SP Plus Corporation
Q1 2017 Earnings Call Transcript

Published: 3 May 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to the Q1 2017 SP Plus Corporation Earnings Conference Call. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to turn the conference over to Vance Johnston, Chief Financial Officer. Sir, you may begin.

[Vance Johnston:]

Thank you, Ashley, and good morning, everybody. As Ashley just said, I'm Vance Johnston, Chief Financial Officer at SP Plus. Welcome to the conference call for the first quarter of 2017. 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'll 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 2017 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 in 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. 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:]

Thanks, Vance, and good morning, everybody. I'm very pleased with the strong first quarter results we generated which were generally in line with our overall expectations. We saw a relatively strong gross profit growth, coupled with continued reductions in G&A and that drove significant growth in EBITDA and earnings per share. Our airport division produced strong results and in our commercial division, most industry verticals and geographic markets performed well, with one notable exception. The New York market continues to be challenged by some downward volume and revenue pressure which is having an outsized impact on certain leased locations. We remain focused in the New York Metro area and are deploying revenue management and enhanced marketing programs that we believe will help drive improved utilization revenue. We're also closely managing labor and other costs to improve the overall results in the New York market. Our overall client retention was a solid 94%, and we saw some same operating location gross profit growth of just over 2% in the first quarter. Our new business pipeline remains full and active, and we're looking forward to another great year for new business. I want to highlight a few of our notable wins. In the healthcare market, we were chosen to manage the parking operations at the brand-new state-of-the-art, Shirley Ryan AbilityLab Hospital in downtown Chicago. In Ontario, Canada, we added another Lakeridge Health Hospital to our parking management portfolio, bringing net total to five hospitals for that group. In the municipal market, we were awarded a contract to provide turnkey parking management services for the City of Atlanta's 2,400 on-street parking spaces. We're cast with using technology to improve customer service as well as provide a pathway for Atlanta to become the South's leading smart city. We've also expanded our hospitality protocol with the addition of the Doubletree by Hilton in downtown Los Angeles, the Courtyard by Marriott and Nashville-Vanderbilt/West End, The Hotel indigo, Austin downtown, and the AC Hotel Marriott in San Juan, Puerto Rico. Finally, we're very pleased to have renewed our parking management contract at the Denver International Airport for at least five more years. Going forward, our primary focus will be on executing our three major growth initiatives which are to implement our industry vertical market strategy, expand our revenue management and marketing services capability, and further enhance our safety and risk management programs and culture. I want to provide you with a brief update on our progress to-date on these important initiatives. As you know, we recently realigned our business to focus more on high-priority industry verticals. We believe this model best positions us to capitalize on future opportunities to accelerate top line growth. One key industry vertical that we'll be focusing more heavily on is the hospitality market. To that end, I'm happy to report that we've now consolidated all of our hospitality operations under our commercial division and recently brought Bob Younger [ph] onboard to head our business development efforts in the hospitality market. Bob brings many years of experience working with the market's leading players and will bring his market knowledge to lead all of our sales and training efforts for the hospitality vertical. In addition to bringing on Bob, we'll also be adding experienced regional hospitality asset managers in key geographic markets to help lead local sales efforts and oversee our hospitality operations. The hospitality vertical requires a different skill set than our traditional commercial business, and we feel these investments are critical to driving growth in this vertical. We're also making good progress in further developing and expanding our revenue management capabilities and marketing service programs and expect to kick off a revenue management pilot in one market in the second quarter. We believe all these initiatives will position us well for long-term sustainable growth, but they do require some upfront investment. This is the primary reason we previously communicated that 2017 would be a transition year with EBITDA growth somewhat lower than recent years and less than what we believe to be the long-term potential of the business. We're nevertheless looking forward to a successful 2017. With that, I'll turn the call over to Vance to lead you through a more detailed discussion of our first quarter 2017 financial performance.

[Vance Johnston:]

Thanks, Marc. I'd like to spend a few minutes reviewing our financial result in more detail. First quarter 2017 adjusted gross profit increased $2.7 million or 7% over the same period of 2016. As Marc mentioned, the primary drivers of gross profit growth were strong year-over-year performance in the Airport division as well as robust net new business in the Commercial division, primarily due to new hospitality business added during the last 15 months and lower healthcare claim costs. The combined impact of all the foregoing items more than offset the underperformance of the New York Metro market. Adjusted G&A for the first quarter for 2017 decreased by $1.2 million or 5% from the first quarter of 2016, primarily due to previous cost-reduction initiatives and continued cost management discipline, as well as to net cost savings from the recent organizational restructuring. The additional resource investments to support our various growth initiatives were not a significant factor in the first quarter but we expect them to have more of an impact throughout the rest of the year. Gross profit growth and lower G&A cost drove significant growth in adjusted EBITDA, up $3.8 million or 25% over the first quarter of 2016. Adjusted EPS was $0.28 for the first quarter of 2017 as compared to $0.10 in the first quarter of 2016, a more than twofold increase. In addition to significantly improved EBITDA, a significant reduction in depreciation and amortization expense, including a $600,000 reduction in D&A due to the burn-off of certain acquisition related intangible assets, drove the adjusted EPS increase. The company generated free cash flow of $2.9 million in the first quarter of 2017, slightly below the $3.4 million generated in the same period last year. We experienced some unfavorable working capital fluctuations in the first quarter, but we believe they are temporary and we'll revert back to expected levels by year-end; as such, we remain confident with our full year free cash flow guidance. Based on the first quarter results, which were largely in line with our expectations, we affirm the previously provided full year guidance for 2017 on all majors. That concludes our formal comments. I'll turn the call back over to Ashley to begin the Q&A.

[Operator:]

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

[Daniel Moore:]

Good morning, thanks for taking the question. Marc, Vance, you perhaps have given some color, but could you remind us and just give ballpark, quantifying the level of incremental investment spend that you plan on growth initiatives for the remainder of the year? And should we think of that a sort of onetime in nature or an elevated level of investment as we look out to 2018 and beyond?

[Marc Baumann:]

I mean, with the way we described it in the last call Dan, is that we said we're continuing to take G&A out of the business by continuing to look for ways to be more efficient and also the completion of some of the changes in our operating model and organization, and that we would be making an investment in additional G&A in the areas of revenue management, marketing services, bringing on head of hospitality business development, as we talked - as I talked in my remarks, and obviously, bringing on regional hospitality asset managers and bringing on additional business development resources. And I think investment on an annualized basis for those things is not a significant number, but it's definitely into low seven figures.

[Daniel Moore:]

Very helpful. And Marc you gave great color in your prepared remarks on realigning - some of the steps you've taken to realign along verticals. In terms of revenue management capabilities, you mentioned the pilot in Q2, can you just give us a little bit more specificity around plans or initiatives there?

[Marc Baumann:]

Yes. I mean, our initial focus with our revenue management is to work with some outside technology partners who have expertise in this area and - so we're not starting from scratch, and we don't have to ramp up our own technological capabilities. So we've identified a partner, we're working diligently with them to identify locations in one market where we have good access to the data, that's often a challenge in our industry because there's all these various parking equipment, net much of which we don't own. But we do have a market where we have really good asset to the data, and we can choose some locations to try some new analysis using that data that we think, will help us determine better pricing. I mean, that's really the objective for optimizing our revenue at those locations and our initial focus will be, as you might imagine, on leased locations, so that we can develop, iterate, fine tune, whatever you want to call it, using our own locations. And then once we have that, then we'll look to scale that, not only to leases, further leases in the same market, but also in other markets and then ultimately, have what we think will be a differentiated offering that we can bring to management clients as we continue to demonstrate to them that our expertise is to help them drive performance at their facilities.

[Daniel Moore:]

Very helpful. Lastly, and I'll jump back in queue; maybe just update us on the progress of Parkmobile growth rates and market penetration, how do they compare to Park with and spot hero and some others that are just sitting here in New York, appear to be more aggressive in terms of advertising their capabilities?

[Marc Baumann:]

Yes. I think we obviously can't disclose what we know about them, its proprietary to Parkmobile. They're not a public company but what I can say, some of things that they've announced publicly, is a number of wins in the municipal on-stream meter space. I think, in fact, they're processing or starting up the processing of on-street transactions in New York, for example. And they are primarily known as the business that handles on-street processing but - so I think it's compare them to directly to what people like do is not probably an appropriate comparison at this time because they're more parking aggregators selling off-street reservation. But certainly, we sold, as you know, Parkmobile, a reservation or prepayment tool called click and park as part of our transaction with them. And so people do to use that tool, we use it with many of our clients, and other parking operators use it with Parkmobile to prepay for parking in various situations.

[Daniel Moore:]

Okay, that's helpful. I appreciate the color.

[Operator:]

Our next question comes from Tim Mulrooney with William Blair.

[Timothy Mulrooney:]

Good morning. So if I look at your leased contracts, if I look at gross profit on those leased contracts, it was down about 30% year-over-year. But I'm curious, what would that be if you would have excluded the large voluntary New York exit from last year?

[Vance Johnston:]

Yes. Tim, this is Vance. We don't give out that specific type of information. So I think what we could comment on is, is that one of the factors, as Marc alluded to in his prepared remarks that would have impacted the year-over-year comparison on leases is some of the challenges that we faced in the New York Metro area in terms of the volume there and the fact that we have a higher - relatively higher percentages of leased contracts in the New York market than we would have in other markets; so it's having a disproportionate impact there. So that will be a driver as to why you're seeing that year-over-year variance in kind of leased revenue and gross profit. But in terms of getting to the specific information, that would not generally be the type of information that we would provide.

[Marc Baumann:]

I mean just to add to Vance, I think that contract that you are referred to that we had - that we voluntary terminated had a large number of locations. We did indicate on prior calls that that did not generate a meaningful amount of gross profit. So that's clearly not going to be the reason behind any change in gross profit, at least locations that you're talking about.

[Timothy Mulrooney:]

Right, okay, that makes sense, thanks. And then if I look at your management contracts and look at the gross profit that generated there, you guys are actually up 16% year-over-year, a really nice number. But if I look at the number of facilities that you manage, you're down almost 200 year-over-year. So clearly, you've been working hard to improve profitability year. Is that mostly related to controlling healthcare costs and insurance claims? Or are there other factors that play here as well? Just looking for your general thoughts on why you're seeing such strong improvement here.

[Marc Baumann:]

I mean, it's certainly - we're definitely benefiting from the sort of safety culture initiatives that we've brought into the business to drive down our total cost of risk, that's definitely benefiting us. And as we've indicated in the release or on our comments, we certainly have had an improvement in healthcare due to in large part to some of the measures we took last year. We were - as you know, from the prior calls, we struggled a little bit with healthcare going up, and we took some measures at midyear of last year that really made a difference, I think, in the latter half of last year. But we also wrote record new business last year and I think that's an important thing to remember because that will - those new business will come in various times during last year, very little of it probably in the first quarter. So as we come back around, we have the benefit of that. And then finally, as I noted in my remarks, our retention rate has gone up to 94% and while we target to get into the low 90s, and I'm pleased to see that we're there, that's going to start to have an impact if we can sustain that and hopefully, drive that higher still.

[Timothy Mulrooney:]

Great, thanks for the color guys, congrats on a nice quarter.

[Marc Baumann:]

You're welcome. Thanks.

[Operator:]

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

[Kevin Steinke:]

Good morning. So you referenced strength in your Airport division, and I'm wondering why you called that out in particular and what perhaps drove strength in that market for you?

[Marc Baumann:]

Sure, I'd be glad to do that. I think one of the things that you probably have noticed when we spoke today, we used a little different terminology. So we talked about our commercial division which was - we formerly referred to as our urban division. But now that we have brought all hospitality together under commercial, we're really referring to that as our commercial division. And then airport is our other main division. So as we look at our business and when you look at our filings and see us talking about segment reporting, you'll see it kind of reinforcing that way. I think Airport is a number of factors, we had a couple of very nice wins last year, which are again, took place during the year, so we're getting the effect in Q1 of something that we didn't have. I think we also talked last year that early in the year, we lost, I think, it was the LAX airport and we had trailing costs and sort of negative things going on in Q1 last year that aren't there now. And we've added some additional services that some of our existing airports, which have been a nice benefit. And I think as you know, I mean weather does affect our business. And while we had, I think - if you were here in Chicago, we have our third mild winter in a row, but in other parts of the country, it's not quite that pattern. But I will tell you, at some of the airports where we're responsible for snow removal, they had a more mild winter this year than they did last year.

[Kevin Steinke:]

Okay, that's helpful. And with regards to the New York market, could just talk a little bit more what's going on there? Is that kind of a competitive issue that you're working on there to perform the performance of those leases? Or what are some of the other factors driving performance there?

[Marc Baumann:]

Yes, I mean, there are clearly a lot of things that work in. As you can imagine, we're spending a lot of our time and energy developing steps we can take to improve our business. I think our belief is that the competitors in that market are having a similar experience to us and whether that's being driven by cars coming in or out of Manhattan or congestion in Manhattan generally that might be affecting whether people drive. Certainly, ridesharing has affected the hospitality vertical. I think that's something that we and our competitors in most cities are seeing some of that, where people that are staying at hotels in some cases are choosing not to bring a car there. And so that will definitely be a factor too, and of course, in New York, I think we have 100 hotels. So if hospitality is affected by ridesharing changes in people's behavior, that's going to definitely affect us disproportionately there. But what we don't believe is that it's a case of competitors are taking business away from us and they're getting nice growth while we are not. I think it's more that backdrop conditions that are going on in New York right now. That being said, we have a lot of ideas on things that we can do, and I highlighted some of those already in my remarks. And it's a major focal point for us to try to take stuff that we believe can lead to more growth. And particularly, as we develop our revenue management capabilities, we really see that as something that will be quite beneficial to markets like New York that have a lot of leases.

[Kevin Steinke:]

Those are all great questions, Kevin. And then you won the new contract with the City of Atlanta, which obviously, is a sizable city within that municipal market you're targeting. So just wondering how that came about, maybe how long it took, and were they working with someone else before? Or is this the first time they're outsourcing?

[Marc Baumann:]

Yes. Those are great all questions, Kevin. As we've talked before, winning new contracts in the municipal space, particularly large ones, are - there's a long lead time usually, and that lead time can be measured sometimes in months or even in years when you're talking about cultivating relationships. And that's why we have subject matter experts that have come out of that space and spend their time getting to know people in the municipalities that might be candidates for using our services. So that's something that we invest time and effort in all the time. But then because it is government, like all government contracting, there's a formalized process where people have to qualify to be bidders. And then the qualified bidders are - the municipality would choose from an array of people that are interested parties, the qualified bidders, and that's usually do they believe that the bidder can actually perform the contract, that they actually are successful. And then there's a formal bidding process. And then once that's done, there's obviously negotiations over details and then you have to get started. So it is a long time-consuming process. Now in terms of Atlanta specifically, they had outsourced before. And I think, and this is public information, so I'm not disclosing something that the City of Atlanta will consider proprietary, there were a number of performance issues with the prior vendor that they were using to provide those services, and a lot of stuff in the press were people weren't happy, particularly around the technology and ease of using it to make payments and ease of using it to just conduct transactions generally. So they brought us in. And obviously, one of the things we do bring in is the ability to advice on technological changes but also to make sure that the existing technology works properly. And if there's good controls, things are getting done the way they should, and then of course, creative ideas around marketing and promotion. It just so happens as well that Atlanta is the home market - it's where Parkmobile is based, and they have had a small role with Atlanta in the past. They weren't part of the problem at all, but we see them getting an expanded role as we move forward now with this contract.

[Kevin Steinke:]

Okay, great. And could you just talk a little bit more about your decision to invest more in the hospitality vertical? You talked about some of the challenges related to hospitality in the New York market, although I think you've also talked about how - the fact about how you're not - there's so many other markets where you don't have a great or large presence. And so are you going to look to address a lot of newer geographic markets with this hospitality initiative?

[Marc Baumann:]

Yes. I think you're - in a way, you're answering your own question. Look, we love the hospitality market. We have tremendous expertise in that. That's been developed over a long, long time. But as we look - we're been reviewing our business and our opportunities to accelerate our growth last year, one of the things that became - that it's not like we just learned is, we knew it, which is that our nice hospitality business is really concentrated primarily in Florida, New York City and Chicago. And most of other places, we have a hotel or two here, maybe two or three there. And if you look at cities like Denver or Dallas or Houston or Phoenix or Los Angeles or San Francisco, we don't. And I think and we ask ourselves a lot of questions about, why is that? And I think what comes out of it and it seems fairly straightforward once you think about it is that to satisfy and deliver excellent service to hospitality clients require a specialized expertise. And it also requires people who are dedicated to being there on the ground, managing and supervising at the peak times for hospitality clients. And those peak times are primarily nights and weekends. That's when the hotel gets large events, weddings or the like or where a lot of tourists or other travelers coming in. And so you've got to be oriented towards that. Well, the bulk of our business, management in the field is geared toward our traditional client base of commercial office buildings and parking lots and residential and the like. And so - it just so happens that in Florida and in New York and Chicago, we recognize this some years ago, and so we do have dedicated people who focus on hospitality. And I think that's why we've been successful in adding properties in those locations, and we're continuing to add properties in those markets. So as we talk about the strategy and bringing Bob in to help us cultivate additional national relationships with hospitality hotel chains, brands, ownership groups, management companies, there's a lot of people involved in decision-making around who to choose as a parking operator, who maybe to choose parking operator, the other part of it, and I mentioned this in my remarks, is a commitment by us to put regional hospitality asset managers in some of those markets that I mentioned, not necessarily all of those all at once, but in the markets where we are really underserving the hospitality space. In that way, we put people on the ground who are going to be dedicated to delivering excellent, excellence to hospitality clients during their peak times. And I think as we deploy those people over the remainder of this year and get going on that, I think that's going to enable us to win new properties. The overall comment I made about some - maybe some of the challenges that ridesharing is presenting to hospitality, that is a national phenomenon. And that it's a national phenomenon that affects our hospitality clients. It's also affecting our competitor's hospitality clients. But when we look at our footprint, while we have more of foreign [indiscernible] in properties than anybody else in the parking management space, our overall footprint in hospitality is very, very small. And even when we look at New York where, as I mentioned, we have 100 hotels, there are many, many others that we don't have. So I think when we look at it, yes, ride sharing will have an impact on hospitality, at least at this time, but I think when we look at the markets that we don't have much of a footprint in in terms of hospitality asset managers, we see a lot of opportunity for growth. And there's no reason why, as we look ahead over the next few years and look at some of those big metropolitan areas that we don't operate in, much in the way of hospitality, that it should be realistic for us to be targeting 10 to 20 properties in each of those. And that will be something that we'll be doing over the next few years.

[Kevin Steinke:]

Okay, that's great color. Just one last question for me. Vance, I think you mentioned G&A this quarter did not been a fit from some of the initiatives that you anticipate the rollout in the remainder of the year. So is that correct? And what sort of initiatives are you looking at in terms of the G&A cost reduction as we move throughout the year?

[Vance Johnston:]

Yes. I think, Kevin, you kind of captured that correctly. So as we alluded to in the fourth quarter call and as we discussed in our prepared remarks today, we will be making some investments, most of those will be G&A related in areas, such as business development for hospitality and other business development resources. So the point here is, is that really kind of - we haven't completely fully made all those investments, so the full ramp run rate of that is not in effect it. We expect to be doing more of that in quarters Q2 through Q4 of 2017. So it's similar to what we described before. Having said that, we're very focused on G&A and continue to be focused on that. Obviously, we've taken out a lot of cost over the last couple of years. We do believe there's more opportunities, maybe not or probably not as significant as what we've seen over the last couple of years, but we continue to be focused on that and they continue to be in the areas of some around organizational realignment, which we certainly saw some impacts of that in the fourth quarter of 2016. But more importantly going forward, it will be on things like strategic sourcing, which we're starting to kind of ramp up even more significantly. We have some continued opportunities in optimizing our back-end processes, and we're continuing to be focused on that. Obviously, Marc alluded to total cost of risk, which is the cost, but there's a cost of parking that impacts our gross profit, and that's a very strong focus of the company going forward. And then in addition to all that, we're just incredibly - continue to be incredibly disciplined on cost management in general and managing that on an ongoing basis.

[Kevin Steinke:]

Okay, that's very helpful. Thanks for taking my questions.

[Operator:]

Our next question comes from Marc Riddick of Sidoti. Your line is now open.

[Marc Riddick:]

Good morning. I wanted to follow-up on - you've covered a lot of things already, so that's great, but I did want to follow up on your current views so far in the Las Vegas market, both the hotels and if I remember correct it, you do work with the Arena, the T-Mobile Arena. And so I was wondering, just what you've seen so far there and then maybe the context of potentially growing going forward, with the advent of having an NFL team in the market in the next couple of years. I was wondering if there's some update there.

[Marc Baumann:]

Sure. I'll be glad to do that. I think as far as we can tell and I think the feedback we're getting is that we've had a successful first year there. Obviously, it's a big undertaking for us to help MGM bring paid parking to Las Vegas. And clearly now, other casino groups are following suit and are also bringing in paid parking. So I think clearly, that's an indication that, that's kind of here to stay. It's something that will be a feature of that market that, like everywhere else. I think one of the great things about our experience so far is that we have learned a lot about the casino business and how to serve that business and the needs that are little bit unique to that. It is hospitality, but the kind of scale and complexity that's presented in being successful with those kind of operations is much different from many, many other hospitality operations. And so I think as we grow and one of the things that our new Senior Vice President hospitality will be bringing to us in the business development side is really going after additional casinos, not just in Las Vegas, but also in other markets, and we were pleased that MGM awarded us their casino in the Washington, D.C. area, which opened also last year. So we're hoping to get other opportunities in the casino space throughout North America, but also in Las Vegas. There's other parking operators there too, so I would be naïve to expect that we're going to get everything. But I think that we're off to a very, very good start there and I think it's been great. And of course, as you mentioned, the T-Mobile Arena has been open for a while, and we're managing the events and the parking activity for that. And that was a very challenging startup. But because of our SP Plus Gameday experience where we manage large events like the Super Bowl, we were able to bring that expertise to bear to make sure that there's really quick ingress and egress, people are getting in and out quickly from the parking for that arena. Now with - you mentioned NFL team, but obviously, the thing that's going to come a little sooner is the NHL game. And I think the '17, '18 is going to be the season, their first season. So I think the activity in that arena will ramp up significantly now. And we're obviously, their consulting, advising on the things to do to be prepared for that. I think unless it's changed, the site has been identified in Las Vegas for the football team to - stadium to be built on. Obviously, we now know what the team is going to be. That's a couple of years out, but we're hopeful that given our relationships with the NFL through the Super Bowl and other relationships we have within professional sports that we'll be able to advice and that will turn into some parking management opportunities for us as they move forward in getting that stadium built.

[Marc Riddick:]

Okay, that's great. Thanks for the color on Las Vegas. I wanted to touch a little bit on your comments on the pipeline and sort of maybe where we might be expected to see maybe besides hospitality, you certainly covered that, but I was wondering if you had a sense of maybe some of the drivers of the pipeline in some of the other areas and whether or not, maybe on the municipal side, we're looking at state local budgetary needs, that thing being a driver of that. I just want to get your thoughts on that part of the business.

[Marc Baumann:]

Yes. I mean, obviously, we have a kind of our bread-and-butter business, which is commercial office buildings, residential properties, freestanding parking lots and parking garages and the like. But we've talked before that as we look forward and say, what are the areas or the verticals where we can accelerate our growth, one of them is hospitality, as we just talked. But as you mentioned, Marc, we have municipalities. We've done a lot of stuff for municipalities off-street for a long, long time. And obviously, we run more airports than anybody else, so we have a lot of experience in the municipal space. But the on-street meter outsourcing, I think, is still in its early stages. We have maybe a couple of hundred on-street meter contracts. We talked about the win in Atlanta. We run the meters with the city of Los Angeles and the Chicago Park District and other big complex meter operations and also for smaller cities around North America. So I think the economic realities is that the four cities and are not going to change. There's always a challenge of how do they get enough revenue in, how do they control their cost. Many cities and municipalities have pressures on pension liabilities and the like, and I think also, have historically deployed police officers to do parking enforcement. And I think there's a recognition now more and more that there are much better public safety needs that cities have, and those police officers should be deployed to those activities and outsourcing to a parking management company like ourselves has the ability to both bring in more revenue for the municipality, drive down and lower the costs of those services and at the same time, free up those public safety resources to go focus on other things that are maybe more beneficial to the city. So as we look ahead take two, three, four, five-year view, I think you're going to see an acceleration of decisions outsourced. And in many of those same factors are at play in the university space. Traditionally, universities have managed their own parking operations. They've had often done in a public safety department. But as universities have built on their campuses, they built buildings on parking lots. They've gone up because of space constraints. Often, they have now remote parking and they have the shuttle people in buses from point a to point b, and that becomes more complex parking challenge. And so - and of course, in most universities, football and sports are an important element for the university environment but also for alumni. And so getting people in and out on football Saturday or for other events is an important thing. So I think there's a recognition and that's now growing as well by a number of universities that again, it's time for some professional help. And somebody like us, who can come in and bring technology for permits, for enforcement of parking, for shuttle, we bring shuttle operations. We can advise them on construction and the other things that may night to do to have efficient movement of people. And of course, the SP Plus expertise can help them with their football stadiums and sports arenas. I do think, again, as we take kind of a two, three, four, five-year view, that will be a growing area for us as well for a lot of the same reasons. And of course, universities, just like municipalities, find themselves under budget pressures and it's a lot of the same story. Municipalities have. That's I think causing maybe when a new openness to outsourcing for the first time.

[Marc Riddick:]

And one last thing, it was interesting that I noticed, as far as the - under the recent developments that you had two callouts within SP Plus Healthcare Services, one of which being an expansion of existing relationship and the other seemingly a new one. I wonder to get a sense of where - how we should think about that specific area, that Healthcare Services area? And sort of maybe where that stands in the pecking order of opportunities and what you're seeing in the pipeline? Thanks.

[Marc Baumann:]

I mean, in many ways, it's kind of a similar story to what I just described around universities. You have - hospitals have consolidated in a lot of places and - and/or they're building and adding on facilities, they're seeing larger, I just call them, mega healthcare complexes are being built. And we have a number of terrific clients in that space, for example, Mt. Sinai Hospital in New York, where we run a valet on the front door using the same expertise that we have in hospitality. We manage their garages and remote lots and because over the years have built on their properties, they need shuttle busing, we run a shuttle bus operation for them as well. And again, they have all the same financial challenges that any organization has today, how can we get the job done with a higher level of service and at a lower cost. I mean, that's just a good, sound objective that everybody should have. So I think as we look at it - again, the growth opportunities for us, over the next few years, I would include hospitality in that space in kind of the same vein as universities - sorry, healthcare in the same vein as I did universities.

[Marc Riddick:]

Great, thank you very much for the color.

[Operator:]

We do have a follow-up question from Daniel Moore of CJS Securities. Your line is now open.

[Daniel Moore:]

Thank you, again. Maybe just one or two quick ones. Marc, you mentioned, probably not a surprise, obviously, but ride sharing affecting in hospitality, I know you're probably constraint, but maybe what are some of the date of that and looking at to measure that? And over the last couple of years, are you seeing an acceleration in that trend? You mentioned it's - is it largest cities or smaller cities? Anything you might be able to share and one quick follow-up.

[Marc Baumann:]

Yes. That's a fair question, Dan. We look at a measure called driving ratios, which is really just how many people are bringing their cars as a percentage of the people staying there. And I think most people in our industry look at that, too. And there's definitely been a downward trend in that. And again, that could be for a lot of reasons. It could be a component of people staying at hotels and maybe more groups in some cases are staying there and they don't bring cars anyway. It could be ride sharing. So those will be a lot of factors that work. I would say, this is not a major falling off the cliff kind of an issue. It's just a gradual kind of loss of parking volumes in certain hospitality locations. But it's, I would say, I think it's probably true that in most major metropolitan areas, that's having an effect. But how it affects a given property can vary tremendously. The other thing I think to remember is that our business - we're 80% management contracts and we're 20% leases. And of course, as we've talked before, there's a myriad of structures on our contracts. Whether volumes fluctuate in a given property and whether that affects us financially will depend a lot on the contract type. I think the reason that we talked about in New York in particular is that many, if not most of the hotels we operate there, have little or no - little or none of their own parking. They have very, very little. It's certainly inadequate to satisfy the demand that they're - from their guests. So to win, to manage and operate parking at the front door in Manhattan really requires you to have places to put those cars. And obviously, if we're putting those cars in a management location, which we do, then if there's an impact from ride sharing or lower volumes at a particular hotel properties, it's going to affect our management client and not necessarily us. It so happens in your, we have more leases there than we do in other markets. And so a volume reduction is definitely going to affect our leased locations. So that's really how it works.

[Vance Johnston:]

Just one thing to add too Marc's comments, as Marc mentioned earlier, given the significant whitespace in hospitality that's out there for us across multiple markets that we currently don't operate in a significant capacity in, we feel there's a tremendous opportunity for growth in the hospitality market, even given some kind of things that we're seeing with ride sharing, which are really in some certain markets. We see tremendous opportunity for growth in that vertical.

[Daniel Moore:]

No doubt. Thanks. Lastly, capital allocation, maybe just an update, given the significant free cash you expect to generate this year, and the balance sheet keeps getting better, down below 2x levered. Is the initiation of the dividend a possible - a possibility this year? Or is that more likely '18 and beyond discussion?

[Marc Baumann:]

Well, we continue - as we commented before, we continue to evaluate capital structure opportunities and that being one of them. We haven't made a decision yet as to anything around the dividend per se, but we continue to evaluate that on an ongoing basis. So I think, as we commented before, there's other kind of opportunities for the use of capital, whether those be acquisitions. Obviously, we announced a share repurchase program; so we'll continue to evaluate all those options that exist and certainly with the intent of returning value to shareholders and increasing shareholder values. So that will be the primary objective. And I think more of that comment at some point.

[Daniel Moore:]

Got it, very helpful. Thank you.

[Operator:]

I'm showing no further questions at this time. I would now like to turn the call back to Marc Baumann for any closing remarks.

[Marc Baumann:]

Thanks, Ashley. And I just want to be brief here and say thanks to all of you for joining us today. A lot of great questions, and we're glad to have the opportunity to talk about our business. We're looking forward to a great year in 2017 and talk to you next time. I hope you have a great day now.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.