SP Plus Corporation
Q1 2016 Earnings Call Transcript

Published: 4 May 2016

[Operator:]

Good day, ladies and gentlemen, and welcome to the SP Plus Corporation First Quarter 2016 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 Mr. Vance Johnston, Chief Financial Officer. Please begin.

[Vance Johnston:]

Thank you, Latoya, and good morning, everybody. As Latoya just said, I'm Vance Johnston, Chief Financial Officer at SP Plus. Welcome to the conference call for the first quarter of 2016. 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 2016 financial 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’d 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 wanted to mention that this call is being broadcast live over the Internet, and that a replay will be available on our SP Plus website for 30 days from now. With that, I'll turn the call over to Mark.

[Marc Baumann:]

Thanks, Vance, and good morning, everyone. Our overall first quarter results were largely in line with our expectations. Although adjusted gross profit was down compared to last year. On the G&A front we continue to make very good progress on cost reduction initiatives that resulted in significant year-over-year reductions in adjusted G&A. We also had another strong quarter of free cash flow generation. As you saw in our release last night, we’ve had a lot of new wins in renewables. Our new business activity is strong and we hope to write another record year of new business in 2016. We’ve begun operations under the previously announced MGM Resorts in Las Vegas where things are progressing very well. Another big wins include the award of a contract to provide on-street, off-street shuttle and consulting services for the city of City of Annapolis, Maryland. And the extension of our contract for the city of Portland, Oregon to manage its eight downtown parking garages. In addition to robust activity in the municipal vertical we had nice wins in the hospitality and large venue verticals and also expanded our relationship with some key asset managers. Some of our new contracts will ramp up over time which we expect will further accelerate gross profit during the year. Our location and retention statistic improved to 90% for the 12 months ended March 31, 2016 and we continue to be focused on improving our location retention rate to 92%, which is a historical level that Standard Parking had achieved. In terms of same location, we face the challenging comparison to a very strong 2015 first quarter. As is typically the case we saw varied results across geographic markets and industry verticals. In the hospitality vertical, particularly in Chicago we saw some unfavorable year-over-year results at same locations, largely driven by lower hotel occupancy rates, some of which was expected. In Los Angeles, a couple off-airport locations are underperforming relative to last year and relative to plan as we’re seeing a big increase in competition. On the upside, our New York market has recovered nicely and is performing better than last year, some of which was expected due to the impact of elevator repairs on 2015, but it's also performing better than our plan for 2016. All the quarters comparative results for last year were slightly lower, I want to reiterate that we were largely on plan for the quarter relative to our internal expectations and therefore we feel comfortable with our full year outlook. Lastly I want to comment on the progress we've made on our very strategic initiatives. Safety and risk management is an area that is continuing to improve as we’ve seen increased engagement at all levels of the organization relative to our new safety and loss mitigation programs. As we’ve previously mentioned, we are making great progress with new business as evidenced by the number of new contracts we recently won. We’re also making very good progress on cost reduction initiatives and Vance will talk a little more about those later on in the call. With that I’ll turn the call over to Vance to lead you through a more detailed discussion of our financial performance during the quarter.

[Vance Johnston:]

Thanks Marc. I’d like to spend a few minute reviewing our financial results in more detail. First quarter 2016 adjusted gross profit decreased $3.1 million or 7% over the same period of 2015. A significant factor in year-over-year decrease was a net $800,000 benefit in the first quarter of last year due to favorable changes in prior-year casualty reserves, which did not recur this year. In addition, cost under our self-insured health program increased by approximately $500,000 due to a combination of higher overall claims costs as well as higher participation as a result of the Affordable Care Act. The remainder of the year-over-year decline was due to performance in certain geographic and vertical markets. We continue to do a good job managing G&A costs in the first quarter. As a result, adjusted G&A for the first quarter of 2016 decreased by $1.5 million or 6% over the first quarter of 2015; the decrease was largely due to comp and benefit decreases from recent organizational restructurings and other tighter cost controls. We’ve also made good progress in our number of cost reduction initiatives that we expect will continue to positively impact our results going. Adjusted EBITDA for the first quarter of 2016 was $15 million, a decrease of $1.7 million compared to the same period of 2015. Results in adjusted EPS for the first quarter of 2016 as $0.10 as compared to $0.13 in the same period of last year. The company generated adjusted free cash flow $3.6 million in the first quarter of 2016 as compared to a negative adjusted free cash flow of $11.5 million in the first quarter of 2015. While some of this improvement was due to favorable timing of working capital movements, we continue to be pleased with the progress we are making in managing accounts receivable, accounts payable terms and capital expenditures among other items. In addition lower interest expense resulting from the company’s renegotiated credit agreement in 2015 as well as lower cash tax payments, net proceeds from the sale of assets and the receipt of a termination payment benefited 2016 adjusted free cash flow. Now I’m going to spend a few minutes talking about the fluctuations in our quarterly performance. As we’ve mentioned before, there is some underlying seasonality to our business. Reduced air travel and hotel occupancy levels as well as inclement weather and increased snow removal cost in the first calendar quarter typically results in Q1 being our weakness quarter. In addition, we maintain a high deductible casualty insurance program and a self-insured health insurance program that can add another layer of volatility to our quarterly results, which as Marc mentioned earlier impacted first quarter of 2016 comparison. Since the first quarter’s results were largely in line with our internal expectations and we don't currently see any significant headwinds for the remainder of the year, we remain comfortable with our full year outlook of adjusted EBITDA to be in the range of $88 million to $93 million, adjusted earnings per share to be in the range of $1.16 to $1.26 and adjusted free cash to be in the range of $40 million to $46 million. That includes our formal comments; I’ll turn the call back over to Latoya to begin the Q&A.

[Operator:]

[Operator Instructions] The first question is from Nate Brochmann of William Blair. Your line is open.

[Nate Brochmann:]

Good morning everyone.

[Marc Baumann:]

Good morning Nate.

[Vance Johnston:]

Good morning.

[Nate Brochmann:]

So a couple of questions, one just I mean, obviously regarding the insurance and you know we completely understand that always creates a little bit of lumpiness and noise quarter-to-quarter and hard to predict. But couple of things, allowing that is one, have you guys had any new techniques or is there anything new versus last couple years of any way to control or predict that a little bit better within your organization in terms of trying to make it a little bit less lumpy?

[Marc Baumann:]

Well, let me take that and maybe Vance will add to it. I think one of the biggest challenges we have had is with the health program because the premerger Standard Parking had a fully insured health program, the premerger Central had a self-insured program up to a high limit. And in the combined business as we’ve talked before we went to a self-insured program and so we’re still gaining experience with claim patterns and of course on top of that we had the Affordable Care Act where you have penalties of starting to ramp up for individuals and they’re starting to fight at a level now where people who may be chose in the first couple of years not to participate are now choosing to participate. And of course, from our point of view it's hard to tell whether that's a good thing or not a good thing. If it's younger, healthier people who maybe opted not to take insurance and now they’re opting in then it’s a good thing that they are joining our programs and adding to our enrollment. If it’s people that maybe couldn’t get coverage at a price they liked in the exchange and they are now opting to come over to us you know that’s a negative. So I think we’re going to be in a period of lumpiness on the health plan you know probably for another 12 to 24 months as we just see behavior changing. We’re hearing that some of the people that are participating in changes, some of the big carriers are dropping out of some exchanges for 2017. So I think we’re going to face a period of uncertainty as every company will until these behaviors kind of settle down. I think on casualty the good thing for us is that we have had the same actuary working with us going back to when Standard first started doing self-insurance or high deductible insurance back in 2001. So we’ve had tremendous amount of continuity, he uses the same methodology and logic that he’s used for all of those many, many years. And I think what you see there is really just it’s the nature of the programs and particularly when you have a very, very extreme weather conditions that the company and most businesses experience in the country in 2014 and addition some bad weather in 2015, its very hard for the actuary to really predict accurately what the claim experience is going to be until we get past those years. So I think clearly we’re benefiting now 2016, the weather was very good across the country. It’s too early for us to really realize the benefits in there in our insurance program. But I think we’re certainly, we feel we’re over the hump in terms of the negatives from the very bad weather of ’14, ’15. So in a good way I think we’ll continue to sort of see the experience that we've had with risk management, which is that over time the net adjustments tend to be a positive for us, that’s held true over many many years. We expect that to continue and of course, we’ve got many new initiatives in our risk management area that are taking hold now. We saw our total cost of risk come down in 2015 compared to 2014 and we expect it to come down further in 2016 as those initiatives start to take hold for us.

[Nate Brochmann:]

Okay, thanks for that. And then if we kind of get rid of that noise a little bit and I know Marc I appreciate your comments in terms of you know kind of location by location, region by region there is always some puts and takes. But overall if we look at whether it's paid exits or winning more business than you know you lose kind of thing, pricing and then also to in terms of just some of the opportunities on the municipalities. Could you just give us a little sense of the overall environment in terms of how you’re feeling as we get through big period of lumpiness created by a lot of calling of some of the old and profitable contracts with Central and just as we clear out the noise how we’re feeling about the underlying business and where we stand?

[Marc Baumann:]

Yeah, I’d be happy to Nate. I think as you say there’s always going to be things happen at a given location and sometimes those are surprisingly good and other times they're not. But I think on a macro level, as you know we rolled out the new business in 2015, we are on a faster pace in 2016, so we’re ahead of last year's pace through the first quarter. So I think that reflects well on our business development activities and our ability to win new business and that's not even really reflecting our nice big contract in Las Vegas with MGM where we’re taking on an operating 12 properties and - for them. So I think we’re feeling very good about our ability to continue to win new business at an accelerating rate. What was very gratifying to see was that our retention rate ticked up to 90% for the quarter, for the year ending the quarter. And while we talked last year that some of the dip below 90 was due to loss of some portfolio of bank branch locations that didn’t generate a lot of profit, nonetheless a major focus in our business and on our operating team is really on driving up retention. And of course as we announced at the beginning of the year, we have a new leader of our Urban Group, Rob Toy, he’s been with us for many years, has moved into the position of President of urban operations and it’s given him a chance to tour the country and really look at the nuts and bolts of our business. You know where are we doing well, where can we improve and I think as we continue to focus on getting him out in the business with our operating leadership; we’re going to see continued improvements in our retention rate. Now we’ve experienced a few things that we highlighted, we talked about in LA we have LAX off-airport business that is facing very fierce competition there. And we mentioned it because it’s proportionately profitable. So the poor performance there really is a big impact on our results for the greater Los Angeles area. We also talked about some softness we’re seeing in some markets with hotels. As we mentioned Chicago, it could be you know that some of these new players like Airbnb are starting to have some effect on hotel occupancy around the country. We’re not seeing that on a broad-based now, but we’re certainly seeing a little bit of softness on hotels in Chicago. That being said, New York has really rebound and we had a very strong first quarter. The team there is really focused on driving performance in the New York market, particularly now that these major structural repairs are behind us. So we clearly have the kind of ups and downs, ebbs and flows, but I think we feel very good about the year coming ahead. The other thing that affected the quarter that we probably didn't call out is that we did in any details that we did lose a couple of reports later last year and of course we’re not benefiting from you know the gross profit of those generated what have generated in 2015 when we compare ‘15 to ’16. So all in all, most of what I'm describing was anticipated by us. We factored that in and we gave our guidance not too long ago and that's why I know Vance and I are comfortable and reaffirming that as we’re having our call with you today.

[Nate Brochmann:]

And then just on a follow-up with that though Marc, it’s on that competition is that from some of the other traditional parking players that you’ve always competed against? Or is that from some of the newer entrance and in terms of some of the more you know kind of tech app guys that are going out after that business? And regardless of where it's coming from is there any reason to think other than just being, it's always competitive, that there's any reason for any like increasing competition in terms of whether the environment being soft, people are getting more competitive or again is it just everyday stuff?

[Marc Baumann:]

Yeah I would say it’s more everyday stuff and as you guys know we don't really do a lot of off airport operations. Our business strategy in the airport market has been to seek and win and obtain on-airport operations and we have more on-airport operations than anybody else. So often our on-airport clients are sensitive to the idea that whoever is operating for them on-airport would also operate off-airport. So the very, very unusual situation around LAX and the legacy operation that’s been there for many, many years. A number of things have happened there, a new – an established off-airport operator, built a brand new off-airport facility, beautiful brand-new, multilevel facility. So that’s happened and that’s actually closer to the airport than our operations which are mostly around on Century Boulevard. So that has taken a little bit of a bite out of us. We had a couple of properties that we operated off-airport that we’re sold and so we had to consolidate down our base of operations to a smaller footprint, that has a little bit of an issue in terms of ingress and egress. And then we just have other competitors who are just seeking to kind of grow that off-airport business. And I would say, off-airport generally around the country is becoming more competitive now. There are players - established players who are investing significant resources to try to compete with the on-airports. But as I said, we are not big enough airports, I think decide the off-airports in LAX, we have one in San Diego and one or two other that aren’t that significant. So if that trend were to continue and off-airports were to sort of become much more aggressive competitors and play the pricing war game, that’s not really affect our business in the way that it might be if it was one of the more established parking operators who would be competing with us in more of our urban markets.

[Nate Brochmann:]

And then Vance just one quick kind of housekeeping D&A was a little bit higher than I expected, one, is there a reason for that? And two, is this quarter kind of a good run rate then going forward for the rest of year?

[Vance Johnston:]

Yeah you know, I think so, a couple of thing, Nate, one is is that, I think we saw kind of where our CapEx was last year, so the last couple of years we've had a little bit higher CapEx as we’ve moved through the integration, so we’ll continue to have a little bit of higher depreciation and amortization than you may have thought if you kind of look years back due to that. So think about kind of IT projects and capitalization costs related to that, not all, but most of that due to kind of integration efforts. But, I think it's kind of a reasonable estimate. The other thing that we do have is is that we have some system – some initiatives going on the cost side and as part of that we’re going to be retiring a few legacy systems of the company and with that we’re going to be of accelerating the depreciation of that, so you have a little bit of an impact of that also in the current quarter. Okay, so as you think about the quarters going forward from there, we won’t have that impact going forward for the rest – kind of, it will for the rest of the year. But then as you’d go forward into 2017 you won’t see as much.

[Nate Brochmann:]

Okay. Well, great guys. Thanks for all the extra time, I appreciate and I’ll turn it over.

[Marc Baumann:]

Thanks, Nate.

[Operator:]

Thank you. The next question is from Daniel Moore of CJS Securities. Your line is open.

[Daniel Moore:]

Thank you, good morning.

[Marc Baumann:]

Good morning, Dan.

[Daniel Moore:]

Obviously, I don’t want to have you reiterate what you’ve said twice already, but it sounds like your confidence in full year really is unchanged and that the quarter was probably more in line with your expectations maybe than ours. Given that our numbers were a little bit higher than where you came in Q1. Any color you can provide regarding expectations for the remaining two to three quarters might play out, where there are specific quarters where you expect to see a larger growth year-on-year in EBITDA and EPS as we lookout for the back half?

[Marc Baumann:]

I would say Dan, we normally expect the patterns to be kind of first quarter as the weakest quarter, Q3 tends to be very good quarter, Q2 is not a bad quarter, but it is summer time and so there may be some changes in peoples behaviors in parking pattern. Q4 is typically a good quarter, especially now that we have completed our repairs in New York that was really a drag in Q4 last year. So I think that we would expect Q4 to be much better this year than last year for that reason. But as you know, this is a business and things happen. We win new stuff, we lose things, we retreat deals, we have surprises that are positive and negative that happen all the time. As I have said earlier when I was talking about casualty, I think we feel very good about the measures we’re taking that are going to continue to drive down our total cost of risk that should unfold during the year. Clearly we will benefit from the better weather that we experienced this year when it comes too casually, but those benefits may start to show themselves in the fourth quarter probably in 2017.

[Daniel Moore:]

Very helpful. And then in terms of G&A adjusted basis $22.3 million for Q1, you expect that number to continue. Do you expect to be able continue to drive that number lower over the next two or three quarters?

[Vance Johnston:]

Yeah, Dan. I think the guidance we’ve given is is that we would expect adjusted G&A in absolute dollar terms for 2016 to be lower than 2015 and you know, a couple of thoughts on that. One, we still stick with that we believe that will be the case. Obviously there is some fluctuations in G&A as you move quarter-to-quarter but in absolute terms, we expect it to be down in 2016 relative to 2015. And then in addition to that as we said in our prepared remarks, we have a number of initiatives that we continue to execute and so some of those are having an impact on the results you're seeing now. Some of the initiatives are still in the execution phase and we would expect to have an impact kind of later on in the year and into 2017 as well.

[Daniel Moore:]

Very helpful. Maybe one more, just you know maybe update us on any discussions you’re having or considering regarding capital allocation, particularly as leverage starts to decline rapidly over the next year or two?

[Vance Johnston:]

Yeah, you know, well, I think we said on the fourth quarter call was that we’re continuing to make that a focus and we continue to put a lot of effort in kind of assessing the different options for you know our excess cash and ability to return value to shareholders. So we are very focused on that and you know looking at the different options and obviously we’re getting the benefits right now in our results in terms of kind of our ability to deleverage. But we’re as we indicated in the fourth quarter call, we’re at a point now and certainly as we move into the rest of 2016 where we believe that you know we have the opportunity in some form to return value to shareholders with that excess cash and I think it will be more to come on that in the future, probably nearer term rather than longer term, but you know we’re certainly working on that now.

[Daniel Moore:]

Got it. Thank you very much. Appreciate it. Thanks for the color.

[Marc Baumann:]

Thanks, Dan.

[Operator:]

Thank you. [Operator Instructions] The next question is from David Gold of Sidoti. Your line is open.

[David Gold:]

Hey, good morning.

[Marc Baumann:]

Good morning David.

[David Gold:]

Couple of sort of higher level questions. First one is, as I think about the last year, the shift in numbers of facilities managed least and you know we look at the aggregate count year-on-year obviously down pretty significantly. Now much of that’s been spiked or some if not most has been by design, But curious now that we see the first sequential period in a while where your count is actually increasing, if we’re through some of the process of you taking some out because they’re less profitable and whatnot on both counts, managed and leased.

[Marc Baumann:]

Yeah, I don't think there’s any managed locations that we are looking to exit from you know was we have talked before, the structure of management contracts is such that, it’s hard to have a loser unprofitable management contract. It can happen, but you know that's generally not been our experience. And so as I talked earlier about the efforts that are going forth in our operating group, you know to really drive retention rate. We have major focus on just executing well at the locations that we have, we’re not having a problem getting new locations. The reason that our location rate has dipped now a little bit is that we haven’t held onto all the locations that we already hit. So that's why retention in our business is a major focus for our management team. I think on the leased front, we still have some leases that are either highly profitable and have rents that are below market or are highly unprofitable and have rents that are above market that are a legacy of the merger of Central and Standard. And those are going to primarily burn off probably over the next four to five years and there might be a couple of them that go beyond that but. The preponderance of that is going to be gone over that time period. So you will see the pattern continue to play out, which is if it's a very profitable lease, you know we’re going to seek to renew that. But recognizing that we’re going to have to pay more rent and in fact, we just had one recently where we had to go through arbitration, but we ended up paying substantially higher rent, still a nice deal for us and we’re very happy to have it. But it's not the kind of homerun grand slam out of the park kind of deal that it was for a long period of time because it was a lease that had a fixed rent for over 10 years. So it has a new fixed rent and that’s great and will do nicely there. On the other side, when the deals are unprofitable because we primarily are feeling that we’re paying above market, we turn to negotiated profitable deal when those deals come up. But in many cases, the landlord just doesn't have a realistic view and they feel like I’m not going to just accept your lower offer, I’ll go and see what I can do in the marketplace and that does mean that in some of those we end up having to walk away. The other issue is that many of these low legacy leases had repair obligations or other lease terms that we didn’t really like that much. And so we attempted to try to get those change as well now. If we’re going to make a lot of money on a lease we’re willing to maybe agree to continue some of the terms that have been there for a long time. If we’re not going to make very much then we push back. So it wouldn’t surprise me to see the number of leases continue to kind of dribble down. You know just when I think about the kind of nuts on all of that, but I do expect us to start to see some growth in our location comp because as we’ve talked before. We can’t really grow gross profit on a sustained basis by simply generating more gross profit as the deals we already have. We have to grow our net location comp on a sustained basis.

[David Gold:]

Got you. And next topic, historically, Marc you’ve said that you guys are fairly agnostic to whether it’s structured as a lease or management contract, would you still say that's the case?

[Marc Baumann:]

Yeah, I think that is David, but you know and we’re certainly not, we have more expertise now is how I should say, it’s coming from the old Standard business where we didn't have a lot of leases. We have a lot more expertise now in our business and how to do leases successfully. So if anything I would say, we are probably more eager and open to doing leases than maybe we had been in the past. But again what it comes down to is the landlord or the owner of the property has a preference for contract type. And so they’re going to ultimately decide what the contract type is. Now as we’ve talked before as well, we like leases that don't shift all of the risk of ownership on to us. And sometimes leases do do that and those kind of leases we don't really like because we’re not compensated enough and what we’re going to make from operating location to justify that shit to us. So you know as long as we can get leased terms where the obligations we take on, the risks and exposures we have are commensurate with the amount of money that we’re going to make for operating the facility, we’re happy to do it. And if we can't make that trade up or work for us then we’re not going to do it.

[David Gold:]

Perfect. Thank you. Just one last Marc as we see retention ticking up here. Can you speak to what you’re doing differently there? Are you being more aggressive on some of the renewals than maybe you've been? Or are there other factors that work?

[Marc Baumann:]

I think a lot of it David is kind of getting back to what we say getting back to basics. And there's no substitute for regular ongoing contacts with our clients. And we’ve just completed a client survey, which has given us some very useful feedback on how many of our clients view us and we were pleased to see that we had some very, very strong positive feedback. On the other hand we have some clients who gave us some feedback that it’s not the kind of feedback that you want to hear. And I think that the message that we’re hearing from that is that now that we have completed the integration of Central and Standard, we have stability in our management team. It’s important that our folks in our organization are really out in front of clients, not only understanding what the client's expectations are, but also offering up and pitching new ideas because we are still the leader in new technology and new marketing initiatives in our industry. And so driving up retention is one of those ongoing efforts where you are listening to your client, understanding their needs and expectation and then you’re offering a creative solutions. And of course, there’s a lot going on with technology, new things and we’re at the forefront of all of that. So we should be in front of our clients on a regular basis talking to them about what we can do to drive their objectives. Whether that’s more profit in the facility or more utilization in the facility or a better parking experience or tapped into new technologies. If we are in front of the client doing those kind of things, we’re going to retain those client relationships. And if we’re not, if we’re simply taking a client for granted then we’re at risk that someone else is going to come in and say that they can do a better job. So it's really just a fundamental focus on execution both in terms of the performance of the facility, but also in the relationship with the client on a day in, day out basis.

[David Gold:]

Perfect. That’s helpful. Thank you both.

[Marc Baumann:]

Thanks, David.

[Vance Johnston:]

Thanks, David.

[Operator:]

Thank you. The next question is from Kevin Steinke of Barrington Research. Your line is open.

[Kevin Steinke:]

Good morning Marc and Vance.

[Marc Baumann:]

Good morning.

[Vance Johnston:]

Good morning.

[Kevin Steinke:]

Just following up on the other earlier question about the kind of quarterly cadence of our results as we move throughout the year here. I was just looking back at your 2Q call from last year and you did call out $700,000 benefit from casualty loss reserve estimates as well as a $900,000 benefit from health costs in the year ago 2Q. So I guess those two items you know we’d kind of argue for a little bit of a tougher comp again here in the second quarter. Is that the right way to think about it?

[Vance Johnston:]

Yeah hi Kevin this is Vance. You know as you know we don’t provide quarterly guidance, but I think you know you point to two things that are somewhat similar to the first quarter comparisons as well. And so obviously when we’ve structured kind of our plan and kind of how we think we’re doing relative to our plan, we’ve considered that. But I think you know for the second quarter comparison all things considered equal obviously we don't know kind of how casualty is going to can play out and we don't know how kind of our healthcare, exactly what that’s going to look like, but those were two benefits that you point to in the second quarter of 2015, that we certainly got in one pack our year-over-year comparisons. But like I said you know we’ve factored that all into to kind of our plan for the year. And we as said after the first quarter we’re largely on track with our plan and feel comfortable with our the guidance that we provided for the full year because we have a good understanding of what we think is going to play out quarter to quarter to quarter throughout the rest of the year.

[Kevin Steinke:]

Right. I guess the other piece of that is Marc mentioned in his opening comments about recent new contract wins will ramp up over time, which I think you said will improve gross profit throughout the year. So I guess that you know that are used for some build up in gross profit as we kind of move throughout the year, is that again a fair way to kind of think about things?

[Vance Johnston:]

Yeah you know I think is you know, I guess, two things, one is is that, there is a couple of things that will continue to get traction throughout the rest of the year. So on one hand you have the items that you’ve noted which are both kind of casualty and healthcare adjustments and you know the degree of the impact in ‘15 where we got many be favorable adjustments or you know where we may have an unfavorable adjustments that’s going to be vary quarter to quarter to quarter and have an impact on year-over-year comparisons for those quarters. In addition I think way we would think about it is is that we have new business that’s ramping up I think Marc mentioned MGM Resorts, which would be one, which is really kind of in the startup phase at this point in time and we would expect all things considered equally, the result of that to have you know an impact - a larger impact on the second, third and fourth quarter of the year than they would have had on the first quarter of the year in 2016. And there is other new business that we won that would ramp up. In addition we have G&A cost reductions of which we’re continuing to see favorable impact from that as we move throughout the year, we would expect to get continue to get more traction on that and that will have - all things considered equal, once again have a favorable impact. And then as we continue to deleverage, you know not considering anything else that we may do, you know as we deleverage our interest cost come down both related to the amount of debt that we have and are paying interest on. And then as we enter into different thresholds based on our leverage calculations for the actual interest rates that we have to pay on that debt. And so I think those are some of the – obviously there’s a lot you know that goes on with our business, but those are some of the factors that we would expect to contribute throughout the rest of the year.

[Kevin Steinke:]

Okay. That's helpful. And stepping back a little bit, you’ve talked about the G&A cost reduction initiatives that you have going on. Just kind of give us a look at how far along you are into that effort, how much more is on the drawing board, just kind of what inning we are in overall in terms of your ability to continue to execute initiatives that will reduce G&A costs?

[Vance Johnston:]

Yeah you know and so happy to do that and you know one thing just as an overriding comment is is that you know we are becoming more efficient and reducing G&A and reducing costs, some of which a large portion that which impacts G&A, some of that which impacts cost of sales, cost of parking, if you will. And we’re doing this in a way which is you know we happen to have a number of opportunities, we’ve had good fresh look at things. These are not items that we think are going to impact kind of the ability to grow the business at all. And so, but having said that, it really depends on the area. So I think we’ve called out a number of areas, so one is kind of back-office processes and reengineering that I would say that you know we've done some of that work, more of that is to come. That won’t be the most significant area in terms of total cost reductions, but you know we’re - its clearly not all the way through that and we have some more to go there, so we’ll have some additional kind of opportunities that will come out of that that will impact G&A. And then sourcing we’ve talked about that before, I would say that we’re only in the beginning stages of being able to kind of you know source direct and indirect spend based on being able to consolidate our favorable terms, most of that, well some of that will impact kind of cost of parking, some of that will impact G&A as well. But we've made some progress on that, but you know we’re kind of to be really the early stages of that, not the biggest opportunity, but clearly we think there’s some opportunity there. Organizational realignment, restructuring things of that nature, we’ve continued to do that. I think that we’ve made a lot of progress there, so there's probably not as much opportunity going forward there. But you know we have the impact of kind of you know the actions that we’ve taken to kind of give the organization more appropriately aligned and the cost benefits from that, we’ll to kind of get traction on that throughout the rest of the year. And then you have you know, kind of cost of risk, which I would say that that's a longer-term opportunity, which we think will have a significant impact on the business and our results. So we’re really at the kind of beginning stages of that, but I think we’re seeing some good results from the programs that we’re introducing and some good progress from that. But it's not something that’s going to impact us you know, kind of as Marc talked about earlier, not necessarily in the next quarter, but we do expect to see benefits from that and that’s part of our overall plan. And then lastly is discretionary spend, and you know we’ve really executed a number of initiatives around that, that’s everything from the amount of corporate space that we need to you know things like T&E [ph] and a variety of things like that and I think we’ve seen very good results from that and that’s having an impact on our G&A. I think that you know a lot of that we’ve got to and have executed, there’s a little bit more of that, that will come as well. But you know it kind of really depends on the area you're talking about that’s kind of how I would evaluate it.

[Kevin Steinke:]

Okay. Very helpful. And just lastly in addition to the nice winds you highlighted in your earnings release, you did mention that you terminated operations at a large Chicago hospital. Did you call that out for any particular reason? I mean it was kind of disproportionately large or profitable deal or just any additional color on that statement, the release there?

[Marc Baumann:]

Yeah, I think it’s one of those situations that we called out because in terms of giving a balanced view on what's happening in the business we don't always wanted to just crow about our great wins and our record new business, we feel we need to occasionally make mention of things that don't go the way that we would like. This particular case at one time this is a long-term lease and at one-time, it was a very, very profitable important contract for the company for many years. Unfortunately, again there was some competitive issues, other garages were built in proximity that siphoned off some of the parkers that were operated by owned and operated by other people. And so it just leads performances have been in decline for some time and so we kind of projected there is another garage going to be build, it’s under construction now. Again, unaffiliated with this client that’s going to siphon off probably some additional parking and we had an opportunity to talk to the client about terminating that lease early and being able to walk away from it while there was you know it kind of loss all off its profitability. So it’s not a big blow to lose it now, but certainly compared to what it was generating maybe three years ago, you know it's a fairly significant contract for the company.

[Kevin Steinke:]

Okay. Thanks for taking my questions.

[Marc Baumann:]

Thanks a lot, Kevin. I appreciate it.

[Vance Johnston:]

Thanks, Kevin.

[Operator:]

Thank you. And at this time, I’d like to turn the call back over to Marc Baumann for closing remarks.

[Marc Baumann:]

Okay, well, thank you Latoya, appreciate everyone taking the time today to listen to us and hear our results for Q1. I mean, as we said we’re very excited about all the things going on in our business and the rest of the years ahead of us. So we'll get back to business and we hope you all have a great day. Thank you.

[Operator:]

Thank you. Ladies and gentlemen, this does conclude today’s conference. You may now disconnect. Good day.