SP Plus Corporation
Q4 2014 Earnings Call Transcript

Published: 5 Mar 2015

[Operator:]

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

[Vance Johnston:]

Thank you, Amanda, and good morning, everybody. As Amanda just said, I'm Vance Johnston, Chief Financial Officer at SP Plus. Welcome to the conference call for the fourth 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 Marc Baumann, our President and Chief Executive Officer; 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 2015 financial guidance; and statements regarding the company’s strategies, plans, intentions, future operations and expected financial performance. Actual results, performance and achievements could differ materially from those expressed in or implied by these forward-looking statements due to a variety of risks, uncertainties or other factors, including those described in our earnings release issued yesterday, which is incorporated by reference for purposes of this call and is available on our SP Plus website. I’d also like to refer you to the risk factor disclosures made in the company's filings with the Securities and Exchange Commission. Finally, before we get started, I 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 Mark.

[Marc Baumann:]

Thank you, Vance, and good morning, everyone, and thank you for joining us. 2014 was a very busy and productive year and we had some very great accomplishments. First, we successfully completed the integration of the Central Parking acquisition on time and that was an important step in the evolution of our company, our ability to complete this planned two-year journey to integrate the legacy standard and Central businesses while retaining our clients and achieving record new business is a testament to the incredible efforts of our talented field and support people. I couldn’t be proud of our team for this terrific accomplishment. All locations are operating under the SP Plus platform and we can now turn our attention to further optimizing our backend processes. Also in the second half of 2014 we began the final phase of our brand conversion to SP Plus. Our existing parking locations are well on their way to transitioning to the SP Plus parking brand and on new locations that are opening under that brand. At the end of October we announced the formation of Parkmobile LLC which combined SP Plus’s proprietary Click and Park parking prepayment system with Parkmobile’s on-demand parking transaction engine. The joint venture will be the first to market with a comprehensive solution that addresses all parking verticals and consumer needs by leveraging the Parkmobile consumer brand and the Click and Park white label parking prepayment transaction engine. The formation of this joint venture represents a major milestone towards realizing our vision to provide prescheduled and on-demand parking reservation and payment processing services. Clearly the use of technology in our industry is quickly evolving and is a major focal point for us. We believe the critical areas are connected car technology, pre-scheduled and on-demand parking reservations, mobile payment processing and targeted consumer advertising among other things which all represents significant opportunities for us. We’re spending considerable time exploring these and other opportunities which we believe will position us well for the future. Turning to our operating results, we are pleased to report that our 2014 adjusted EPS and adjusted free cash flow results were consistent with our previously provided 2014 guidance which was also on an adjusted basis. We are especially pleased with these results given that we were able to overcome a challenging first quarter of 2014 due to the extreme weather conditions. Digging into the details a little more, we are able to grow our underlying same location gross profit by 4% write more new business in 2014 and 2013 and retain 90% of our locations which is a nice improvement from 2013 87% retention rate. Looking forward to 2015 and beyond, our primary focus will be on driving adjusted EBITDA to $100 million for 2017 and we expect to make significant progress towards that goal by 2016. We’ve identified and have begun to implement additional initiatives that will help us achieve this goal including new marketing and advertising initiatives, operational excellence programs and business process re-engineering projects designed to further simplify and automate our support processes to achieve additional cost savings. We continue to target 5% to 7% annual gross profit growth which we expect to achieve through increases in gross profits in locations and net new location growth. Gross profit growth at same locations will be driven by among other things the marketing advertising initiatives I just mentioned, pricing initiatives, operating cost controls especially at these locations, cross selling of the ancillary services and underlying management fees escalators. Although we’ve already taken steps to reduce our G&A cost, we believe further opportunities exist and we’re implementing a number of process reengineering and cost reduction initiatives including consolidating monthly parking and time keeping systems, procurement and sourcing projects and additional process reengineering and organizational realignment initiatives. I’m happy to say that 2015 is off to a great start in terms of new business and renewals. We’ve highlighted a couple of nice recent wins in the earnings release but in addition to those we’ve had a lot of activity particularly in our hotel and municipal market. I can’t get into location specifics now as we’ve not secured approval from our clients to discuss these contracts, but I can say that over the next several months we expect to announce several new or renewal deals with municipality for meters and on and off street parking services as well as with Universities, hospitals, stadiums and large venues and of course many more hotels. Finally, I’m pleased that we have entered into an amended and restated senior credit agreement for $400 million that extends the maturity date out five years, lowest pricing and contains favorable changes to a number of other terms. This was made possible by the company’s improved performance, favorable market conditions and the strong relationship we have with our lender group led by Bank of America and Wells Fargo. I want to thank our lenders for their continued support and also congratulate Vance and his team for getting this deal done in the first quarter. With that, I’ll turn the call over to Vance to lead you through a more detailed discussion of our financial performance and guidance for 2015.

[Vance Johnston:]

Thanks, Mark, and hello, everybody. I'd like to spend a few minutes reviewing our financial results in more detail. We’ll conclude the years review with continued focus on 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 reported results for merger and integration costs, net accretion on acquired lease contract rights, 2013 asset sales, cost incurred for non-routine structural and other repairs, the partial payment we received for our Hurricane Sandy claim and the tax benefit from the reversal of valuation allowances for deferred tax assets, all as we’ve done in prior quarters. In addition we’ve adjusted our results for the fourth quarter and full year for the impact of the Parkmobile transactions including the onetime gain and the cost of executing that transaction as well as cost incurred related to other related ventures. We have also added back revenues in cost for the post transaction period November and December as if the transaction had not occurred. Going forward, gains and losses from our 30% equity investment in the Parkmobile joint venture will be presented as equity and the losses or gains from investments in unconsolidated entities, within the consolidated statements of income below operating income. Turning to the fourth quarter’s results, reported 2014 fourth quarter gross profit decreased 2% and adjusted gross profit decreased 1% over the same period last year due to the non comparability of asset sales in the fourth quarter of 2013 and the year-over-year decrease and the benefit from the net accretion on acquired lease contract rights. The final settlement of our insurance claim for Hurricane Sandy went the other way and was a non comparable benefit to 2014. On an underlying basis which controls for these non comparable items, gross profit increased 3% on a year-over-year basis. Fourth quarter 2014 reported G&A increased by $2.7 million from the fourth quarter of 2013. On an adjusted basis G&A expenses increased by $1.5 million from the fourth quarter of 2013. Approximately $600,000 of the increase was due to the Society of Actuaries' change in the mortality tables which affected the company’s deferred compensation cost. This was the first modification to the mortality table since the year 2000. As the life expectancy of the population increases, accruals for deferred compensation cost must also increase to ensure that the benefit obligations are adequately covered. Other expected increases and compensation benefits comprise the majority of the remaining year-over-year increase in adjusted G&A. For the full year reported gross profit decreased by $800,000 year-over-year, adjusting for non-routine structural and other repairs as well as the impact of the Parkmobile transaction adjusted gross profit increased by $900,000. Further adjusting gross profit for 2013 asset sales and the year-over-year change in the benefit from that accretion from acquired lease contract rights as well as the 2014 benefit from the Hurricane Sandy claim underlying gross profit increased by $6.7 million or 4% in 2014 as compared with 2013. As Mark previously mentioned we were pleased with these results given the weather related challenges we faced during the first quarter of 2014. Full year 2014 reported G&A increased by $2.6 million or 3% from 2013. On an adjusted basis, G&A increased by $5 million or 6%, again the change in the mortality tables contributed to the year-over-year increase, the remainder of the year-over-year increase is primarily due to increases in compensation and benefit cost. As you may recall, we indicated that we had expected 2014 G&A would be higher than 2013 as a result of higher than expected turnover at our offices in 2013 and those open positions were filled throughout 2014 resulting in higher G&A. We also incurred additional cost as we laid the groundwork in 2014 for some management transitions, stripping away the non-comparable items affecting the year-over-year comparison. Underlying EBITDA for 2014 were $75.5 million up from $74.1 million in 2013. Reported earnings per share in 2014 was $1.03 as compared with $0.54 in 2013. Adjusted earnings per share was $0.86 for the full year 2014 as compared to $0.85 in 2013. While the $10.4 million tax benefit in 2014 due to the reversal of valuation allowances for deferred tax assets has been excluded from adjusted EPS a lower 2014 effective tax rate contributed to the 2014 adjusted EPS being at the top end of the guidance range of $0.77 to $0.87. In terms of adjusted free cash flow, the company generated $33.6 million during 2014 which includes the payment of $3.8 million for non-routine structural and other repairs during the year. After adjusting for this non-routine structural and other repair cost, the company generated $37.4 million of free cash flow right in the middle of our guidance range of $35 million to $40 million which also excluded non-routine structural and other repair cost. Our underlying business performance as well as our focus on improving working capital contributed to the improved free cash flow generation. Finally, I want to cover our future outlook and 2015 guidance. As Mark mentioned earlier, we are targeting EBITDA of $100 million for 2017. Going forward we plan to have an even greater focus on EBITDA. Our expectation for 2015 is adjusted EBITDA in the range of $83 million to $87 million and adjusted earnings per share in the range of $0.93 to $1.03. Adjusted EBITDA and adjusted earnings per share will continue to exclude non-routine items such as but not limited to restructuring cost asset sales, changes in valuation allowances for deferred tax assets and ongoing cost related to non-routine structural and other repairs. Adjusted guidance will also exclude any gains or losses resulting from our equity interest in the Parkmobile joint venture which will be presented below operating income on the income statement. Just to be clear our 2015 adjusted results will not exclude the net accretion from acquired lease contract rights as it is expected to be relatively stable over the next several years and should not impact the year-over-year comparisons. The adjusted EPS guidance for 2015 assumes that Congress will renew certain tax credits for 2015 and on that basis we have assumed an effective tax rate of 38% for the full year. However, the company’s tax rate could vary based on a number of factors. Adjusted free cash flow before cash used for non-routine structural and other repairs is expected to be in the range of $30 million to $36 million. While cash from our operating performance is expected to generate substantially higher cash flow in 2015 we are expecting cash taxes to be significantly higher in 2015 than in 2014 perhaps by as much as $16 million or more, primarily due to the fact that we utilized the remaining portion of our federal net operating loss carry forwards in 2014. As we mentioned on recent calls, we expected to be subject to cash tax rate more in line with statutory rates going forward. This increase in cash taxes is causing us to temper our adjusted free cash flow expectation for 2015. If you were to exclude cash taxes from both 2014 and 2015 the midpoint of our 2015 adjusted free cash flow guidance range represents an increase of approximately $11 million over 2014. Just to touch very briefly on what’s happened in 2015 thus far, the first quarter’s winter weather has been quite harsh in certain regions of the country. Although we have not yet seen any significant impact on our results, we’ll continue to monitor and evaluate the situation. My final comment in closing is that we really feel great about the plans we have in place and are confident in our ability to execute them. We are very excited about the opportunities that lie ahead. That concludes our formal comments, and I’ll turn the call back over to Amanda to begin the Q&A.

[Operator:]

[Operator Instructions] Our first question comes from Nate Brochmann with William Blair. Your line is open.

[Nate Brochmann:]

Good morning, everyone.

[Marc Baumann:]

Good morning, Nate.

[Nate Brochmann:]

I got a couple of things, one, obviously we used to have a lot of puts and takes in terms of lot of noise and the numbers which are understandable to some degree with everything going on. If we strip all that out and all the noise out maybe I don’t know if we focused on paid exits or I know that you said shipping everything out that gross profit would have been I think 3% for the quarter. Could you give us a little bit more color in terms of just the underlying business and the performance in terms of just operations in terms of what’s going on in terms of the overall whether the economy is giving a little bit of tailwind with employment picking up and miles driven picking up a little bit of the pricing environment is up you can delve into that a little bit for us.

[Vance Johnston:]

Well I’ll be happy to do that Nate. I think as you pointed out the underlying gross profit did grow in for the year it grew about 4% which is a very strong performance. And I think when we look at what was behind that as I mentioned in my comments earlier, we rolled more new business in 2014 and 2013 and prior I think 2013 was a record year for the combined companies. So we have a very, very strong pipeline of new business and we are continuing to see penetration in the markets that we are focused on which is as we talked before the municipal markets, hotels, large venues and the like. So we’re seeing plenty of opportunity out there and we are winning deals and as I said in my comments we’ll have some more to announce in the fairly near future. I think from a competitive point of view, the market has not changed too much. It’s the same array of large and small competitors and I don’t see any real changes in strategy or practices by our competitive set. We’re out there battling to do business with them all the time. I think pricing is benefiting from the economy and when we look at 2014 compared to the prior five years I would say, economic conditions in 2014 were certainly the best we've seen since the big recession and that certainly has enabled us to continually to monitor opportunities for putting up prices both at management locations on behalf of our clients and at leased locations for ourselves where we run leases. And we monitor that on a continuous basis and always are looking for opportunities to push prices higher where we can. And I don't see economic conditions really precluding that as we come into 2015. So that would be a continued focus for us during the 2015 period. So, I think all-in-all, good economic backdrop as Vance alluded at the end of his comments, we are seeing some weather conditions that are great. I think overall the winter weather so far has been better this year than it was in 2014. So, our expectation is that we're not going to see the same drag on the business this year that we did. That being said, I think Boston has set records for snowfall. And I know, in Chicago we had the record cold in February which does affect business to a certain extent. So, there'll be some impact, but it certainly expected to be less than it was last year. Obviously, we still have some winter to go, so we don't know what the total story and that's going to be. I think we look at our gross profit growth, certainly our operating groups performed very well in 2014. We continue to work on risk management to work on driving costs out of our business. Bad weather conditions don't help us in that regard we get more slips, trips, and falls and the like both with our own employees and with customers. And so, that will continue to be a major focal area and our ability to drive down cost of risk management, will be a major contributor to our expected future gross profit growth.

[Nate Brochmann:]

Okay. Thanks for that. Second question for the JV two-part question, one when you call that in terms of again is that a one-time gain in terms of some benefit or maybe cash that you would have gotten as part of that or when you call it again it's just going to be "gain or loss" from the JV on that 30% in terms of the ongoing reported numbers? And then, second part of that is what's going to be the new revenue model particularly for the Parkmobile side of it obviously we're pretty familiar with the Click and Park side of it but what's the revenue model going to look like for that going forward?

[Marc Baumann:]

Sure. I think very quickly, there is a gain that we recorded that just related to the accounting for the transaction and that we've talked about and we've reconcile that in the numbers that are in the release. On an ongoing basis, Parkmobile as a business will generate profits hopefully. And we'll be recording a share of those in our financials. And as Vance indicated the accounting rules require us to put that below our own operating results. So, you'll see that on its own line in our P&Ls. But I think in terms of the opportunity with Parkmobile, we will continue to push to drive the use of the Parkmobile/Click and Park engine for transaction processing throughout our business. That's been a major focus over the past few years. We're continuing to see opportunities to really try to turn the Parkmobile transaction engine into the default payment option in a lot of scenarios. And that's not just at large events or on street meters, that's really throughout the business that would continue to be something that we focus on in 2015 and beyond. I think the other benefit to us though of the Parkmobile transaction and some of this we talked about in this release and also in the release when we announced it is that, the large auto manufacturers are really moving down the track for connected car and they are thinking globally. And the Parkmobile LLC entity that we're involved with as a joint venture has the rights to deploy the Parkmobile/Click and Park engine globally except for Western Europe. So, that means Third World China, means, all of South America, anywhere this tool can used on a global basis. And Parkmobile has very strong relationship with the original Parkmobile entity in Western Europe. So that when presenting the platform to the large auto manufacturers it’s the one company that can offer up a solution that will be truly global and that's very, very important to the auto manufacturers. So, we see the contribution of Click and Park to that entity as a means of really driving larger transaction volumes in the future through the Parkmobile platform on a global basis, and of course, increasingly in places where we're not the parking operator.

[Nate Brochmann:]

Okay. That makes sense, that's kind of cool to have a bigger global opportunity there too. And then last question I'll turn it over and this one’s a little bit more nitpicky, but if we look back on now having 2.5 or almost 3 years with the central merger, it seems like that $100 million EBITDA target might have been pushed back a year. And obviously I know there's been a lot of puts and takes. But I was just wondering like it seems like we'd have a little bit more momentum in terms of just overall profitability with that at this point. And again I do know there's a lot of noise. But I was wondering if you could talk about some of the puts and takes of why that $100 million target might have been pushed out a year in terms of looking back on it. What some of the hiccups might have been or whether it's just some of the leases that we didn't anticipate in terms of the accounting for all that just if you could give us a little color on that I'd appreciate it?

[Marc Bauman:]

Sure, I'd be happy to do. I think if you go back to three years ago, right around this time when we announced intended merger of the two companies, we had some expectations about how fast the standard legacy business would grow. What standards legacy G&A would like. And likewise what Central's legacy business, how we would grow and how SG&A would perform? And I think we've talked about this couple of times in the past and that is that as we went through a seven months antitrust process, it became very difficult for the legacy central business to grow during that time. They were definitely holding pattern. And certainly they were going through some reorganization and restructuring of the back offices. And so, we went through a process of trying to estimate G&A. And I think as you all know from what we talked about before we sort of started out as a combined company in the fall of 2012 with lower gross profit and higher G&A that we expected. I mean, that's just reality, and while it's certainly disappointing to investors and disappointing to us, that's what we were confronted with. And what our focus has been since that is really to ensure that we integrate the operating businesses, integrate our business development capabilities, take the wider array of ancillary services that standard had coming into the merger and train our colleagues that came over from the central side and how to go and sell those and create value from those. We're focus on lease performance by creating an operational excellence group that can help us improve performance of leases and do some of the things that we talked about. All of those things have borne fruit, and that's why we are now at a point where we are growing gross profit as I said on an underlying basis last year at about 4%. But clearly that 4% in 2014, if you look cumulatively over the last three years is not the numbers that were modeling. We were certainly below our 5% to 7% targeted gross profit growth range. We obviously believe 5% to 7% is appropriate on an organic basis for this business and clearly we've indicated that as we look forward, we think we're building some momentum now that will help us ample up the growth in gross profit. On the G&A side, as we talked about, we started with more G&A that's what led us initially fairly soon after the merger was announced to increase our expectations for synergies. And we had to go through a fairly complex process of integration that took two years. I think the good news is we got through that well. We didn't have any great surprises, but while we were going through that process we really had to put the two businesses as much as we could into one way of doing things. But it didn't really give us the opportunity to optimize our support processes. And that, we knew we wouldn't be able to do during the two years of integration because we were able to complete the integration on time last fall. We've now kicked off numerous process reengineering projects which as we look forward into 2015 and 2016 in particular we'll start to make a real noticeable impact on our G&A. So, yes, we're little behind where we thought we would be three years ago when we announced it. But I think we have more confidence now about our ability to get to that target as we look forward over the next couple of years.

[Nate Brochmann:]

Okay. Great. I appreciate all that and definitely turn it over.

[Marc Bauman:]

Thank you.

[Vance Johnston:]

Thanks, Nate.

[Operator:]

Thank you. Our next question comes from David Gold with Sidoti. Your line is open.

[David Gold:]

Hi, good morning.

[Vance Johnston:]

Good morning, Dave.

[Marc Bauman:]

Good morning, David.

[David Gold:]

Just a couple points of follow up. One is on the guidance. I know it's a natural moment where we are shifting some of the adjustments more broadly, just curious if you could give some color on what the range of adjustments you think we might have this year and I'll start there..?

[Vance Johnston:]

David, I'll take the lead on this. I think that – so a couple of things, one is as we spelled out in our release and as we talked about just a few minutes ago, I think that going forward we're going to have really kind of two sets of numbers. We're going to have reported results and then we'll have adjusted. We won't have a service with the underline in that adjusted, that will capture any non-routine items that are significant. As we look at today I think that we're not going to – we're no longer going to adjust for lease accretion, so that won't be part of it, but the types of things we could see would be as we continue to restructure our entities and we have reversals of allowances against for tax purposes we could see some adjustments for that. We have some financing costs; those are the type of things that we would be adjusting for – if we have asset sales that take place in 2015 those type of things. But the idea is to make it much more simpler goals for non-routine items and we're hoping that the number of those adjustments decreases as well. But that would be the type of things.

[David Gold:]

Got you. So, as we think about the non-routine items that let's say that we know about as you sit today, can you give a sense, and obviously we don't know what we're selling but we're not selling but presumably there's some and the "integration side" that you might have earmarked are ready or is that not that simple?

[Vance Johnston:]

It's not that simple because and you picked up on another category clearly which is – we'll have some additional restructuring costs. As Marc pointed we're pretty much – we are through kind of the integration process. There's the potential and I think it's likely that we'll have some additional restructuring costs in 2015 as we continue to optimize certain back office process and do other things. But it's little bit too early to tell exactly what that dollar amount will be in 2015.

[Marc Bauman:]

The only think I would add to what Vance is saying is that, there's – if you think about things that could be large from an adjustment point of view, there is the items that Vance is talking about now and clearly if we're going to incur those costs it’s because we believe we're taking permitted [ph] G&A out of the business and there's going to be an ROI for doing it, that make sense to everybody. And then the other area is really on the whole legacy structure repair and entity related stuff. And just to refresh everyone's memory we're now in the third year of that. It’s a three-year process. And so we're in the third year now. And so, this should be the last year where we have that kind of noise, kind of coloring our reported results. So, we're rapidly trying to move to end game on that and get that behind us. So I think on the gross profit front we're not sitting here today imagining that there's going to be too many adjustments to our reported numbers other than any adjustments that might related to that item.

[David Gold:]

Got you. Okay. And maybe an easier question to ask or to get at is, when we think about the 2017 target of $100 million of adjusted EBITDA can you help me bridge that to maybe what free cash flow would look like? I assume the adjusted EBITDA of $100 million presumably should be one would think pretty close to real at that point?

[Marc Bauman:]

Yes. I think to answer your question, first I think it would be real, because it would be adjusted for any non-routine items and we would expect to be minimal once we get to 2017.

[David Gold:]

Right. I guess, that's what I was getting at

[Marc Bauman:]

Yes. That's the answer of the first question. I think the second one is that we haven't given guidance for free cash flow out, anything longer than in 2015 at those point in time, but what we would say, if you think about the cash flow that relates to EBITDA for 2015, we would expect that – we would hope we would see some improvements in working capital going forward from 2015 to 2017. But we would expect now that we got free cash flow implicit in that is cash taxes at a more kind of rates that closer to our statutory effective tax rate, you'd expect that free cash flow would grow along with EBITDA and may kind of grow little bit more given some improvements in working capital.

[David Gold:]

Got you. Perfect. That's helpful. One more the tough question to ask is following up on what Nate was saying. It seems the synergies get pushed back a year, obviously a little disappointing, but at the same time it is what it is. I guess, curious if you can give some sense of how you get confidence that we don't see this a year from now again basically 2017 is that where we're going to see the synergies come through over the next couple or just -- basically that we've adjusted properly the time expectations?

[Marc Bauman:]

Well, I think one answer to that and is the one that sort of runs through my head David is that, we've identified the areas from a process reengineering where we think there are opportunities. So, it’s not like we're starting out new people coming into our company, don't know anything about how it works and you have to take time to figure out where there is inefficiency or where the things could be benefit from additional automation. So, we already know where those areas are and we spend time identifying those during 2014 while we were completing the integration. So I think we have high confidence now that we know what to attack and we've already started down that track. So, from a G&A point of view I think the things that causes a little bit growth in G&A from where we expected to be are known to us now and we're now in a position to start working on.

[Vance Johnston:]

I think just to echo what Marc was saying, I think we feel good about things because there's a clear line of sight in terms of the projects and the initiatives that we're executing on the G&A side and results that are going to come from those and now we've got integration kind of we're past the integration period and kind of all the hard work and effort that went into that, we can really focus in on key projects and initiatives that are going to drive out costs and we have a clear line of sight into those. So I think that makes us feel a lot more confident.

[David Gold:]

Got it. Got it. So I guess to sum that up if we go back to the time of the acquisition were we too aggressive in the amount of synergies that we put or just too aggressive in the time line?

[Marc Baumann:]

I think actually we weren't aggressive enough. I mean, when we layout the original $20 million, we had one view of what G&A was going to be. When we saw where G&A was really going to land is the merger closed in the fall 2012. We up to our estimate from $20 million to $26 million. But I think even at time we knew that post integration there would a period of time where we can now optimize. We knew we weren't optimizing. We were really trying to just get down onto one platform and get through an integration process and keep the business stable and performing and all of those kind of thing. So I think what we have found is we went through the initial phases of the integration is that some of the things that we saw we might be able to rationalize away early on during integration we just decided we would have to kick to the future and we talked about that, for example, the monthly parking system. I think when we announced the merger we had more confidence that we could get go from three to two to one, because we have three monthly parking systems and it wouldn't have to wait until after the integration was done. And there are some other areas like that where as we got into the early phase of the integration we realize that the complexity of trying to reengineer some of those processes while we were at that the same time integrating the businesses would just jeopardize our ability to deliver exceptional service to our clients and so we kick it to the future. So I think we did under estimate how quickly we could get some of those costs out. But as Vance now just been saying at least now that we're done with the integration, we don't have the distraction of that in front of us and we are now focused on numerous projects. It’s the prime focus of a major part of our organization is to optimize our back office now.

[David Gold:]

Great. Perfect. Thank you both.

[Marc Baumann:]

Thanks, David.

[Vance Johnston:]

Thanks, David.

[Operator:]

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

[Daniel Moore:]

Thank you. Marc and Vance, can you perhaps quantify the remaining synergies that you hope to achieve over the next one to two years as you optimize support processes. And how much incremental spend on CapEx we will need to achieve those?

[Vance Johnston:]

Let me kind of start with the first question. I think the best way to think about the amount of synergies going forward and as Marc alluded to, we're now going – it's going to be focus on optimizing backend processes. There are also –there's going to be a focus on sourcing procurement sourcing is another example where we're going to be taking costs out as well. So, we have a number of key projects that we're executing. In some of those cases we know what the individuals savings, opportunities look like, in some other cases its little bit too early to have a handle on what they maybe. But having said all that, what we can say is that there will cost reductions that will obviously be taking place. As we look at 2014 in absolute dollars where we finish from a G&A standpoint, that will be that definitely is the high mark in terms of absolute reported G&A that will be coming down from there. And also what I would say is that those – the savings from those cost reduction initiatives that are going to take place in 2015 and 2016 are reflected in our ability to get to the $100 million of EBITDA as we said by 2017. So, I think, we have an estimate obviously with a lot of detail behind that where we can that's embedded in that and so it's captured in that. Does that help you Dan?

[Daniel Moore:]

It does obviously I know it's always dangerous to pinpoint a number what are some of the takes if you will or the puts versus those takes in terms of compensation or other components of G&A which might go the other way over the next one to two years?

[Marc Baumann:]

Yes. I think as you think about it, the way that we think about it, is that the cost reduction initiatives that we have which I think we're going to have a considerable impact. Net-net going to offset other things that we will incur which will be as any company would have. We'll have some increases whether its merit increases, a normal compensation increases, performance related increases and compensation, but the net effective all that is that the cost reduction initiatives that we have, we expect to take G&A down on a net basis relative to some other minor increases that we may have.

[Daniel Moore:]

It's helpful. Marc, you mentioned pricing as one component of your 5% to 7% gross profit grow goal. Can you talk about the environment whether that will likely be headwind or a tailwind or sort of neutral for 2015 and into 2016 if it’s not too early to give a little bit of a sense?

[Marc Baumann:]

Yes. I think Dan, if you look at 2015 the big question is will the economic backdrop be comparable to 2014. As I said a few minutes ago, 2014 was definitely the best economic backdrop we've operated in for several years. So, assuming that the economic backdrop in 2015 kind of continues down that track and there's no reason to think that it won't at the movement. We expect that we'll be able to continue to opportunistically put prices up both for transient parking and monthly parking really on a nationwide basis. It's hard to quantify what that translates into because obviously our least portfolio is not evenly distributed across the geography and so our ability to put up prices in the Northeast part of the United States is more valuable to us than say in other parts of the country. But we're not expecting any significant change in the opportunity to adjust prices in 2015 relative to 2014 as we sit here now.

[Daniel Moore:]

Okay. And then for 2015 does your gross profit, EBITDA guidance embed that 5% to 7% target goal in underlying gross profit growth. Just want to make sure triangulate [ph] -- make sure that's same for 2015 as it is your longer term goal?

[Marc Baumann:]

Well, I think if you look at our underlying gross profit growth in 2014 of 4%, this is growing this business at a faster clip is not like in the witch and it now goes from 4% to 7% in one year. But I think and part of the reason that we're not giving guidance on individual components of gross profit G&A et cetera is that we feel the most important thing is that we have the right G&A organization to grow gross profit as rapidly as possibly and that that will enable us to get to the $100 million target in 2017 as we've talked about. So if I was building a model myself I wouldn't necessarily assume that there is a radical change in gross profit growth from one year the next, I think it's appropriate to think in terms of continued improvement in the rate of gross profit growth over the next couple of years that will ultimately get us into that target range.

[Daniel Moore:]

That's helpful. And then just taking step back, new business obviously you said was the best year on top of what was the best year? Looking at number of managed locations, still flat to down a little bit, do you expect that total number of locations to grow in 2015 and beyond or is that perhaps the wrong metric to look at?

[Marc Baumann:]

Well, Dan, it’s one of the most sort of confounding metrics that we probably published because obviously all locations are not created equal, some locations are very low profit and part of large portfolios. And so, if we win or lose the portfolio we gain or at a large number of locations all of ones. But if you do look at our sort of location trend, it is somewhat disappointing that we haven't added more net locations. And certainly as we look to grow our expectation is that our growth does not come solely from putting up pricing at existing locations selling in ancillary services at existing locations. It also comes from increasing our footprint on a net location basis. So I am hopeful that we will start to see some real movement in our net location count as we go forward over the next couple of year.

[Daniel Moore:]

Great. Lastly, and I'll let you go. Do you w have –this is the third year last year of the maintenance CapEx program for the lease locations at Central. I think in the Q you put out a number for the total program previously, do you have sense of range what that could be for 2015?

[Vance Johnston:]

Yes. Hey, Dan, it's Vance. Couple of things, one I want to also answer the question you have before around CapEx. It relates to these costs reduction initiatives that we spoke and we been speaking about, but we don't expect there's going to be significant amount of CapEx per say, or its going to change kind of our CapEx in 2015 and 2016 significantly relative to kind of what it was in 2014 now. This is all notwithstanding any CapEx that spend on structural repair type items, so just to answer that question. Secondly, as it relates to kind of range of the structural repairs, we're going to issuing our 10-K actually tomorrow and we should be – once we issue our 10-K and release that there will be more information provided in that.

[Marc Baumann:]

Yes. I think the one good news thing on the whole structural repair issue is that as time has passed particular over the last year we have not added a bunch of new locations. In other words we identified fairly early small number and I think we've talked about this before it’s like 20 locations something like that where these sort of situations are occurring. And we know what those are, many of those we've already done the work that needs to be done and others the work is underway now. So we have – I think it’s a finite kind of perspective and what we are maximum exposure. This isn't like an open-ended thing. I think that's an important thing to remember.

[Daniel Moore:]

Okay, thank you again.

[Marc Baumann:]

You’re welcome.

[Operator:]

Our next question comes from Kevin Steinke with Barrington Research. Your line is open

[Kevin Steinke:]

Good morning, just wanted to circle back on the synergies and congrats for getting the Central Parking merger integration done. So with the completion of that did you achieve that full $26 million of cost synergies or are some of those still too come with the now the back office initiatives and procurement sourcing etcetera.

[Vance Johnston:]

Yes hi, Kevin thanks and this is Vance speaking. The way I think the way to think about it is that as Marc alluded to earlier there were a number of moving things including the starting point from where we started. So and the other thing to think about is the $26 million of synergies that were originally laid out a lot of those were related to G&A some of those were not quite frankly. So it’s tough to just kind of think about it all flowing through G&A. Having said that, I think -- we’re at right now is that and we monitor this on a very consistent basis. We feel that we’re on track to recognize the full $26 million of initial synergies that was laid out and of the vast majority of those have been recognized already as we kind of sit here at the end of 2014. There’s a little bit more to come in the 2015 and then on top on that as we’ve alluded to there’s a number of additional projects that we’ve identified that would not have been part of our original thoughts around the $26 million in synergies that were also executing. So once we get done with everything I think that from our view point now it will actually end up being higher than $26 million.

[Kevin Steinke:]

Okay, good and then the actual process of that you completed in the fourth quarter of getting all the locations on to one common platform, are you able to kind of drill down and say how much in cost that actually saved or is that kind of too detailed?

[Marc Baumann:]

Well I think the way to think about that is there were certainly cost reductions that were recognized when we did that, certainly weather those were alignment of management, recognizes that we realigned management or in a variety of other areas, but that’s really kind of part and parcel to the $26 million, so there were synergies recognized out of that effort a big portion of them and then there will be further things going forward.

[Kevin Steinke:]

All right. And when we think about gross profit growth in 2015 obviously you said don’t expect to jump from 4 to 7 but, as we mail that out, I guess the way to think about it and when we know if this is correct but to drill off of the underlying gross profit growth number that you have for 2014, is that correct?

[Vance Johnston:]

Yes, that would be correct, that’s the right way to look at it.

[Kevin Steinke:]

Okay. And then also on EBITDA the $83 million to $87 million guidance the comparable there would be the $75.5 million in 2014 so that range if that is the comparable number would imply 10% to 15% EBITDA growth in 2015 is that correct?

[Vance Johnston:]

Yes a couple of things. One, is that the $75.4 million or $70 [ph] million the number that you were alluding to, I think is a good way to think about that the two exception to that would be is that as we alluded to in our initial comments is we’re no longer going to adjust for net accretion and amortization of acquired lease contracts. So the million dollars that you see there in the bridge between $77.8 million and $75.5, so that’s one thing it will be a little bit different. And the other thing is that we’re going to the adjusted basis for 2014 that we’ll be comparing against as we alluded to in our commentary will not include any EBITDA that we would have had for example from our Parkmobile in our existing portfolio of business if that’s now being contributed to our existing Click and Park business is that’s now being contributed to Parkmobile and we have a 30% investment there. And so when you actually take that into consideration I think you’re right in terms of how you are thinking about it and in terms of the percentage increase but when you take those two things into consideration that would probably slightly increase kind of the percentage growth that you’re talking about.

[Kevin Steinke:]

Okay. And just on the actuarial tables update, how significant of headwind is that to G&A in 2015, I mean to be just kind of think of that flowing through as an increased cost in 2015?

[Marc Baumann:]

No you should just think about that is there is no significant it would be slightly down, so it’s not going to be a headwind to G&A in 2015. It’s effectively a onetime adjustment that takes place that hit in 2014. So that we don’t view that as an issue.

[Kevin Steinke:]

Okay, okay. And lastly on the $100 million EBITDA target, is the 45% G&A as a percent of gross profit still something you’re contemplating in that target?

[Vance Johnston:]

Yes so the way to think about it is that the primary focus and I think you’ve got this right, Kevin. The primary focus for the company going forward is really going to be on EBITDA free cash flow and then earnings per share and that’s what we have given guidance on and obviously the 5% to 7% comparable underlying growth in gross profit dollars, and we view kind of getting that $100 million in EBITDA is really the primary objective. Having said that we’ll still continue to monitor G&A as a percentage of gross profit and I think that’s a good thing and a key metric that we should be looking at but it’s really not the primary objective as we look forward.

[Kevin Steinke:]

Okay, well thanks for taking my questions.

[Vance Johnston:]

Yes, thank you, thank you Kevin.

[Operator:]

Thank you. I’m showing no further questions. I would like to turn the call back to Marc Baumann Chief Executive Officer for closing remarks.

[Marc Baumann:]

Well thanks Amanda and I just wanted to thank everyone for joining us today. We really appreciate your interest in our company. We’re looking forward very much to a terrific year in 2015 and speaking with you next time. Thank you very much.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect.