markets or anything that you think maybe would sort of be put on the back burner?

[Marc Baumann:]

No, not really, Marc, because, one of the nice things about our business, because we are fundamentally operating in many geographies. If we are there and we decide that that’s a good city for us to be in our metropolitan area, then the people on the ground are going to be actively pursuing all the opportunities that they can in that market. And so, to sort of tell them, we don’t concentrate on this vertical or that vertical it wouldn’t be all that useful. I think that – when I talked earlier about the national account approach, a lot of that is geared towards large commercial property owners or property managers, which is our - sort of our traditional business, if you will. So I think the way for us to fundamentally get growth, in our traditional sort of office building commercial property kind of space is through the cultivation of this national account approach that we are doing with our national – put us well in the leadership along with our local people in the various cities. I think, some of these other verticals that we’ve talked about, whether it’s the municipal vertical, which is primarily on street or the university vertical or the healthcare vertical or the hospitality vertical, we want to augment with the local people in the geography are doing with additional resources. People who are subject matter experts potentially came out of those verticals, talk the same language of those clients. Some of the sales cycles, particularly in the municipal space and university space are longer than for a commercial office building. So, we are augmenting and trying to grow in those other verticals, but I don’t – because it’s – in many ways, it’s different people that are focusing. I don’t think it requires us to pull back from anything in order to accomplish that.

[Marc Riddick:]

Okay. I was wondering, on the – you had some comments earlier regarding the opportunities and the growth that you are seeing in the airport space. I was wondering if you could sort of give a little more detail on what you are seeing there with the benefits of the growth of travel. Was there any particular connecting feature? Was it regional or kind of across the board? So if you can just give a little more detail on some of that airport growth that you are see in sustainability that that might take place from here?

[Marc Baumann:]

Yes, I am not sure there is a lot to answer, what I had said already, I mean, I think clearly, the one thing about airports is that they are all government operated and so, they have a regular process of coming out to bid. That’s something that we track and so, there won't be in our airport that comes out to bid that would be of a size and scale that would be used to us from acquiring it for our operations that we aren't aware of. And so, I can honestly say that, for the most part, we are going after everything that comes out to bid. Now there will be a few exceptions where we’ve decided that there is – this dynamics of that situation aren’t going to make it worth our while. So we are pursuing everything. We are bidding on everything. And then I think, when it comes to the structures, a lot of these – a lot our contracts are management contracts. And so, robust growth in employments or utilization of the parking facility doesn’t necessarily are newer to us directly. But in others, we do operate as leases and therefore, when we do operate as a lease, it gives us the opportunity to look at demand for parking and potentially make adjustments in rates to try to drive up cost or to introduce automation to drive up revenues and it’s introduced automation or other techniques to help us manage those locations as efficiently as we can. And then, some of these revenue management techniques that we are talking about can also apply an do apply in the airport space. And so, I think, our goal is to also be looking both at leases and in management on behalf of our clients for ways to bring the online channel into those and to try to drive parking demand.

[Marc Riddick:]

Okay, great. Thanks. One last thing. I was wondering if you can give a CapEx update as far as expectations for the remainder of the year. Thank you.

[Vance Johnston:]

Yes, hi, Marc. This is Vance. We don’t give, as you know – we don’t give specific guidance on CapEx. But it is our assumptions around CapEx are going to contain within our guidance as it relates to free cash flow. But with that said, we don’t expect any abnormal amount of activity, certainly CapEx being significantly – going up significantly in the back-end of the year. We would expect it to kind of – we spend a little bit more in 2017. So we wouldn’t necessarily expect it to be at elevated levels like that – as elevated levels as 2017.

[Marc Riddick:]

Okay, that’s perfect. That’s all I need. I appreciate. Thank you very much.

[Vance Johnston:]

Okay, Marc.

[Marc Baumann:]

Thanks, Marc.

[Operator:]

Our next question comes from the line of Daniel Moore with CJS Securities. Your line is open.

[Daniel Moore:]

Thank you again. Maybe just one last one. Generally, Marc, with some of these headwinds dissipating in New York and new business wins strong, do you see an opportunity to maybe sustain or reaccelerate gross profit growth relative to where we were a year ago? Or is the landscape really relatively unchanged from your view?

[Marc Baumann:]

Well, I think there – one thing about the future, I think, I said before, it’s uncertain. So, think, it's been steady for it’s uncertain. So, what's going to really happen, nobody really knows. I think there are some positives that are starting to happen and the flip side of the congestion problem has been created by a explosion in the use of ridesharing. A number of cities, like the officials and their planners are starting to say, you know what, this is not sustainable. We want to expand mass transits. They’ve put in bus and bike lanes. There is grid lock in a lot of major cities now that is detrimental to the sort of objectives of the city that have a clean environment and people getting around. And we are trying to work with our municipal clients where we have them or in general, the municipalities that we operate in to talk about how we can be part of the solution to that and now we now are at a place where ridesharing vehicles or other mobility electric bikes or the kind that you still pedal can be staged or obviously, car sharing vehicles are staged at parking facilities or held at parking facilities. And I think that’s part of the solution to the congestion problem. But I think also, we are starting to see and New York is one that’s getting a lot of press right now, proposals by the mayor there to limit the number of for-hire vehicles that are in certain parts of the city as a way of addressing congestion. So, I think, I feel like – the situation has stabilized and not just in New York, but in other places too. And I think that what we are going to see now is maybe some policy changes at the local level that are going to try to alleviate some of the congestion. And the goal for us obviously is to be a part of those solutions and to demonstrate how parking operators can help eliminate congestion in the marketplace and that’s one of the things that we are actively worked on – working on it.

[Daniel Moore:]

Appreciated. Thanks again.

[Marc Baumann:]

No problem.

[Operator:]

There are no further questions at this time. I’ll now turn the call back over to Marc Baumann for closing remarks.

[Marc Baumann:]

Really all I want to say is, thank you for joining us. Appreciate your interest in our business. We are excited about our initiatives and the things we are going to try to make happen to end the year on a good note. And so, thank you for spending time with us today and we’ll look forward to talking to you next quarter.

[Operator:]

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation and have a wonderful day. You may now disconnect.