SP Plus Corporation
Q3 2017 Earnings Call Transcript

Published: 2 Nov 2017

[Operator:]

Hello, ladies and gentlemen, and welcome to the SP Plus Corporation’s Third Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and the 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 our host of today's call, Mr. Vance Johnston, Chief Financial Officer. Please go ahead.

[Vance Johnston:]

Thank you Dan. And good morning everybody. As Dan just said I’m Vance Johnston, Chief Financial Officer at SP Plus. Welcome to the conference call for the third quarter of 2017. I hope all of you had to review our earnings announcement that was released last evening. We’ll being 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:]

Hey thanks Vance and good morning everyone. I’m very pleased with the strong performance we’ve delivered in the third quarter and year-to-date despite some impact to our operations from the recent catastrophic hurricanes that hit the Gulf Coast, South Florida and Puerto Rico. Adjusted gross profit increased 2%. Adjusted EBITDA increased by 3% even as the third quarter was impacted by an estimated $700,000 from the hurricanes. As you know Puerto Rico is not yet back to business as usual and we expect that our Puerto Rico operations will continue to feel the impact of Hurricane Maria in the fourth quarter of 2017 and well into 2018, as the island recovers and rebuilds. While our Airport Division has performed well, we’ve seen good new business activity in the business throughout, particularly in the hospitality vertical, much of the year-over-year growth in gross profit is due to continuing favorable trends in our casualty and health insurance programs. We believe our focus on safety programs and other efforts to reduce the total cost of risk is continuing to pay dividends. Our commercial division results were somewhat mix and we continue to face challenges at certain lease locations in New York. We’ve made some progress in improving our results in New York by implementing revenue management techniques to drive additional volume and improved revenue, and reducing operating costs. Improving performance in the New York market remains a significant focus for our management team. In terms of other operational statistics, our overall location retention rate remains solid at 92% for the 12 months ended September 2017 and we added 18 net new locations during the quarter. Same operating location gross profit was up 1%, excluding hurricane related impacts. New business activity continues at a solid pace and with especially robust success in the hospitality vertical market, key contracts traded in the third quarter include contracts to two Ritz Carlton properties in New York at Battery Park in Westchester five hotel properties in Manhattan awarded by Hersha Hospitality and the newly constructed Marriott Marquis McCormick place in Chicago. Outside of the hospitality vertical, we recently won a contract to provide parking management services at Marymount University in Northern Virginia. And well provide Marymount University at the Chicago Rockford International Airport, where pay parking will be implemented later this year. We also expanded our relationship with Hines in Northern California. I want to once again reiterate our primary focus going forward which is to execute our three major growth initiatives. And these are to fully implement our industry vertical market strategy to expand our revenue management and marketing services capabilities and finally to further enhance our safety and risk management programs and culture. We continue to believe that successful execution of these initiatives will position us well for sustainable long-term growth. We’re building up our revenue management capabilities and our pilot is underway. As I previously mentioned, we feel really good about the traction we’re seeing from our risk management programs and the resulting benefits. And we made good progress implementing our vertical market strategy for hospitality in 2017 and are pleased with the initial results. We’ll be putting more focus in other key industry verticals, including municipal, healthcare and universities in 2018, as we continue to further implement our industry vertical strategy. We expect to update you in more detail on the progress of our transformation plan during the fourth quarter call at which time we expect to provide guidance for 2018. On a final note I want to send our thoughts and prayers to all those affected by the recent devastating hurricanes. I'm especially proud of our employees who gave generously of their time and resources to aid in the recovery and rebuilding efforts. With that I'll turn the call over to Vance to lead you through a more detailed discussion of our 2017 third quarter and year-to-date financial performance.

[Vance Johnston:]

Thanks Mark. I'd like to spend a few minutes reviewing our financial results in more detail. As we have before my comments will focus on adjusted results. Third quarter 2017 adjusted gross profit increased $1.1 million or 2% over the same period of 2016, inclusive of an estimated $700,000 impact related to the hurricanes in the third quarter of this year. As Mark mentioned the primary driver of gross profit growth was continuing favorable trends in our casualty and health program. Adjusted G&A for the third quarter of 2017 increased by $200,000 or 1% from the third quarter of 2016 as we've made resource investments to support our growth initiatives that more than offset the impact of previous cost reduction initiatives and a lower performance based bonus accruals. Resulting adjusted EBITDA for the third quarter of 2017 increased $800,000 or 3% over the third quarter of 2016. Adjusted EPS was $0.50 for the third quarter of 2017, as compared to $0.37 in the third quarter 2016, an increase of 35%. In addition to growth and adjusted EBITDA lower interest expense and a lower effective tax rate $2.5 million reduction in D&A due to the burn-off of certain acquired acquisition related intangible assets drove adjusted EPS growth. I'll touch briefly on the year-to-date results. Adjusted gross profit for the first nine months of 2017 increased $5.6 million or 4% as many of the same factors I discussed for the quarter are impacting year-to-date. Adjusted G&A for the first nine months of 2017 decreased by $1.5 million or 2% from the same period of 2016 as previous cost reduction in cost management discipline more than offset the additional resource investments we've made to support our various growth initiatives. Resulting adjusted EBITDA for the nine months of 2017 increased 10% or $6.6 million over the same period of 2016. Adjusted EPS was $1.30 for the nine months of 2017, an increase of 60% over the same period of 2016. In addition to adjusted EBITDA growth lower interest expense and a lower effective tax rate of $5.5 million reduction in depreciation and amortization expense largely due to the burn off of certain acquisition related intangible assets helped drive the adjusted EPS increase. The company generated free cash flow of $17.1 million the first nine months of 2017, which was slightly behind last year's first nine months free cash flow of $18 million. The year-over-year decline in free cash flow was primarily driven by fluctuations in working capital that we believe are temporary in nature, including some working capital impact in the areas affected by the hurricanes, as well as a higher – as well as higher cash taxes. We expect working capital to return to more normal levels by year end. I want to reiterate that 2017 free cash flow does not include the after tax proceeds from our share of the joint venture transaction. We remain focused on generating significant free cash flow and believe full year free cash flow will be in line with our previously stated guidance. As you saw in our press release we are also reaffirming our full year 2017 guidance for adjusted EBITDA and adjusted EPS within the previously provided ranges, despite the impact of the hurricanes. Consistent with what we have previously discussed our outlook for Q4 this year is more modest than last year's fourth quarter, which benefited from a substantial reduction in casualty loss reserve estimates, which is not expected to happen again or to the same magnitude this year. That would include our formal comments. I'll turn the call back over to Dan to begin the Q&A.

[Operator:]

Thank you. [Operator Instructions] And your first question comes from the line of Dan Moore of CJS Securities. Your line is now open.

[Pete Lucas:]

Hey good morning it's Pete Lucas for Dan. I think you just touched on that right at the end there, but if you could kind of follow-up but given the strength in EBITDA and EPS in Q3 in relation expectations a little surprise to guidance being unchanged. You did mention a reduction there. But are you more comfortable with the high end of the range as we have just a quarter to go? And if you could just touch again on some of those items that favorably impacted Q4 and maybe create a tougher comp for you going forward?

[Vance Johnston:]

Well I think we both can comment a little bit on this Pete. Certainly as we've indicated previously we had a very strong performance with our casualty programs and health care in Q4 last year. And so we had never really anticipated a repetition of that in Q4 this year. And as you guys know from following us for a long period of time, we don't really have any visibility into how the performance will be for those programs during the fourth quarter, until the quarters close. So that's certainly something that we can't count on repeating itself. And then as we indicated in our prepared remarks we are seeing continuing impact from the hurricane particularly in Puerto Rico affecting Q4 results. So those things cause us to temper our view of the fourth quarter relative to the prior year.

[Pete Lucas:]

Great, thanks. And also last quarter your retention rate dipped down slightly to about 87% reflecting the loss of one client with multiple locations. When do you anniversary that? And should we expect your retention rate to drift back up towards 90% once that occurs?

[Vance Johnston:]

Yes Pete, I think, our retention rate is actually in the – I’m not exactly sure what you're referring to, but our retention rate, location retention rate for the third quarter of 2017 this quarter is actually running 92%. So we feel comfortable was up a little bit in the second quarter, I think it was around 94%, but we certainly feel comfortable with a location retention rate of 92% and that's back above pre-merger level. Pre-merger levels are back consistent with pre-merger levels, so we actually feel quite comfortable that and good with that.

[Pete Lucas:]

And just one more for me and I'll jump back in queue. With the leverage right now ticking down towards one times, could you rank your order of priorities for deploying cash flow? And where does the potential dividend fall in that and how quickly might we hear something on that front?

[Vance Johnston:]

Yes so a couple things. One, the leverage ratio is about one and three quarters turns. So it's not quite down to one. So I just want to want to clarify that for everyone on the call. But in terms of as consistent with what we've said before, we certainly continue to evaluate opportunities to return cash and capital back to shareholders in a productive way, that's an ongoing assessment that we do with our Board of Directors as people would have seen a certainly if you go back to 2015 and 2016, we initiated a share repurchase program. And so we continue to evaluate that strategy going forward and I think will be more to come on that note.

[Pete Lucas:]

Great thanks I'll jump back in the queue.

[Operator:]

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

[Tim Mulrooney:]

Good afternoon.

[Vance Johnston:]

Good morning Tim.

[Marc Baumann:]

Good morning Tim.

[Tim Mulrooney:]

Yes good morning. Yes that's right still morning. So you guys touched on G&A investments to support growth initiatives. And I know you've spoken about them in the in the past. But can you kind of lay them out for us again the main growth investments and if you can give any color around the size of these investments in 2017 and maybe what you expect to carry over into 2018 I think that would be helpful for my model.

[Marc Baumann:]

We'd be glad to do that. So I think the primary area that we're making investments and to accelerate growth is really adding additional business development resources. And we've talked about this before, both in our commercial group and in our hospitality focused verticals. So we feel that there's significant growth opportunities out there for us across our business and so we’re having more business development resources in place, enable us to grow faster. We've talked about some of those earlier in the year. The second area that we're making investments in and of course this will bear fruit over a long time period is in the area of creating a revenue management capability and expanding some of our marketing services. We're trying to take advantage of the data that available at parking facilities and use that data to make better decisions around the pricing of our parking services to customers and also to the channels that are used to acquire customers. As you know there are a lot of digital players out there now and we have to make decisions about how to allocate inventory across channels. So I think it’s a very good thing for us to be investing in. Those are investments that are ramping up. We've got a number of the new business development people in place now and they're out there beating on doors and using databases to access client opportunities for us. We've started to build our revenue management team. And as I indicated in the prepared remarks, we started our pilot and we're doing a lot of data analysis already. But we'll continue to add resources in that area as we go into 2018. So I think this is sort of a gradual investment we talked last quarter about spending seven figures, I think low seven figures to really make these investments. We'll continue to make investments and try to add additional resources in 2018. The pace of that will be guided a lot by the results that we get. But I think ultimately from the work that we've done looking at our growth potential across verticals, across geographies and then just in general we think that there's an opportunity to grow by making G&A investments and we'll continue to do it.

[Tim Mulrooney:]

Got it. Thank you. And in the press release you commented that the commercial division continues to experience mixed performance across verticals Marc I know you touched on this a little bit in your prepared remarks, but can you expand on each of these articles a little bit more? I understand hospitality probably continues to be pressured from ride-sharing, but there's also growth opportunity there. But I'm curious about your thoughts beyond that, the other verticals.

[Marc Baumann:]

I think that's right, I mean we've talked on previous calls about the fact that ride-sharing does affect certain verticals, like hospitality and airports and events venues. And it's just part of the backdrop like economic conditions that are out there in the world. That being said we see tremendous growth opportunity in hospitality. We've identified targets for growth there and we think that we probably only have 10% to 15% of the actual addressable market for hospitality. So there's a long, long way to go for us to grow there. I think in other verticals that we have talked about is focus areas in the past which are municipal, health care and universities. We've talked about the fact that these are longer sales cycle, longer lead times type growth verticals partially because some of these services have not been outsourced before and so that a decision makers know verticals need to and others because they’ve just a nature of their decision making process is not fast. So we have resources and subject matter experts and others that have focused on those other verticals, and we see overtime out ability to grow and expand. We talked not too long ago, probably last quarter about our wining the city that ran a meter contract and we talked about the fact that we have the 100, 150 meter contracts across North America and there's 3,000 municipalities that have on street paid parking. So once again our penetration in these growth opportunity verticals is low despite our size. And we see the ability to grow in them as we go forward. I think we talked in the remarks about mixed results and we’re really saying is there in some verticals in some cities we had stronger performance in others not as strong some city had nice growth year-on-year and other cities didn't. And of course there's always a lot of local factors that drive that, including street closures and things that happen in a particular geography. And ultimately our performance in any city is also a function of our contract mix. If we're predominantly management contracts we tend to have less volatility up and down then we do when we have leases. So overall we're pleased with the performance of our business. We'd like to commend our folks who are working in New York to try to improve performance there. Our team on the ground and others that are supporting them work very, very hard and we're starting to see some improvement in revenue there on a year-over-year basis. And we hope and expect that that will continue as we go forward.

[Tim Mulrooney:]

Okay, thank you. And Vance your CapEx of the first nine months of 2017 is about half of what it was last year and the year before. Why is that? And should we think about CapEx as being closer to 1% sales moving forward?

[Vance Johnston:]

Yes a couple things. One, I wouldn't necessarily use CapEx to gauge as a percentage of sales because I think the thought process before CapEx for us comes in a variety of forms, it comes and we have CapEx that we deploy for IT and things of that nature, and kind of things that will do infrastructure wise at the company which is typically not a lot given the nature of our business. But we often deploy CapEx related to client opportunities. And that is a bit of an unknown. And so what I would say one of the reasons why this year CapEx is down relative to 2016 so far year-to-date is because we did have some one time type items, discreet opportunities to deploy CapEx that we thought when we look the returns on that capital, primarily around client opportunities that have made a lot of sense. Now those we could see some of those the remainder of the year. But I think having said that, we would expect 2017 – CapEx based on where we're at year-to-date to be down from 2016. And certainly that's kind of our perspective on it.

[Tim Mulrooney:]

Okay the last one for me guys Vance in the previous call your question about capital allocation you talked about share purchase and M&A. I didn't hear maybe I missed it I didn't hear you mention dividends. I'm just curious what your guidance thoughts are? What your position is? What the Board’s conversations are about a dividend? Is it possible as you think about your capital allocation priorities or is that not something that's really on the table? Thank you guys for your time.

[Vance Johnston:]

Thanks Tim. Yes I know FED notes it's definitely something that’s on the table for discussion. And as we kind of mentioned in previous calls we're the type of company if you look at peers of ours and given our cash flow profile that could potentially pay dividends. And so that's one of many things obviously you mentioned acquisition, share repurchases which we did previously to initiate a program around share repurchases that we're certainly considering with our Board of Directors. So that that is on the table something we’ll certainly give consideration to.

[Operator:]

The next question comes from the line of Kevin Steinke with Barrington Research. Your line is now open.

[Kevin Steinke:]

Good morning.

[Marc Baumann:]

Good morning Kevin.

[Kevin Steinke:]

So you called out the rest estimated impact of hurricanes in the third quarter of $0.7 million, some continuing into the fourth quarter in 2018 particularly Puerto Rico. But I know it's probably hard to assess or estimate, but do you have a sense that it might trend a little bit lower as we move down into the fourth quarter relative to the third quarter?

[Vance Johnston:]

Yes Kevin this is Vance. So I can comment on that. So a couple things, one, obviously what Mark mentioned in his prepared remarks that we estimated the amount of the $700,000 of impact for the third quarter of 2017. As we move into the fourth quarter it's tough to predict, but we don't expect an overwhelming amount because as you can imagine the hurricane that Harvey, that hit the Gulf Coast and then Arma that hit kind of forward in a few other regions, most of that is kind of Florida and few other regions, most of that is kind of at this point it's kind of dissipated in terms of the impact to all locations, right. So that's one thing. And then secondly, Maria obviously there's still an effort there the fairly significant to get Puerto Rico back up and running. So that's going to be a little bit more impactful for us in the – continuing to be into the fourth quarter. And as Mark said in his prepared remarks potentially in that likely into 2018 as well. But one think to keep in mind is that it's also for us the financial impact has the impact of that is due to the fact that we have management versus lease locations. So we have obviously significant population of management locations typically around 80% that can vary by region. But that kind of minimizes the impact for us on things like this. So we don't expect it to be some significant impact in - in the fourth quarter 2017 or 2018. But there will be an impact.

[Kevin Steinke:]

Okay, yes that makes sense. So you're pleased with your efforts in the hospitality vertical in terms of adding business development people out in the field. Just wondering given the success of those efforts early on if you continue to add in new markets or if you expect to add in additional markets as we move into 2018, I know you've called out Southern California in the past, but just wondering if you've added or will continue to add in other markets?

[Marc Baumann:]

Yes I think we expect that we will, I mean to the question, in the previous question to Vance we will look to make investments to accelerate growth. So I think as long as we see the potential to get growth in a market by putting a resource there we're going to make those investments. And of course as we all know we don't put a person in place and then immediately we win a whole bunch of new opportunities. So there is a leg effect between making an investment and then getting the benefit. So we are constantly looking at that and right now we're formulating our budgets, and our plans and focus areas for 2018. And one of the factors in our thinking is exactly what you're asking Kevin and that’s where can we deploy more resources to accelerate growth. And I think as we had a good year with growth and in some ways it's grown a little faster than we maybe indicated through the first three quarters. We also realize that a lot of that growth has come from our insurance programs and not necessarily from our underlying business. And so I think we're very mindful of that and very focused on getting additional business development and other resources where we think we can move the growth curve in whatever market that might make sense and that would especially be in hospitality, but also be in some of these other areas that we think we have got opportunities in.

[Kevin Steinke:]

Okay, right. And you talked about some of the other verticals you're looking to invest in next year in municipal, health care, universities. So I imagine you have to have experts for each of those particular markets. So I’m just wondering what that implies for the level of hiring relative to 2017 if you're adding experts in three markets versus just one in hospitality if we should expect a horsing of significant ramp up in headcount or am I thinking about that the right way?

[Marc Baumann:]

Well I think that part that you are thinking about in the right way is that you do need experts in those verticals to help make sales happen because you have to understand the dynamics of those verticals and what the decision making process is for the people who might choose our services. The good news is that we've made investments in the past in those type of experts. And so we have experts in our business now who understand the university space, the healthcare space, the municipal space, et cetera. And so as we look to 2018, we are currently evaluating do we need any additional, would we want to add someone else to try to give us greater coverage. But there's not going to be a big ramping up of G&A investment in 2018 or the need for it. And as I said we're going to be opportunistic. We want to invest for the long-term to accelerate our growth at the same time we recognize that we have to think about cost and manage our business very carefully as we go through the year. So where we think there's opportunity we’ll make investment, but you're not going to see a big spike up in the need to bring in experts in some of those other markets.

[Kevin Steinke:]

Okay, that's very helpful. Just can you update us on the revenue management pilots? Or I think you talked about last quarter moving that pilot or those learnings to other locations. Just how far along are you in that effort? I mean how many locations have you rolled out to? Just any color you could provide around that revenue management effort would be helpful.

[Vance Johnston:]

Yes I’d be glad to. I mean we're still in very early stages now where we initially set out to do a pilot in one market where we had fairly easy access to the data. And it's under way now and we're learning things. But I think the goal for 2017 and to the early part of next year is not necessarily to generate a lot of additional revenue from revenue management, it's really to learn and understand the pricing dynamics, excuse me, I got a bit of a cold today. The pricing dynamics in that market. What we have done is made the decision is to start to look at other markets where we can get access to the data easily and where perhaps decision making around what drives a consumer to go to a particular garage versus another place might be different than the initial market. So we're now looking at a handful of five or six other markets where we think there's an opportunity to apply these kind of techniques. And we're getting ourselves geared up to be able to do some pilot testing in those markets in the next few months. So we're not moving the needle yet in terms of our own results, but I think we're moving forward pretty rapidly having a better understanding of – not only what the pricing structure should be at facilities in a given market, but also some of the things that I touched on in my earlier remarks, which is when you use a digital aggregator to sell inventory, which ones, what makes sense, what doesn’t. We’re filling our base of knowledge on those things so that we can make better decisions those that our lease locations, but also as we continue to be recognized by clients as sort of the go to parking operator to advise them to optimize the performance of their facilities.

[Kevin Steinke:]

Okay, great. Thanks for taking my questions.

[Vance Johnston:]

Thank you Kevin.

[Marc Baumann:]

Thank you Kevin.

[Operator:]

[Operator Instructions] Your next question comes from the line of Mark Riddick with Sidoti. Your line now open.

[Mark Riddick:]

Good morning.

[Marc Baumann:]

Hi Mark.

[Vance Johnston:]

Good morning Mark.

[Mark Riddick:]

I wanted to start with where if you could give us a bit of an update as to where you are in the process of going through those projects that come up each year, maybe a percentage of the contracts or percentage of the business that you've gone through over the last few years? And when those contracts come up for renewal kind of where you are in the process of going through that entire slate? I mean would you say you're about half thorough or as those contracts roll up for renewal and making the decisions as to whether or not that makes sense to go forward with those?

[Marc Baumann:]

Well I think Mark as you might imagine we have contracts that have expiration dates literally any day of the year. So there's a constant renewing of contracts, constant of winning new contracts, there's a constant process of looking at contracts that where we might make a decision not to renew it. Generally speaking, it's very difficult for us to not want to renew our management contract because where we're usually able to operate management contracts profitably as a very, very unusual and rare situation where that doesn't happen. So what we're really talking about is our lease portfolio in terms of us making decisions. And so we have access that we have many, many years to go before they – before they would need to be renewed and we have others that expire all the time. But there's no one big chunk or moment in time where a lot of things expire or when and where we need to look at a lot of things. But I can tell you that we have good discipline for business around renewing contracts, in making decisions to renew contracts. And if a contract can make money and be a success for us, then we're going to work very, very hard to renew it. If we look at what we're making or in deed if we're not making money, then we go away. So we don't – we're not driven by a market share strategy, we're driven by making money and being successful at the locations in the properties we operate. So I mean it's really the way that we look at it.

[Mark Riddick:]

I wanted to switch over to the focus on the verticals. And certainly I think you touched on some of the progress you're making on the hospitality side of things. Are there any particular things that you're looking at within hospitality, putting aside the hiring of experts, but more from the best practices way of looking at things or whether it's from a technology standpoint what have you? If there are any particular best practices that you see transferring over to other verticals that are maybe lower-hanging fruit than other things like hiring new experts?

[Marc Baumann:]

Well I think some of the best practices that that were known within hospitality are really providing exceptional service at the front door to the guests of the hotel property. And we have more four and five diamond hospitality properties than any other parking operators. So that's a vote of confidence from people who service expectations are extraordinarily high. So that's probably our main expertise and expertise comes from over many years hiring, selecting, training and supervising people, developing talent, to work in those environments and to satisfy those demands that a hospitality client has. We've also brought technology in the hospitality and whether you want the high end to Rolls Royce all bells and whistles technology, which can be very expensive, or you want something more basic that helps you manage and minimize waiting times for guests, when they are waiting to get their cars. We have deployed an array of technology and we have expertise in all the types of technologies that are in use there. So if your question is how are we successful in the hospitality vertical? I think that's really the way aside from going out and making people aware of what our capabilities are. But I do think a lot of it does transfer over into other parts of our business. And particularly healthcare where one way to win and develop the health care client business is bringing those same service standards because a hospital is often competing with other hospitals. And what happens at the front door when a patient or a visitor of a patient comes to the hospital, it’s very, very important to how the hospital projects itself in the marketplace. So I think a lot of the same training, and skills and technologies are used in hospitality. Also are very, very important in the health care vertical, for example.

[Mark Riddick:]

Okay, so could you mention that within the hospitality that you think you're pretty early in the process, I don't remember the percentage you mentioned, I might have been in the teens or something like that. But I think it's of course being in the early stages of addressing and capturing the hospitality opportunities that you have before you. Is it fair to then characterize it as really more of taking advantage of an expanding the awareness of the services that you have to national or regional players. That’s kind of really more the low-hanging fruit that you see or maybe if could sort of expand on that early stage of the hospitality opportunity that you see if that's the primary driver of that. Thank you.

[Marc Baumann:]

Sure well I think what I did say that we have maybe – we have currently maybe 10% to 15% of what we think the addressable market is.

[Vance Johnston:]

Okay that’s what it is.

[Marc Baumann:]

That’s a subjective judgment about what the addressable market. So I think we have a long way to go now. The question might be why don't we have more of it? So what do we have to do to get it? Do we have to offer different services that we have today, or is it simply that we need to do something different in geographies where we don't have a lot of hotels? I think the good news is that the services we offer in the markets where we have a lot of hospitality clients, which are Chicago, New York and Florida, are the same services that hospitality clients want in the other markets, where we have very few hotels. And I think what we've learned and this is what we've talked about on previous calls, is that it's not the need to acquire new capabilities, it's really the need to take the capabilities that we have in some parts of the country and apply those capabilities in other parts of the country. So the deployment of people is really to get out there and be able to do that. I think what we've found is that the competitors in markets where we have fewer hotels are the same competitors in the markets where we have a lot of hotels. So I think realistically that's an easier way to grow because now you're taking a demonstrated, confidence that you have in some places and you're deploying people that understand how to deliver that to clients and you're putting them in other markets in order to do the exact same thing. The other side of it is that – a kind of a growing capability has to go beyond just valet at the front door and to be to take the luggage all the way to the room to be in effective bell captain, or provide other services in and around the front doors or lobbies of the properties. And we have numerous hospitality clients where we do that. And it's a compelling argument because you can have one manager who manages all of it, you can have more efficient labor and staffing and as hotel and ownership groups look for ways to be efficient and still deliver high quality service to their clients, and guests that's a very compelling argument. And so another area that we are focusing on is how do we present those broader array of services to the clients where all we do is valet the front door. So I think we're very, very excited about this vertical, we think it has a lot of potential for growth. And I think those are really going to be the ways that we go about doing it over the next few years.

[Mark Riddick:]

Okay, thank you for the color on that. And then one last thing from me and I know you’ve spend a lot of time on you got things so I did want to touch a little bit on the current parts and how you're seeing the airport vertical and what you're looking at there? And what we may see going forward with some of the opportunities that you're approaching there? Thank you.

[Marc Baumann:]

Yes you're welcome Marc.

[Vance Johnston:]

Thanks Mark. I think once again when we have because we have a 70 airports, the prime focus of our business is to make sure that the clients hit 70 airports are happy with our services. And that we're able to not only retain those contracts as they come up for renewal, but also look for additional services that we can provide at those airports. And so, for example, our basic service at most airports tend to be running at a parking garage. That being said, we do have some airports where we also manage the curve front, which means that we have dispatched taxis, limousines or manage the movement of vehicles around the front at the service that we provide. At other airports we provide maintenance services. In some cases we do some cleaning services in the garage and in some cases beyond the garage. So I think we also run ground transportation services at have many airports. And those can be either a shuttle bus to move employees, it can be a shuttle to move passengers between terminals or we sometimes there can be half of the car rental companies and we run consolidated car rental shuttles where we're instead of the Hertz and Avis and national bus there’s just one bus and we operate that bus. So even within and especially within the 70 airports where we already have a relationship with the client, there's growth opportunities in all of those areas to provide additional services. Clearly because airports are generally run by government, or a government agency. There’s a fair bit of transparency about contract terms when contracts come up for renewal, who the current operator is, what the structure is the current operator’s arrangement. And so we are actively aware of all of the airports that we don’t operate and we’re continually looking for opportunities to bid on proposals and to try to win those contracts away from the completion. And that might be going in and wining parking management or any of the other services that I just mentioned because sometimes their bid as a bundle, and sometimes their bid separately. So we think the airport space is an excellent one. It’s a great area where we start recognize as a leader, and everybody else has the kind of bestowed types of properties that we have. So it’s an area of focus. And it’s probably why we have dedicated people who are experts in that area focusing on growth in the airport area.

[Mark Riddick:]

Okay, great. Thanks for the color. Thank you.

[Vance Johnston:]

You’re welcome.

[Operator:]

And there are no further questions at this time. I'd now like to turn the conference to back over to Marc Baumann for closing remark.

[Marc Baumann:]

Okay, well thank you Dan. And I’d like to thank all of you for joining us today and your continuing interest in SP Plus. We're looking forward to putting forth all of our maximum efforts to get a strong finish for the year. And speaking with you again in early 2018. Have a great day now.

[Operator:]

This concludes today’s conference. You may now disconnect.