SP Plus Corporation
Q3 2014 Earnings Call Transcript

Published: 6 Nov 2014

[Operator:]

Good day ladies and gentlemen, and welcome to the SP Plus Q3 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mr. Vance Johnston, Chief Financial Officer of SP Plus. Sir, you may begin.

[Vance Cushman Johnston:]

Thank you, Sia, and good morning, everybody. As Sia just said, I'm Vance Johnston, Chief Financial Officer at SP Plus. Welcome to the conference call for the third quarter of 2014. 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 Jim Wilhelm, our Chief Executive Officer; then Marc Baumann, our President and Chief Operating Officer, will provide more color on the operations; then I'll discuss some of the financials 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 2014 financial guidance; statements regarding expectations for the integration of the Central Parking operations; other statements regarding the company 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 and 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 that a replay of the call will be available on our SP Plus website for 30 days from now. With that, I'll turn the call over to Jim.

[James A. Wilhelm:]

Thank you, Vance, and good morning, everyone, and thanks for joining us this morning. I'm happy to report that we had a busy and productive third quarter. Mark and Vance will go into more detail later in the call, but the key measures and statistics we regularly focus on were very good for the quarter. Underlying gross profit was up 7% on a year-over-year basis for the third quarter. We continue to see improved performance across most of our markets, with especially strong growth in New York City and in some of our airport operations. Strong second and third quarter growth helped to offset the impact of the weather on the first quarter, resulting in an underlying gross profit growth for the first 9 months of the year of 4%. We were also very pleased with the substantial adjusted free cash flow of $10 million we generated during the third quarter, which brings us to $24.3 million of adjusted free cash flow through the first 9 months of the year, on track toward our goal of $35 million to $40 million for the full year. Turning to the integration process. I'm pleased to report that we're about to complete the integration of the final group of Central Parking locations onto our operating platform. What a fantastic achievement by every member of the SP Plus team to have completed the integration successfully and on schedule. We wouldn't have been able to do this without the hard work and dedication of our folks, and I want to personally thank them for all of their efforts. In addition, as you may recently have seen, we announced the formation of a new joint venture with Parkmobile USA. We believe the venture will become the leading provider of on-demand and prepaid transaction processing for on- and off-street parking and transportation services. On a personal note, as you saw in our recent press release, this will be my last earnings call as CEO of SP Plus. I will transition at the beginning of the 2015 into the role of Chairman of the Board. In doing so, I will pass the baton to my longtime colleague and friend, Marc Baumann, who, as of the first of the year, will be CEO and President of the company. I know that Marc going to do a terrific job, and I look forward to working with him in my new role as Chairman. With that, I'll turn over the call to Marc, so he can provide some additional color on the business over the quarter and year-to-date.

[G. Marc Baumann:]

Thanks, Jim, and good morning, everyone. And Jim, thanks, in particular, for your mentorship over the last 14 years. I know that we're going to work closely together as we guide the company into the next phase of growth. I'm excited to work with everyone and capitalize on the many opportunities that we have before us. As Jim mentioned, we had another very strong quarter. Underlying gross profit growth of 7% was driven by increases in same-location gross profit and robust new business. Underlying same-location gross profit increased 4% year-over-year, which was primarily due to increased parking volumes as well as improved pricing at leased locations, particularly in New York City, coupled with increased penetration of ancillary services and products. The same location growth is slightly lower than the 5% we reported for the second quarter, but we believe there was some weather-related pent-up demand from the first quarter that benefited us in the second quarter. We're also pleased that location retention improved to 90% for the 12 months ended September 30, 2014. In terms of new business, our pipeline remains strong. The SP Plus event logistics group will consult with NASCAR to improve traffic flow at their facility at the Richmond International Speedway, the Talladega Superspeedway and the Kansas Speedway. We'll implement and manage a traffic management plan and staffing for football games and other events at Baylor University's McLane Stadium. Our USA parking operation was awarded the valet parking contract for the Raleigh Hotel in Miami Beach, Florida, the flagship property for The Raleigh Group, which is owned by Tommy Hilfiger. In addition to valet parking, we'll also automate the parking facility and install new revenue control equipment. We were also awarded the contract to start up, operate and manage the consolidated car rental shuttle at the San Diego airport, which will commence service at the beginning of 2016. With that, I'm going to turn the call back over to Vance to lead you through a discussion of our financial performance.

[Vance Cushman Johnston:]

Thanks, Mark, and hello, everybody. I'd like to spend a few minutes reviewing our financial results in more detail. As we've done in previous quarters, we will focus on the underlying performance of our business, which excludes certain items that are not comparable on a year-over-year basis. To that end, we have adjusted our reporting results for merger and integration costs, net accretion on acquired lease contract rights, asset sales, cost incurred for nonroutine structural and other repairs and the partial payment we received for our Hurricane Sandy claim. Getting to the results in the quarter. Reported 2014 third quarter gross profit increased 9% over the same period of last year. On an underlying basis, gross profit increased 7% on a year-over-year basis. As Jim and Marc both mentioned, we are very happy with these results. There's a full reconciliation from the reported to underlying results that accompanied our earnings release last night. Third quarter 2014 adjusted G&A expenses, excluding merger and integration-related costs, increased $2.5 million from the third quarter of 2013, primarily due to a $1.3 million swing in the accrual for the company's annual performance-based compensation plan. The plan is trued up each quarter based on expected performance against targets, and in the third quarter of last year, the accrual was taken down by $300,000, while in the third year's third quarter -- while in this year third quarter, it was increased by $1 million based on the company's results. The increase in the third quarter accrual over last year is mostly just a timing difference. The remainder of the year-over-year formal [ph] increase is primarily due to other compensation and benefit costs, including increased health care enrollment and increased health care costs, along with legal costs associated with the recently announced Parkmobile joint venture transaction. If you recall, we anticipated G&A run rate of about $25 million per quarter in 2014. Q3 2014 G&A is under that run rate level and is also lower than Q2 2014. Earnings per share on a GAAP basis were $0.19 for the third quarter of 2014 compared to $0.17 for the third quarter of 2013. Earnings per share adjusted for merger and integration-related expenses as well as nonroutine structural and other repair costs, were $0.28 per share for the third quarter of 2014, $0.06 higher than the third quarter of 2013 on the same adjusted basis. The increase in net accretion on acquired lease contract rights and the partial payment from the Hurricane Sandy claim increased year-over-year earnings by $0.02. Based on the $0.50 of adjusted earnings per share for the 9 months of 2014, we continue to expect adjusted earnings per share for the full year to be at the lower end of the previously provided range of $0.77 to $0.87 per share. In terms of adjusted free cash flow, the company generated $10 million during the third quarter of 2014 and $24.3 million during the first 9 months of the year. The underlying business performance as well as our focus on keeping past due accounts receivable balances down during the quarter contributed to strong free cash flow generation. Cash used to pay for nonroutine structural and other repairs were $700,000 for the third quarter and $2 million for the first 9 months of the year. While not a significant amount through the first 9 months, the cash requirement for this purpose could increase during the rest of the year. So our free cash flow guidance continues to exclude any nonroutine structural and other repairs at legacy Central Parking leased locations. On that basis, the company still expects 2014 free cash flow to be in the range of $35 million to $40 million at this time. That concludes our formal comments, and I'll turn the call back over to Sia to begin the Q&A.

[Operator:]

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

[Daniel Moore:]

Jim, just very briefly, on behalf of CJS, thanks for all your help over the years, and Marc, congrats on the new role.

[James A. Wilhelm:]

Thank you.

[G. Marc Baumann:]

Thank you.

[Daniel Moore:]

Vance and Marc, I want to focus a little on G&A. Vance, you just mentioned the year-over-year. Sequentially, G&A declined over $3 million even making the adjustments. Walk us through what drove the decline, and you mentioned your prior guidance was closer to $25 million quarterly. Well, how should we be thinking about G&A for Q4?

[Vance Cushman Johnston:]

Yes. So in the current quarter, as you allude to, G&A came down, and there's a variety of things that are impacting that. No one thing in particular. So I think that we're, once again, starting to control cost better for the company overall, and that gets to the adjusted -- the decline in adjusted G&A. In addition to that, we also have some timing-related items, but nothing significant or specific in particular. As we look forward to the fourth quarter, we would -- the prior guidance that we gave was we would expect G&A to be below $25 million per quarter. We still think that's the case, and in fact, we would expect kind of G&A for the fourth quarter to be even -- not necessarily on an adjusted basis what we had in the third quarter, maybe a little bit higher than that, but certainly below the $25 million of guidance that we had previously provided.

[Daniel Moore:]

If it ticks back up a bit, are there any specific factors you can point out to? And what the magnitude might be?

[Vance Cushman Johnston:]

And I say this all -- this is all, notwithstanding any adjustments that we would have for our PBC [ph] accrual. So as we had in the current quarter, we had an adjustment to our PBC [ph] accrual that was fairly significant. And certainly, as we think about it on a year-over-year change basis, we could have that in the fourth quarter as well based on performance, and hopefully, we do. That would be a good sign. But outside of that, as we kind of move into the fourth quarter, there are certain things like, for example, as we kind of come to the end of the year, and we have people that have -- certain taxes and things of that nature that we no longer have to incur in the fourth quarter that we may have had to incur related to payroll for the first 3 quarters of the year, that will give us a little bit of a benefit. There are certain costs that we incurred in the first 3 quarters that we're now talking about related to the Parkmobile transaction, legal cost and things of that nature. We would expect less of those in the fourth quarter. So those are the types of things. And then also, as we continue on with the integration of the 2 companies and continue to reap the benefits of that as we kind of move quarter to quarter to quarter, we would expect, notwithstanding any kind of onetime costs, those 2 kind of continue to get traction as well. But those would be the types of things that would result in slightly lower G&A cost for the fourth quarter.

[Daniel Moore:]

Lower than the $25 million you're speaking of?

[Vance Cushman Johnston:]

Yes, lower than the $25 million, that's correct, but not lower than the -- what we reported in the third quarter.

[Daniel Moore:]

Adjusted? Okay. And stepping back up to gross profit, and then I'll jump back in queue. Last fiscal Q4 obviously had kind of a tough comp. You had a $2 million year-over-year benefit from accretion of leases and sales of JVs and other assets. So as we look up to Q4, gross profit, would you expect that year-over-year growth rate to moderate before we maybe start to pick back up in '15?

[G. Marc Baumann:]

Well, Dan, the way I would look at it is on an adjusted basis, and we talked about how underlying gross profit has grown at 4% for the year and at a higher clip the last 2 quarters as we recovered particularly in Q2 from the adverse weather in Q1 that really took about $3 million out of our gross profit that we would've otherwise had in the first quarter of this year. So I think, as you know, our targeted gross profit growth rate is in the 5% to 7% range. We've run a little higher clip than that the last couple of quarters on an adjusted basis. It'd be great if that continues. We hope it does, but I think as you look at our business, your expectation should be that on an adjusted basis, and that's adjusted to not have asset sales adjusted, to not have the lease accretion on an underlying basis. Our target remains to try to get in that 5% to 7% range.

[Operator:]

Our next question comes from the line of David Gold of Sidoti.

[David Gold:]

First off, of course, Jim, it has been an absolute pleasure working with you, and our congratulations to Marc as well.

[James A. Wilhelm:]

Thank you.

[David Gold:]

First, can you give an update -- I know the bulk of synergies that you expect are anticipated for 2015. But as we think about an integration, which you would have largely completed at this point, can you give a sense for how we should think about how the synergies will layer in over the next year?

[G. Marc Baumann:]

Yes, we haven't really quantified what that is yet, David, but when we went into this merger, as you know, we said that we thought we'd have $20 million of synergies. We later upped that as we got into the actual process of bringing the 2 companies together. And as Jim said, in his remarks at the beginning, we're basically at the end of the integration process. However, as you know, our integration process was geared towards getting onto one platform as quickly as we could and to maintain our client relationships. And as I mentioned earlier, it was nice to see that we've picked up the 90% retention. I think we've done a great job of holding onto our clients through this integration. What we didn't do, and this was a deliberate decision, was optimize our processes. And so as we now turn our attention into 2015, we see opportunities to take further costs out of our business and to optimize what we do in a number of areas. Just as an example, we didn't rationalize all the way that Central did things and the way Standard did things. We just kept all of those, and we made them work on the Standard back-office platform. So our goal will be to try to get down to 1 way of doing things and not 2 ways or 3 ways. So there will be opportunities. Some of those projects are going to take time. All the benefits of that are not going to flow into 2015. But I think you'll see us working very hard to bring G&A down from current levels as we move forward into '15 and '16.

[David Gold:]

Got it. So Marc, is that another way of saying then that there is presumably another year in there or 1.5 years of, let's say, project work that it'll take to produce those synergies?

[G. Marc Baumann:]

It'll depend on the area, David. I mean, there are some things that are going to happen that are going to be positive for G&A right off the bat, steps that we're taking now. But yes, some of the more complex things that require IT programs to be modified are going to take a little longer, and we may not see the benefits from those until 2016. But our -- we're at work on that now, now that the bandwidth for people on the support side of the business and the IT side has been freed up, we're turning our attention to those things, and we're going to grab all we can to make 2015 better, but there is a lot of areas to go at in terms of optimizing our support side of the business. And of course -- and the thing that I would add to that -- I mean, one of the goals in trying to become more efficient is to really to enable our field organization to have more of their focus on client relationships and selling new business. We just had a meeting of our senior leaders just over the past week, and one of the focal points for us is

[David Gold:]

Got you, got you. Okay, helpful. And then one other -- as I delve into the numbers a little bit, on the management contract side, it looks like we increased the number of contract facilities. But at the same time, average revenue per facility has come in some -- I was just curious if you can comment on what's happening there by way of mix?

[G. Marc Baumann:]

Yes, it's a tricky one, as you know, because in aggregate, our results are the result of what goes on at thousands of individual locations, but we have the ongoing changes in contract mix. I was a little surprised to notice once again that the mix of contracts had changed between managements and leases. We've had -- we have insurance reserves move up and down on a quarterly basis, and we call them out when they're really big, but they do have an impact on our results. And so I think this is just the ebbs and flows of the business. There's really no one thing that we looked at and we said, "Wow, that's really driving the number." And of course, for us, the goal is always how do we grow our gross profit at the management contract level. And I think if we were on track for a great year with new business, we're -- we know we had a record year last year so that's a tough bar to compare with, but we're doing very, very well against that right now, and I expect to see continued growth of gross profit on the management contract side.

[Operator:]

[Operator Instructions] Our next question comes from the line of Kevin Steinke of Barrington Research.

[Kevin M. Steinke:]

Let me add my thanks and congratulations to Jim as you transition into your new role, and also, Marc, congratulations as well.

[James A. Wilhelm:]

Thanks, Kev.

[G. Marc Baumann:]

Thank you.

[Kevin M. Steinke:]

Just to clarify. Obviously, you will see the benefits of the integration onto one system at the -- around the beginning of 2015. But then you have incremental projects beyond that, that may have kind of take a little while and then bleed into 2016. Is that the way to think about it?

[James A. Wilhelm:]

Yes, I think the best way to sort of visualize that conversation is with the integration wrapping up through the end of this year, that Marc and Vance, on a move-forward basis, will be able to remove some of the noise around the comparison of numbers. And the G&A run rate, as it kicks off in 2015, will be the result of the work that the integration brought regarding synergies, and Marc addressed that with a finite answer earlier. I think what we're communicating is that we have known, from the time we kicked off the acquisition of Central, that following the 2-year integration period of getting Central, in essence, on to the Standard process system, that there would be additional G&A to attack by virtue of making that platform more efficient. Those of you that have been -- I think all 3 of you have been following us long enough to know that before we bought Central, we had kicked off an initiative by virtue of investment in technology and the way we look at systems in a systemic approach to process, that began to tackle issues around the payroll side of the business and the benefits side of the business and the reconciliation of insurance claims, et cetera, et cetera, et cetera. We were only halfway finished with that investment when we bought Central. So there remains a rather significant activity or a significant opportunity available. Whether it's through the investment of additional technology or a reengineering of some of our processes, and Marc alluded to those in his comments, that we can take advantage of. Other areas of opportunity on that side are relative to our claims and our exposure for our casualty programs, et cetera, and I know that Marc and Vance are both poised to sort of attack in both of those directions as we get into '15. Specifically, to answer your question, Kev, I think I would look at it as an opportunity for G&A to shrink somewhat over the calendar year of '15. But as Marc said, the larger opportunity, and I think the achievement of the goal, I mean, the goal remains the same at G&A around 45% -- between 40% and 45% of gross profit. Over time, we think that these opportunities complete that cycle for us and ought to get us to those levels.

[Kevin M. Steinke:]

Okay, great. In the improved performance that you noted across most of your markets and you highlighted New York City, I mean, is that just a function of parking volumes picking up? Or can you attribute that just to some of your internal execution as well?

[G. Marc Baumann:]

I think it's a combination like anything else, Kevin. We're certainly seeing a better economic backdrop in 2014 than we've had for some time, so I think that's positive. And when that happens, that means people are out and about. They are making those weekend trips into the city to stay at a hotel. So I think there's been an improving economic scenario for us. And what that's meant is that we've been able to look at -- and we do this on a regular basis, at all of our lease locations -- for opportunities to increase parking rates as the market moves up. And I think there's been good and maybe better opportunities to do that this year than there has been for some time, and you're seeing that in the lease performance. We also have a dedicated team of operational experts that we deployed to get out into our business and to help our facility managers improve their performance, and that's been very, very successful this year. In fact, we're going to be expanding that activity as we move into 2015. So I think it's a combination of factors like everything else, but there's a major focus on our business. We can be great on cutting costs. We can be great at being more efficient. We've got some of the noise of this legacy stuff dragging behind us that will get wrapped up during the remainder of this year and into 2015. But ultimately, our organization is now focused on how do we grow faster, and you're seeing us, as we emerge from the distraction of the integration, being able to have our -- and expecting our field organization and our support function to focus on making that happen. And I think that's starting to show in our results.

[Kevin M. Steinke:]

Great. And if I could also ask about the Parkmobile joint venture. If you could just walk through how that works from a financial perspective and also, what it really brings to you that you didn't have before and how you see that relationship working going forward.

[James A. Wilhelm:]

Yes, thanks for asking about that, Kev. Perhaps the 3 of us are not overboard in terms of being salesmen, particularly on these calls. But perhaps the most significant issue in our release this quarter is the joint venture announcement that we made regarding Parkmobile. I've been speaking at all of your conferences over the past years and talking to you about our awareness that the consumer will drastically and dramatically change the way they select parking facilities and transportation rights in the future. Perhaps the most significant reason for the acquisition of Central Parking was the opportunity that we felt that being able to leverage our size in the marketplace would bring us for the future positioning of the company based on the consumer changing their habits in the future. I know all of you read about connected cars and all of you read about making sure that people are reserving spaces at airports for a variety of tiers of parking and the same for stadiums special events. And I can tell you that doing things as simple as making theater reservations or movie ticket purchasing or dinner reservations will ultimately be accompanied by choices as it relates to people parking their cars. So the Parkmobile announcement is really the first step of several initiatives that we hope to announce before the end of the year, which begin to position our company well for that change in consumer behaviors, obviously for the benefit of our clients at both facilities that we manage and market on their behalf, but just as significantly, in regards to the future opportunities and the value that can be brought to our shareholders. The Parkmobile transaction is the first piece, where we are able to now provide on-demand and reserved parking capabilities to consumers and the way they choose parking. So picture an airport that typically has its most premium spaces full, and a businessperson wants to make sure they can access those facilities for easy in-and-out privileges. Well, the Parkmobile products, by virtue of having our Click and Park product joined at the hip with it, will enable that businessperson to make a reservation for that high-demand parking space in advance. Obviously, all of the peripheral parking control devices are online with us and they have been for 10 years in order to make that reservation available. That person will prepay for their parking while they're at the airport, and for the privilege of doing so, they will pay transaction fees -- are those transaction fees that will inure to our benefit and the benefit of our shareholders over time. The same thing with on-demand capabilities. Parkmobile has contracts in a variety of cities where people can pay on-demand at parking meters depending on their sign-up and being preapproved as part of a consumer-facing portal. Those transaction fees also inure to the benefit of the Parkmobile joint venture. So obviously, this first step puts us in a leverageable position as it relates to transacting parking and ridership in the future. I think that in order for us to begin to further leverage our inventory, and perhaps the inventory of the parking industry, by virtue of portal designs to attract consumers, whether it's on the dashboard of their cars or from their handheld devices or from laptop computers or pads, et cetera, et cetera, et cetera, for making choices about where to park and how to ride in the future with, again, a variety of inventory opportunities to choose from. So we're excited about the first step. We will -- and are diligently working towards completing some work on the inventory side and I can only tell you that we've been at this for 3 or 4 years in terms of trying to piece all of this together. You can imagine, in a very fragmented industry, trying to consolidate on behalf of the consumer parking and ridership opportunities. So we think we are just tickled to death that we were able to get the first phase of this completed, and you'll hear Marc and Vance talk about it on a much more involved basis as it moves forward.

[Kevin M. Steinke:]

Fantastic. If I could just sneak one last one in. I did notice that the number of leased locations has been coming down the last few quarters, but at the same time, you have seen strong growth in gross profit for leased location, at least, as I calculated it. Is that a function just again of demand picking up across your markets? Or is there any factor in there like you're pulling back from less profitable lease locations and lease contracts as you kind of sort through the portfolio?

[G. Marc Baumann:]

Well, you've hit on really all the things that are going on, and if you go back to the comments I've made a minute ago, Kevin, I talked about the fact that our existing leases are performing much better because we have been able to put up rates. And we have our operational excellence group out there, working with our facility managers, driving change and to optimize the performance of our leased locations. And that includes making sure we have the rates in place, but also that we have an efficient staffing program, and that we're doing all the right things to maximize the performance of our leased locations, and we're doing that in a number of locations now. And as I indicated, we're going to be expanding the capacity of that group. We're going to be doubling it in size actually as we move into 2015, taking G&A resources from elsewhere in the company, so that we can put more of an emphasis on that because we really see the value of driving improved performance across our 800 leases and, of course, all of our management contracts as well. Now the other side of this is that as we look at the portfolio of leases that we inherited, and most of our leases do come from Central Parking side, I think everyone's aware, we had a number of loser leases in that portfolio. And one of things that we've been very, very actively looking at and working on with those is, first of all, optimize and improve their performance. So even if that lease is losing $100,000 a year, maybe we can make it profitable by doing some of the things that I've just been describing. If it's losing more than that, then we can at least reduce the amount of the loss and some of that's been taking place. But more importantly, these leases are going to be burning off, and for the most part, they're going to burn off over sort of a 5- to 7-year period from the time of the merger. So that's maybe 5 years more to go from where we sit today. As they burn off, if we're able to convert those into profitable opportunities by adjusting the rent, then we renew them. If we're unable to do that, then we let them go, and we have let a lot of them go. So -- and you can understand in a lot of markets, the landlord doesn't care who the operator is. All they care about is maximizing their rent. So when you come in and say, "Well, we think we need to pay less rent than we were paying before," that's not usually a positive conversation. So we are going to be letting a number of the losers go as time passes, and so you will see the lease count continue to come down. The other thing that's happening, and I touched on it but I didn't really elaborate on it a few minutes ago, is that the continuing trend in our industry is definitely toward management contracts and away from leases. And so as deals come up for renewal, we're seeing many lease scenarios where the client is the saying, "Throw me a management opportunity as an alternative to a lease structure." And so our percentage of management contracts as a percentage of total portfolio continues to grow, and that will happen. Now what we're doing so that we can participate in that is offering attractive management contract structures to our clients, where we participate in the improvement of their operations, because ultimately, what -- that's what we're good at. It doesn't matter who's been operating it before, whether it's the client themselves or another operator. When we come in, we know we are going to drive improvements in revenue of 10% or 20% or more. And we're also going to drive out costs, both because we can schedule efficiently, but also because we buy things in large quantities, whether it's uniforms or parking tickets or cleaning supplies. So we are going to improve the financial performance of a parking facility or a transportation operation or other things that we do. And our goal, as we position ourselves to offer those services, whether the client chooses a lease or the client chooses a management structure, we want to participate in the benefit, the value that we're giving them. And that's a little bit of a pivot for us because for many years, a lot of our management contracts were structured at fixed fee with a CPI escalator. And I think what we're recognizing, and our clients are starting to recognize, there's value for us to participate with them in the improvement of their operation because they believe that they're going to get more improvement that way, and we're starting to see some evidence of that in the business, and that'll be a major focus in 2015 and beyond.

[James A. Wilhelm:]

We appreciate the questions that all of you have each quarter about our G&A and how we have addressed it via the integration of the 2 companies and where would -- the kicking-off point is for further G&A reductions as we now begin to look at an integrated company and take advantage of process opportunities as we spoke of earlier, but sometimes, I think we spend too much time. The opportunity to reduce G&A, and I don't mean just to reduce it to just academic terms, but good managers will make sure that G&A is reduced, and it has been a focus of ours certainly in the consideration of the purchase of Central Parking, but certainly, in our decision to have Vance aboard as CFO to enact that sort of second-phase G&A attack. And the boys have talked about that rather at length now for the last several quarters. Sometimes I don't think we spend enough time in terms of the opportunities to grow gross profit because on a parallel basis, putting the company together -- putting the companies together now provides a kickoff on a parallel path towards the opportunities that we have on the gross profit side of the business, and I'm talking about the organic side. The -- Marc talked about it briefly, but we had our entire senior leadership in the last week for our annual conference, and we did not discuss G&A at all. G&A reductions will occur by virtue of our support leadership and the initiatives we've talked about. The entire conference focused on growth of our gross profit and the ability now because we have transitioned our organization charts, and the most recent announcements about our succession planning further that. The organization, the operating organization and the sales organization, is now in place in 2015, and they are no longer distracted by the integration that they have had to supervise by virtue of process change in their geographies. So we spent the entirety of last week, talking about the opportunities to cross-sell our products, the opportunities to look in the municipal and institutional markets for growth that those that came with us from Central may not have been aware of. So we have a variety of tools in our toolkit now that we fully deployed to the organization to make them aware the company's capabilities via the markets that we can serve and the products that we can offer. And again, given the opportunities and the overall targeting of 5% to 7% organic gross profit growth, I feel a lot better moving into '15 by being able to remove some of the distractions that we've had for the past 2 years. And just speaking of distractions, being able to communicate those things to you all on a move-forward basis changes radically in 2015. The terms underlying adjusted -- adjusted for this, adjusted for that, that nonsense begins to go away, and I think that it's rather exciting that Marc and Vance are going to be able to communicate on a much more straightforward basis about the key metrics that drive our growth as we get into '15 and then reap additional benefits into '16 and beyond. It's kind of a fun time to be around here.

[Operator:]

And our next question comes from the line of Daniel Moore of CJS Securities.

[Daniel Moore:]

Jim, along those same lines, maybe just update us on renewals. As we look out to '15, the percentage of contracts that are up for renewal, does that increase or decrease? There are some larger ones -- and what's the general environment? Is it a headwind? Neutral? Is it turning into maybe a little bit of a tailwind? Just update us there.

[James A. Wilhelm:]

The best way for us to answer that is in fact, we think it's stabilized. If we measure the change in same-store sales, and the boys spent time this morning and in the release talking about same-store sales, that's the key statistic in terms of renewals. And again, to answer that with one word would be stabilized. For 2015, it's not an unusual year for us in terms of upcoming contracts that are due for renewal. Our airport people have done a fantastic job on our larger contracts. There are always a couple that are out there, and we're in the midst of renewing a couple of those now. We had a big win, though, in San Diego for the Conrac shuttle in San Diego, and we're right down to the wire on being able to tell you about a rather significant airport net change for us. So there's nothing in the horizon out of the normal for 2015. Marc very elegantly spoke about our sort of reattacking the market with a new pricing model. As we're renewing contracts, we found that we are getting some traction by virtue of proposing to the client that we are so confident that we can raise revenue, your top line, that we're willing to risk our fees and our profit opportunities and overhead reimbursements by demonstrating that we can do that. I often speak about -- it's sometimes just -- it's a negative being the old man around here because we're moving towards management contract pricing structures that were in place 25 years ago. I mean, when I was doing management contracts 25 years ago, they were almost always as a percentage of the gross, and you were married to the client in terms of a true partnership, and there was transparency in that partnership. So we've been sort of -- stealthy isn't necessarily the best word, but we've been moving the organization by offering them additional pricing model opportunities that they can take to the market, and we've seen some success, which is why some of those headwinds are being reduced.

[Daniel Moore:]

Very helpful. And one more. A lot of discussion, and this kind of falls under the bucket of some of those nonrecurring that will likely go away over the next year or so. But the maintenance CapEx required for Central parking leases. Lots of discussion. It's only been $1.2 million year-to-date. Can you give us some sense of a range of magnitude that you're thinking about from Q4 and into 2015?

[Vance Cushman Johnston:]

Yes, Dan, this is Vance. So -- and a couple of things. One, I think everybody is familiar with the fact that for those structural repair costs that there -- a portion of those, 80%, is indemnified through the indemnification provision that we have in our agreement, and it was disclosed in our 10-Q. And what I would tell you is that we provided a range of what really -- we're still in the process of going through and looking at those individual locations, and as you can imagine, it's fairly complex, and we have to have engineers look at that. And as such, we provided a range of additional costs that we would expect or that could take place. We disclosed that in our Q after the end of the second quarter. We'll be updating that, and so that information will be provided in our Q, when we issue our Q, which will be at the end of this week.

[G. Marc Baumann:]

Just one thing I'd add to Vance because I think you were talking -- you used the term maintenance CapEx. And one of the issues that we had as we thought about the merger was with the maintenance CapEx for the business, putting leases for the -- for the business. And what we know is that the premerger Standard was spending about $5 million a year, and the premerger Central was spending $9 million or $10 million a year, and some of that $9 million or $10 million was some centralization and efficiency exercises that they were doing with technology, and some of it was all repairs -- routine repairs and other things that they were obligated to under their leases. And so as we kind of went into the deal, we thought well, initially, we're going to basically spend some of that. And of course, if you look at history, that's basically what happened 2013 and in 2014 in terms of the trend rates. My hope is that, over time, because we are more current on sort of routine maintenance-type activities, and we're through the crux of the integration, that we'll be able to take a larger percentage of their total spend and turn it towards driving costs out of the business, the projects that Vance is going to lead, as we look to optimize. And so the absolute number might not come down for a little while, but I think ultimately, what we'll see is more and more of that spend is going to be driving things that are going to help us grow faster or take cost of our business as opposed to just cleaning up old stuff from the past.

[Operator:]

I would now like to turn the call back over to Mr. Jim Wilhelm for any closing remarks.

[James A. Wilhelm:]

Thank you, Thalia, and I just want to thank all of you for having had the opportunity to be on these calls for many, many years. It is the perfect time for this transition. With the roll down now of the Central Parking transition and integration, Marc and I have had a 2-year succession plan that obviously is now winding down, but I think it -- we've really been planning and working and nurturing Marc for this job for all 14 years we've been together. So I look forward to the new leadership that he and Vance and the operating team will have. I get to hang around the company for a little while, at least, and be here to help them out, but again -- and now is perfect time. I'll sort of close our meeting with the same way I closed our annual conference last week, and people asked me if I wish anything were different. And the only thing I wish were different is rather than being my age and having been here 30 years, I wish in another life I was coming back here is as a 35- or 40-year-old regional manager to begin to deploy some of the opportunity this company has in terms of the table being set for the future, and it will be a quite exciting place for those people and those future leaders of the business as the company continues to enact change across its -- across all of its borders. So again, thanks for hanging in there with me, and thanks for being on the call today and I'll look forward to seeing some of you down the road.

[Vance Cushman Johnston:]

Thank you.

[Operator:]

Ladies and gentlemen, thank you for your participation on today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.