SP Plus Corporation
Q4 2007 Earnings Call Transcript

Published: 13 Mar 2008

[Operator:]

Good day ladies and gentlemen and welcome to the fourth quarter 2007 Standard Parking earnings conference call. My name is Stacey and I will be your moderator for today. At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of the conference. If at any time during the call you require assistance please key * followed by 0 and a coordinator would be happy to assist you. I would now like to turn the presentation over to your host for the day, Mr. Marc Baumann, Chief Financial Officer. Please proceed.

[Marc Baumann:]

Thank you Stacey and good morning everyone. As Stacey just said this is Marc Baumann. I am Chief Financial Officer of Standard Parking and your primary investor relations contact. Welcome to our call for the fourth quarter of 2007. I hope all of you had a chance to review our earnings announcement which was released after the market closed yesterday. We expect to file the 10K later tonight and also the proxy later tonight for 2007. We will begin our call today with a brief overview of the year by Jim Wilhelm, our President and Chief Executive Officer, and then I’ll discuss some of the financials in a little more detail. After that we’ll open up the call for a question-and-answer session. During the call we will make some statements that will be considered forward-looking regarding the company’s strategy, operations and financial performance. These statements are subject to many uncertainties in the company’s operations and business environment. I refer you to the complete forward-looking statements disclosure in our earnings release which is incorporated by reference for purposes of this call. I’d also like to refer you to disclosures made in the company’s quarterly and annual 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 can be accessed on our website at www.StandardParking.com and also www.Earnings.com. There will be a replay available on either website for 30 days after the call. With that I’ll turn the call over to Jim.

[Jim Wilhelm:]

Thanks Marc. Good morning everyone. We are pleased to report another outstanding year and more importantly a terrific performance by all 12,000 members of our team here at Standard Parking. Pre-tax income was up 37% for the year. Pre-tax income per share was up 45%. Due to the large tax benefit that we discussed that we received in 2006 it has not been meaningful to compare year-over-year net income and EPS growth, but as our effective tax rate is expected to normalize now at around 40% we will expect and we will highlight earnings per share on a move forward basis. We no longer have the need to talk to you about pre-tax income as we did last year to provide transparency to the growth cycle. The company generated $32.1 million of free cash flow in 2007, which translates to $1.66 per share. 2007 free cash flow represents a 21% increase over 2006. We deployed the free cash flow to complete four acquisitions, continue our stock repurchase program and repay debt. We continued to add new business last year while maintaining a 91% location retention rate and a 97% profit retention rate. As you have heard the last couple of calls we are going to try to cite both matrices not only in the form of locations that we retained but the gross profit form those locations we retained year-over-year. We added new contracts across all verticals and geographic regions. All of our business segments from airports to residential, airports to hotels, shopping malls, stadiums and events centers all contributed to the growth that we are talking about this morning and we highlighted in our release last night. We highlighted some of those fourth quarter wins in that release but I’d like to focus on just a few of them in a little more detail here. Many of our contract wins during the fourth quarter represented expansion of current relationships. It reinforces our belief that if we do a good job for our clients and prove out our value proposition we will be rewarded with additional contracts or additional service to those contracts. This was the case with the New Jersey Transit Authority where we were awarded eight new facilities bringing to twelve the total number of New Jersey Transit Authorities that we operate. Another example is the award of the Galleria at Harbor Place in Baltimore, awarded to us by General Growth Properties. We are confident that our demonstrated excellence at other GGP properties contributed to this win. We now operate ten GGP properties at shopping malls across America. It was also a very active year on the acquisition front. In addition to delivering in our organic growth targets we also completed four acquisitions during the year and one more in 2008. Acquisitions will continue to be an important element of our growth strategy. The acquisitions completed in 2007 and early 2008 have enabled us to leverage our existing infrastructure in Chicago, Los Angeles and Honolulu to expand in those core cities and has also provided us with the expertise to bring additional ancillary services to the marketplace. Acquisitions can also help us get a foothold in a desirable market or revive a stagnant operation or city. Seattle is a prime example of how an acquisition allowed us to grow in a city with unrealized growth potential to us. Prior to the acquisition of Sound Parking in 2006, our Seattle operations consisted of one operations manager who oversaw eleven locations. With the management expertise, regional relationships and operational infrastructure that we acquired with Sound Parking we now operate almost 80 locations in and around Seattle. We are actively evaluating acquisition opportunities as they come available. Based on the bottom up budgets that we developed for these acquired locations, these acquisitions are living up to our expectations and we expect them to be accretive in 2008. In summary, our business model which is built on vertical and geographic diversity, low risk management contracts and leases with low fixed rent have so far proven to be reasonably recession resistant. We have not up to this point felt any significant fallout from sustained high gasoline prices, high unemployment or the credit crunch. Mark and I in past calls have answered questions about those issues as they were coming forward. We are glad to see that the business model is holding. The underlying business growth is good. Acquisitions as I discussed are adding to the overall growth of the business. The business continues to generate dollar free cash flow that we have been using to repurchase our stock, acquire businesses and also repay debt at the same time. Finally I want to announce that the Board of Directors has approved a long-term stock incentive program for senior management. This investment in our management team will promote long-term talent retention and also align our interests with those of our shareholders more closely. With that I’ll turn the call back over to Marc so that he can lead you through a more detailed discussion of the quarterly and full-year financial performance and then I’ll wrap up with a discussion of guidance for 2008.

[Marc Baumann:]

Thanks Jim. Now that Jim has given you some commentary on the business overall, I’ll focus on a few more details for the quarter and the year. Total revenue for the fourth quarter, excluding reimbursed management contract expense, increased by $6.5 million or 10% to $72.2 million from $65.7 million in the same period of 2006 driven by a 24% growth in management contract revenue. Gross profit for the fourth quarter increased 19% to $22.7 million from $19.1 million in 2006. In addition to strong same location gross profit growth, the company benefited from a $900,000 favorable change in insurance loss reserve experience estimates related to prior years, which represented about 5% of the year-over-year growth. There were no significant comparable reserve estimate changes in the 2006 fourth quarter. So obviously even without that gross profit grew by 14% year-over-year. General administrative expenses increased by 17% to $11.8 million in the fourth quarter due to G&A from acquired businesses as well as higher professional fees. G&A as a percentage of gross profit, however, decreased 52% in the fourth quarter of 2007 from 53% in the fourth quarter of 2006 as we continue to make good progress toward our goal of bringing that number below 50% led by IT initiatives that will help us to improve back office efficiency. Specifically our ability to manage billing of monthly parkers, scheduling and timekeeping of our workforce and our processing or purchasing and accounts payable. Three big applications that are under development now, some of which are beginning to be rolled out into business. Operating income grew 23% from $7.7 million in the fourth quarter of 2006 to $9.5 million in the fourth quarter of 2007. Resulting pre-tax income for the fourth quarter of 2007 increased by 28% to $7.8 million compared with $6.1 million for the same period of 2006. On a per-share basis, reduced shares outstanding due to the stock repurchase program resulted in an increase of 37% in pre-tax income-per-share from 30 cents per share in the fourth quarter of 2006 to 41 cents per share in this year’s fourth quarter. Earnings-per-share in the fourth quarter of 2007 was 27 cents as compared to the $1.14 in the fourth quarter of 2006. You may recall and as Jim mentioned earlier in his remarks, in the fourth quarter of 2006 we reduced our valuation allowance for deferred tax assets resulting in a one-time net tax benefit of $17.8 million in the fourth quarter of 2006. The fourth quarter 2006 EPS of $1.14 included 88 cents per share attributable to this one-time tax benefit. Excluding the 88 cents per share tax benefit, earnings-per-share in the fourth quarter of 2006 reflects an implied effective tax rate of 14% while the fourth quarter of 2007 reflects an effective tax rate of 35%. As you know, we are moving towards an effective tax rate of 40%; however our cash taxes are far lower than that. Cash taxes in both years, 2007 and 2006, were under 5% as we continue to benefit from NOL’s and other tax benefits. In terms of free cash flow the company generated $9.7 million of free cash flow during the fourth quarter as compared to $6.3 million during the 2006 fourth quarter. Free cash flow in the fourth quarter of 2007 benefited from temporary working capital movements that generated about $3 million in free cash flow that we expect will reverse over the next several months. When Jim gets to the guidance for 2007 that partially explains why we have reduced our free cash flow guidance for 2008 compared to 2007’s actual. Free cash flow generated during the fourth quarter of 2007 was used to repurchase about $7 million of common stock. We made some small payments of about $400,000 relating to acquisitions and we also made debt repayments of about $600,000. Touching briefly on full year results, gross profit increased by 13% in 2007 to $85.7 million. Contributing to the increase was a year-over-year favorable swing of $3.2 million due to changes in estimates for insurance loss experience reserves relating to prior years that were $2.8 million favorable in 2007 and $400,000 unfavorable in 2006. Also contributing to the increase in 2007 was a $600,000 gain related to the sale of a contract writing in 2007. These two items comprised 5% of the year-over-year growth in gross profit. Underlying gross profit excluding these items grew at 8% which is a continuation of our five-year compounded growth in gross profit of 8%. So we continue to trend over the last five years excluding those large items. General administrative expenses in 2007 were $44.8 million, an increase of 9% over 2006. However, G&A as a percentage of gross profit decreased from 54% to 52% in 2007 and obviously we are committed to getting that number below 50% in the future. Operating income in 2007 was $35.5 million, an increase of 23% over 2006 operating income of $29 million as depreciation and amortization expense decreased by $300,000 year-over-year since the amortization of acquired contracts was more than offset by a reduction in depreciation expense as other assets became fully depreciated. So continuation of the downward trend in depreciation and amortization that you have seen over the last few years we don’t expect this trend to continue as we move into 2008 as the amortization of acquired contracts and higher capital spending in 2007 and 2008 for IT and also for these acquisitions will result in increased depreciation and amortization expense in 2008 and in future years. Pre-tax income was $28.6 million in 2007 or $1.48 per share, an increase of 37% on pre-tax income and 45% of pre-tax income per share over 2006. Earnings per share in 2007 was 90 cents as compared to $1.75 in 2006 due to a combination of an 87 cent tax benefit and an implied effective tax rate of 14% in 2006. The effective tax rate for 2007 was 39% for the whole year. Again, as I said, cash taxes were 5% in both 2006 and 2007. In terms of free cash flow, the company generated $32.1 million of free cash flow during 2007 an increase of $5.5 million over 2006 while also spending $2.4 million for capital expenditures in 2007 versus 2006 and that increase in spending was all for the IT projects that I mentioned a few minutes ago. Free cash flow generated during 2007 along with proceeds and I should say just available cash in our business was used to make acquisitions totaling $6.2 million, made debt repayments of $5.3 million and repurchased $22.1 million of common stock. We still have $22.9 million remaining unused under our board authorization for stock repurchases. With that I’ll turn the call back over to Jim who will provide 2008 guidance.

[Jim Wilhelm:]

Thanks Marc. As we look forward to 2008 we expect another strong year of growth for the business. Building on our track record of 8% year-over-year gross profit growth over the last five years and 8% same location growth in 2007. In our bottom line of 2008 we will see the impact of increases in some non-cash expenses. I want to take a moment to highlight the elements that should continue to drive gross profit growth even if the economy may weaken. Our contract base of predominantly management contracts where we often have build in CPI or other fee escalators forms the foundation of our gross profit growth. We also worked to increase the penetration of ancillary services at existing locations which adds to our same store growth. We then aim to add more locations than we lose to generate a net increase in locations. Finally, we continue to pursue acquisitions in our core markets where we can leverage our operating and financial infrastructure. Over the past five years these drivers have resulted in gross profit growth that is substantially above the growth rate of the country’s economy. Our tightening control of G&A expenses at the same time has enabled even faster growth in EBITDA and operating income. Now let me turn to our guidance for 2008. 2008 earnings-per-share is expected to be in the range of 90-95 cents, an increase of up to 6% over 2007. Earnings-per-share growth is constrained in part due to the expected increase in the effective tax rate to 41% in 2008 from 39% in 2007 as well as some atypically large items that affect the year-over-year comparison. As you saw in our earnings release, we have prepared a table that walks through all the pro forma adjustments to put 2007 and 2008 on a more equal basis and give a more transparent look at how we view the business at the board level and the management level of the company. Some of these items include changes in insurance loss experience estimates relating to prior years that helped 2007 and are not expected to recur in 2008. This added 9 cents to 2007 EPS. Non-cash charge for amortizing assets from the completed acquisitions, a 4 cent charge on 2008 EPS. Finally, the board’s recent approval of an award of restricted stock units for senior management will result in a non-cash stock compensation expense equivalent to a 4 cent earnings-per-share impact. Excluding the impact of the atypically large items I just mentioned, pro forma earnings per share would be $1.04 in 2008, a 25% increase over pro forma in 2007. Again, I refer you to the table included as an appendix to the earnings release last night for the detailed calculations. These guidance estimates do not include the impact of any new mergers or acquisitions that may be completed in the remainder of 2008. Also excluded from the guidance range are any insurance proceeds that may be received in 2008 related to the company’s claim for business interruption losses resulting from Hurricane Katrina, which we continue to negotiate. That concludes our formal comments for today. I’ll turn the call back over to the operator to begin our question-and-answer session.

[Operator:]

Ladies and gentlemen if you wish to ask a question please press *1 on your touchtone telephone. If your question has been answered or you wish to withdraw your question please press *2. All questions must be submitted at this time in order for it to be registered. Questions will be taken in the order received. Please press *1 now to begin. Your first question comes from the line of David Gold with Sidoti. Please proceed.

[David Gold:]

Good morning. A few questions for you. First on the margins between both lease and management I’m curious if you can comment a little bit. We’ve seen a little bit of deterioration there and what I’m curious about is how much of that is the acquisition sort of coming into play and dragging you down a little bit and how much of that is attributable to locations?

[Marc Baumann:]

David we really haven’t analyzed it that way but what I would say is that we are not noticing any deterioration in margins on existing locations. As we talked before, the difficulty in looking at margin percentage as a percentage of revenue is that there are so many things going on. As you mentioned, the acquisitions. We have contracts changing, contract structure from leases to management. We have reverse management that may come online that can have a huge impact on the margin percentage for management locations and of course the change in prior year loss insurance reserves that we talked about already and then the release obviously get allocated back to leases and management and affect the gross profit line and obviously affect the gross margin percentage. So obviously a combination of all those factors is going on, but certainly we are not seeing any deterioration in the underlying business. Clearly as you look at some of the things we have acquired, Jim talked about Sound Parking, that one we have analyzed a little more in depth because more time has passed and certainly on a margin percentage basis there were lower margins than our existing business. But one of the attractions to us of acquisitions is that we feel that by increasing the penetration of our ancillary services and managing them the way that we do that we can improve the margins and the margin dollars which is more important to us to gross profit per location after we take control of the contracts.

[Jim Wilhelm:]

David that takes some time. Marc hit it right on the head in terms of layering in additional services. To use the Seattle example, it is now that we are beginning to add in or recognize opportunities for our transportation component and our cleaning and maintenance programs up in Seattle. Again, we are almost two years into that program. It just takes some time to add those services into a market where we haven’t had a presence in the past or a significant presence in the past.

[David Gold:]

Jim that brings me to sort of a different question. On the acquisitions front, when you look at different acquisitions…you commented how presumably you look for accretion but is that accretion year one on a cash flow basis or a GAAP basis? Two, would you do something that maybe wasn’t accretive year one, but would take maybe to year two or maybe like Sound Park to year three to actually see a real decent contribution.

[Marc Baumann:]

Let me jump in to answer a little bit of that and then Jim can add to it if he thinks he wants to. All of the deals that we do immediately are positive on a cash basis. There is no doubt about that. They generate incremental positive after tax cash flow. The transaction costs of these deals are low. These businesses look a lot like our existing business where there is not a lot of capital investment, etc. On a GAAP basis, we have not finalized our accounting for the acquisitions that we have done in 2007. We have made some preliminary determinations but we still have some work to do on that and obviously we’ll want to finalize that in the early part of 2008. That being said we generally expect that these deals would be close to or could be accretive during their first year. We’re not looking at acquisitions where we take on a lot of G&A costs that the prior company may have had so that gives us the ability to leverage off our existing infrastructure right away. How accretive they will be will depend on the purchase accounting but clearly we view them as a positive to the bottom line. I think we have said for the deals we have completed so far we do believe that they will be accretive in 2008.

[David Gold:]

On a GAAP basis?

[Marc Baumann:]

On a GAAP basis, yes.

[Jim Wilhelm:]

In answer to your second question, David, I would…I look at a potential company to be acquired and I look at the long-term value that acquisition might bring to the mainstream of Standard Parking or some of the related services that we offer. I would certainly think of doing those deals and it might not necessarily be accretive during the first year or immediately. Some examples of that would be a business in a region where we see demographic growth out into the future and we might want to be there in such a manner that although the business it brings us in the first year doesn’t hit our sweet spot in terms of the synergies or the multiples that we might have been looking for in the first year if in my view that is an acquisition based on geography or on service offering that we want to do we will go ahead and make that investment. I understand the pressures of the quarter-to-quarter discussions and the quarter-to-quarter views but my overall responsibility is for the long-term health of the business.

[David Gold:]

Just one last one on that note…acquisition landscape if you can sort of update us. Presumably having done five acquisitions in say the last six months after a period of slowness it seems like you guys are seeing some more success this year and I’m just curious if that is continuing and if you think things may be getting a little bit easier with the credit crisis and maybe private equity is getting out of the way a little bit.

[Jim Wilhelm:]

I don’t know if they are getting out of the way…I know the market itself is good. But as we discussed last quarter we are in the process of digesting those five acquisitions that we completed last year. As Marc alluded to briefly today and we elaborated on in the press release last night we are also implementing process change across the organization in the form of automation of our billing system, payroll, time and attendance and scheduling system and our procurement system. So I need to measure the activity in the acquisition market against the capacity of the company at any one time. So you can assume that we are always in the midst of either negotiating, discussing or looking at some acquisitions, I’m trying to do that on a schedule that is reasonable in terms of the capacity of the organization.

[David Gold:]

Got ya. Very good. Thank you both.

[Operator:]

The next question comes from the line of Bob Labick of CJS Securities. Please proceed.

[[Torren Eastburn:]

Good morning gentlemen. This is [Torren Eastburn] filling in for Bob Labick. First off congratulations on a strong quarter and year. You answered my first question already in your presentation but I was wondering if given the current macroeconomic environment if you’d seen or expect to see any outsourcing of municipally owned and managed lots to operators such as yourselves? If so, how do you stand to benefit from any trend that might occur there?

[Marc Baumann:]

That’s a good question. I don’t know that we expect to see any more volume in outsourcing. Outsourcing from airports in the 1950’s and 1960’s through the municipal offsite parking garages that occurred during the 1970’s and 1980’s and early 1990’s, which has now led towards opportunities on street with parking meters and ticket writing and ticket writing enforcement and ultimately collection is certainly the burgeoning market and has been on the municipal side for the last couple years. I would expect that trend will continue very, very actively into the future a we have discussed on these calls over the last couple years. Where we do see a change, or at least have begun to see some sort of a change, is in the format by which those municipalities are looking to outsource. Rather than the municipalities retaining ownership of the asset and contracting for their management we have seen some relatively isolated but noticeable occurrences so far where states are selling or long-term leasing those assets to in essence a financial buyer or a financial interest rather than an operator. Then teaming up with an operator for ultimately managing that toll way, that asset. I think in the future you’ll see that airport or that meter system or in business unrelated to ours…the water and sewer systems for cities and other municipally owned assets being sold off in order to balance the municipal books. So while I don’t see the activity changing at all I think the form of that change…there will be a form to that change over the next ten years, or as David alluded to economic conditions prohibit those financial players from buying in.

[[Torren Eastburn:]

Okay great. Thanks very much guys. I’ll get back in the queue.

[Operator:]

As a reminder ladies and gentlemen if you wish to ask a question *1 on your touchtone telephone. The next question comes from the line of Nate Brochmann of William Blair. Please proceed.

[Nathan Brochmann:]

Good morning gentlemen. Congratulations on a great quarter. Being somewhat new to the story I’m not really sure what your policy is on this but I was wondering if you could comment thus far on business trends in the first quarter and kind of what you are seeing and also whether some of the extra costs that arose in the fourth quarter related to the acquisitions are continuing into the first quarter and are something we should consider in our estimates?

[Jim Wilhelm:]

Well let me answer the second question first. That is that the expenses that we might be bringing on as the result of the acquisitions you know are assumed obviously within the guidance that we’ve given. The transaction costs that we had to expense for the acquisitions in 2007 obviously those won’t continue. Those costs themselves went away. But to the degree that we needed an additional support person or some other form of expense, those are planned in. In the past we’ve talked about the fact that the acquisitions that we’ve done to date really don’t require us to bring on a whole lot of support G&A so mostly what you would have seen in 2007 were acquisition costs. To get to the first question that you asked, we don’t comment at this time a whole lot about trends as we are seeing now into the first quarter of this year. I can tell you that the trends we read about in the paper everyday; the increasing costs in oil which translates into gasoline, the credit crisis which has its trickle down effect into the residential markets – or at least the residential markets that we serve, are something that we look at. We have not seen a whole lot of trend change in the transportation area of business travel either at the airports we serve or the hotels that we manage. Which gets to the point I was trying to make in the earlier dissertation and discussion of our business model. We’ve tried to insulate ourselves from short-term swings in the economy by virtue of those agreements that we have put together. So kind of a twofold answer to your question. One the trends are as we kind of read about…all of us read about everyday. The second part is as those trends as we have tried to plan for over the last six or seven years don’t have an effect on us in the short-term.

[[Torren Eastburn:]

Great. Thank you very much.

[Jim Wilhelm:]

You’re welcome and again welcome.

[Operator:]

The next question comes from the line of David Gold with Sidoti. Please proceed.

[David Gold:]

Back again. I’m curious if you could talk a little bit on the stock program. A couple of things…one when we describe it as senior management I’m curious who is included in that and then why now sort of all times?

[Jim Wilhelm:]

Thanks for the question. The answer to the first question is Senior Vice Presidents and higher within the hierarchy of our organization. Those people who either manage our core markets themselves or people who manage departments for us on the support side of the business.

[David Gold:]

How many people would that be today?

[Jim Wilhelm:]

About 25? 24 or 25. The reason we’ve done it is we’ve gotten some criticism in the past as Marc and I have been out in the marketplace was that there was some feeling on the side of shareholders that management was not invested in a parallel manner with the shareholders, that there was not enough equity in the hands of management. So the first order of business was to try to take care of that disparity and make sure that the management team we have here is as closely aligned with shareholder desires as can be. Second, we’re in the service business and the key to our business, as you’ve heard me speak about it many times David, is the quality of our team. It was very important to me that as we have begun to experience some success now and we’ve begun to stabilize and mature as an organization that I do the right thing about keeping that team in place. Not only in the form of compensation, which this long-term or in essence retirement program for a lot of people attracts, but it keeps that team in place and gives them a motive to want to be here. As you might suspect when you get into this sort of a cycle and you’ve had the success that we’ve had and we’ve enjoyed the success our people start to get recruited. We’d very much like to keep this team in place. We think it ultimately is in the long-term interest of the shareholders that we do.

[David Gold:]

Were you seeing people being picked off just now or was this more preemptive?

[Jim Wilhelm:]

I would not use the word picked off. I would use the word recruited.

[David Gold:]

Same question. We’ll use the word recruited.

[Jim Wilhelm:]

We haven’t lost anybody.

[David Gold:]

So it was preemptive. This one is a little…I don’t want to use the word strange, but definitely a little different for me in the sense that it is a long-term program presumably and I think as you explained in the release and vest over years 10, 11 and 12. Did I get that right?

[Jim Wilhelm:]

Yes.

[David Gold:]

So on that basis I’m curious does this stock all go out today and vest over the next bunch of years or is this sort of a bucket of restricted shares that we’ll be able to use over say the next few years?

[Marc Baumann:]

These are restricted stock units and so what has happened is we have designated a certain amount, and obviously when you see the proxy you’ll see what the amounts are for the named executive officers, we have designated a certain amount of restricted stock units for each of the people that Jim mentioned. Those restricted stock units are being set aside now, but the stock itself is not going to be issued until the restriction period comes off. In terms of its impact on our reported earnings, it does affect diluted earnings per share. That’s why we made the comments we have in the earnings release.

[David Gold:]

Okay so essentially if you are a senior manager at Standard Parking, lets say you are a senior vice president, you find out today how many shares have been allocated to you but it will take 10, 11, 12 years for that to vest?

[March Baumann:]

Yes. The only difference would be if you were to turn 65 before the expiration of those periods then they would vest at that time.

[David Gold:]

And Marc if you can help me a touch on the accounting. Two questions there. One, you gave a share count of $18.6 million expected for 2008 and how do the restricted stock units play into that?

[Marc Baumann:]

We have to do a Black-Scholes calculation for them. It is not a lot different from the Black-Scholes calculation that you do for stock options. We kind of go through similar calculations and obviously the diluted effect of the 750,000 shares is not 750,000 it is something less than that.

[David Gold:]

Right but because they are real true shares, presumably, it would be a lot more diluted say than options. Right? It would be a lot closer to the 750 than if those were options I would think.

[Marc Baumann:]

My current understanding of Black-Scholes is that it is not appreciably different, David, for the same number. So take the same number of restricted stock units and the same number of stock options. You’d use the same calculation and although it seems a little illogical to me, the information I’m getting back from the accounting experts is that it really has the same dilutive impact and is substantially less than 750,000. So obviously as we have come up with the $18.6 we have made some assumptions about how we disclosed to you what remains on the stock buyback program…obviously there is no guarantee that we will buy all of that back in 2008 or that the stock buyback program won’t change because obviously we buy back when the board feels the stock is undervalued. But we have had to make some rough assumptions to give you some foundation for translating that income into earnings-per-share and understanding how we’re doing that.

[David Gold:]

Okay. And I guess the other piece of that, the 4 cents that you had described in shaving earnings by this year, presumably that continues over say the life for the next ten years. Is that right?

[Marc Baumann:]

Well it does and it won’t be the same number every year. I’ll just take a second to explain that briefly. Essentially what we do is on the grant date which is going to be on or around July 1, the share price at that time times the 750,000 will be a number. Let’s just say that number will be, at today’s share price, that number will be $16 million. We will amortize that $16 million over this long time period. But obviously in 2008 we will only in effect have ½ year amortization so the impact on 2009 all things being equal will probably be double the impact on 2008. But in future years, for someone who is say 7 years from being 65 we will be using a shorter time period to amortize their restricted stock units granted than say somebody who is 40 years old now and has much longer than the 12 year period to get to age 65. So whatever person age is now relative to age 65 and the 10, 11 or 12 years, we’ll use that in the amortization. The number we have given you for 2007 is based on that. It is a true number for 2007.

[David Gold:]

So presumably at the end of the year after we have a few quarters under our belt we’ll have a better handle for say if you had a model…in other words we’ll have an actual that we can maybe run with?

[Marc Baumann:]

We’ll have an actual. That number won’t change in the future. So once we are in effect releasing second quarter results and updating our guidance we will know definitely what the cost is for 2008 and future years.

[David Gold:]

And then one last one if I might…on the amortization the 4 cents you point to, how much of that if any is accelerated amortization that maybe runs off of 2009?

[Marc Baumann:]

On the restricted stock units?

[David Gold:]

No. Just shifting gears to amortization. You had pointed to 4 cents for the acquisitions reducing this year.

[Marc Baumann:]

I would say none of it. The important consideration here is our actual amortization for 2007 and the amortization that is built into our guidance for 2008 is based on preliminary purchase price allocations that have not been finalized. We’re not expecting the numbers to be greater than what we have put into our guidance for 2008 but until we finalize our valuation work with the outside third-parties that are helping us with this we don’t know exactly how much good will there will be on these acquisitions and therefore how much is allocated to amortizable assets.

[David Gold:]

Thanks. Sorry to badger you with some of these details.

[Operator:]

The next question comes from the line of Rob Amman with R.K. Capital. Please proceed.

[Rob Amman:]

Hi. Nice year. Congratulations. Just one quick follow-up on the restricted stock. The amortization is it straight line over that time period?

[Marc Baumann:]

It is straight line. Again, it is based on the individual. So if you have someone who is 40 years old now it is going to be 1/3 of it for them straight line over ten years, 1/3 over eleven and 1/3 over twelve. It is as simple as that. If you have an individual who was 58 right now then 100% of theirs would be amortized over seven years.

[Rob Amman:]

If the average age was such that it would allow every one of these employees to stretch out to 10-12 years I would think that the annual amortization would be 4 cents a year almost rather than 4 cents just for ½ year impact by my math.

[Marc Baumann:]

Sure. We have a lot of folks in their 50’s including Jim and me. So that definitely has an impact. I think by the virtue of the fact that the grant is going to take place on July 1 and that is half way through the year and we’ve told you that is a 4 cent impact then you can roughly assume that the impact will be double in 2009.

[Rob Amman:]

Got ya. What was headcount at the end of the year and how does that compare to the prior year?

[Jim Wilhelm:]

Total headcount for the company is about the same. It is up slightly but with the automation of the technology applications out in the field even though locations are increasing the average number of employees per location is down some. So we are usually in the 12,500 employee area. We have some seasonality towards our stadium and special events business. That gets us up closer to 13,000 but usually around the average, Rob, we are around 12,500.

[Rob Amman:]

Okay. Could you expand a little bit on the IT initiatives and you know where you are focusing first in terms of the rollout and where might one of the first elements of the three or four things you mentioned be fully implemented and the types of cost savings you could see?

[Jim Wilhelm:]

Sure, I would be glad to. First, I guess by chronology, the first initiative has been the methodology by which we invoice our monthly customers and the enabling technology for them to sign up, locate a parking facility and pay for that parking over the web. We’ve sort of watched as some competitors over the years and some others have tried to develop that sort of software and it has not been implemented across our industry with great success. We’ve kind of waited and watched and learned from what has been rolled out by others. We’ve talked to our clients over the years in terms of what they’d like to see in terms of receivables collection and receivables reporting to give them some transparency. Maybe most importantly in a lot of the office buildings and a lot of the other applications that we do, Rob, we have very complicated leases that have to be interpreted for large blocks of employees or tenants in an office building. So we’ve tried to design a system that enables us on a more automated basis to enable those leases to occur to be billed properly and for annual escalations, for instance, to be automatically loaded into the billing cycle. It is certainly a process change for us, but it is a revenue tightening control that we can offer to our clients and one that we’re excited to be taking out now. That has been sort of past the beta testing stages and we’re running live in some test locations out in the field now in Boston and in Houston. The second initiative relates to the methodology by which we collect time and attendance for our people and then ultimately enable our managers at our locations to schedule more effectively and more efficiently the labor into each location every day. Since the merger with Apcoa from the Legacy system that we manage on the payroll side of the business that incorporates time cards, time sheets and manual data entry in order for someone to get paid. In the states where we have union agreements we have some very complicated contracts as it relates to overtime booking, break taking, leave, time of leave, leave of absence, things like that which again require a very manual processing initiative to get done for the paychecks every other Friday. The initiative we are rolling out now in that area enables us an automated format by which we can collect time. There are options depending on the technology that is available at any one of the locations between logging in by telephone line, logging in by the PCs that are on the desks of our managers across the country or logging in by automated time clocks or logging in biometrically to a device that scans people’s fingerprints. So we’ve enabled some different choices depending on the equipment that is available at our locations, but more importantly it then eliminates a lot of the manual time card selection, time card additions, time sheets that get built on the time card and then trying to interpret the union rules to ensure somebody gets paid correctly and overtime is being managed properly. So again while it is a process change for us that will ultimately enable us to operate more efficiently by virtue of our headcount it is also a benefit and a control item that we can offer to our clients in terms of that automation. That has now been rolled out here in Chicago and is underway and being rolled out in Los Angeles. As you can imagine, trying to bring that change to an organization of our size has hurdles and challenges so we’re being very careful not to try to implement any one of the initiatives in the same city at the same time. Try to move that around a little bit and we’re not in a race to get it finished as much as we are to make sure that it has been installed properly and that all of the training has occurred and follow-up and audit that needs to occur after the implementation and installations have been completed. So there is a very focused schedule to avoid again overloading the organization. What we do first and foremost every day from my job to cashier attendant at our facilities is to park cars first. We are in the service business. Again, it gets to the issue of premeditated judgment on my behalf of being careful not to overload the organization with process change and acquisition change at the same time. Lastly, we are now well on the way to our development of our procure to pay upgrade which is on the payables side of the business. All of our vendors who do business with Standard Parking will be required to business with us electronically, again in an effort towards eliminating paper and some of the unnecessary review processes we have to go through in terms on the control side of payables. Our people in the field have an inordinate paperwork load, again driven by the Legacy systems, for purchase order or ordering approval, ultimately approving the invoice, approving a check request, approving a check, and ultimately delivering that check via paper from our payables department here in Chicago and in field locations around the country. The idea behind this change as well as the first two I mentioned is to be able to centralize those processes much more efficiently here in Chicago or some processing center if it is not in Chicago in the future that allows us to remove from the field a lot of that process that has to occur which isn’t being done very efficiently today in terms of our headcount. This last version, which is the procure to pay, will enable the review process by our operating people and our payables people to occur on a much more online, in-house technology driven system. All of these systems, by the way, will be driven off an Oracle platform that will ultimately reconfigure our general ledger system as we are doing this over a series of years. So that is the three that are underway now. Two that are being rolled out in the field and the last one that I mentioned in development within our procurement and our accounts payable support departments here in Chicago.

[Rob Amman:]

Would you expect the first two to be for the most part rolled out across some locations by the end of the year?

[Jim Wilhelm:]

I think that the accounts receivable or billing program will for the most part get itself out in 2008 and early into 2009. The time and attendance or the workforce management component will be rolled out this year and well into 2009. The procure to pay, I’ll have a look at where we are at in terms of development before I could give you a better answer on its rollout but I would suspect that the third one that I’m talking about will be the easiest to roll out.

[Rob Amman:]

Among the first two is one potentially more impactful in terms of savings than the other?

[Jim Wilhelm:]

No. As a matter of fact, they are all codependent on each other. Very often in the field offices that we operate the same person who processes for a market, say Boston or for New York, the same person processes receivables and they process payroll and they process procurement. So the company won’t derive its ultimate benefit for the reassignment of those tasks or a continued drive down of our G&A as percentage of gross profit until all three are implemented.

[Rob Amman:]

Okay. And once all three are implemented what sort of annualized savings do you think you could see or is this something that could save $2 million, $5 million, and $10 million?

[Marc Baumann:]

We’re preliminarily looking at that now and obviously these numbers could change but I think our expectation is there is probably $1-$2 million of savings to be had.

[Rob Amman:]

Okay. So do you think that gets you most of the way towards that 50% goal over time? Or does the rest of that have to come just from leveraging growth as you see it?

[Marc Baumann:]

Well if you look at our numbers now you could see that if we were able to achieve those sorts of savings and the company continues to grow it gets us under 50% rather rapidly. So to the degree by which will depend upon the success in which these programs have been implemented. So far so good. It is a combination of driving that change across the organization that will ultimately get that percentage down to a level that we talked about. We’re probably a year or two ahead of where we thought we’d be.

[Rob Amman:]

Okay. Again, last question…just any kind of update on your evaluation of rolling out security services in some more locations?

[Jim Wilhelm:]

No. It’s early. We are only several months into the acquisition that we did to try to build capability and to understand that business and begin to answer the question is it a viable add-on ancillary service to the core parking product? I would say it is too early for us to make that evaluation. We want to let that go. Allow the acquisition to stabilize with the existing security business that we have already grown organically in California and then begin to make decisions of whether we will pursue that same agenda in the remainder of our core cities.

[Rob Amman:]

Okay I lied. One more question. Headcount for next year probably pretty similar to where it sits today?

[Jim Wilhelm:]

Yes I suspect. The only change we would see would be affected by retention rate and we talked about that and our year-over-year win versus losses and we talked about that. I think the only change that would be made would be the result of acquisitions we haven’t announced yet.

[Rob Amman:]

Thank you.

[Operator:]

With no further questions in the queue I will return the call back over to Jim for closing remarks.

[Jim Wilhelm:]

Thank you very much. I just want to say thank you again for taking the time to be with us today and hopefully most of you around the country, as we are here in Chicago, are enjoying a nice spring day. Thank you.