SP Plus Corporation
Q1 2015 Earnings Call Transcript

Published:

  • Operator:
    Ladies and gentlemen, thank you for standing by, and welcome to the SP Plus’ Quarter One 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. I would now like to introduce your first speaker for today’s conference Mr. Vance Johnston. You may begin, sir.
  • Vance Johnston:
    Thank you, Andrew, and good morning, everybody. As Andrew just said, I'm Vance Johnston, Chief Financial Officer at SP Plus. Welcome to the conference call for the first quarter of 2015. I hope all of you have had a chance to review our earnings announcement that was released last evening. We'll begin our call today with a brief overview by Marc Baumann, our President and Chief Executive Officer; then I’ll discuss our financial performance in a little more detail. After that, we'll open up the call for a Q&A session. During the call, we'll make some remarks that will be considered forward-looking statements, including statements as to our 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 will be available on our SP Plus website for 30 days from now. With that, I'll turn the call over to Mark.
  • Marc Baumann:
    Thanks, Vance, and good morning, everyone. I’m very pleased to report that 2015 is off to a great start. Strong execution helped us to achieve first quarter results with a significant improvement in our year-over-year profitability. Adjusted EBITDA is up by more than $6 million, and adjusted EPS improved from the loss of $0.05 in the first quarter of 2014, the income of $0.13 per share in the first quarter of 2015. A key driver of our improved performance was an increase in same location gross profit at operating locations which was up 6% in the first quarter of 2015, compared to the first quarter of 2014, and which showed growth across the vast majority of our geographic areas. If you recall, the severe weather during last years first quarter affected large portions of the country. But we did experienced severe weather in the first quarter of this year, it was less wild spread with the great impact in the North East, primarily in Boston and New York City. Robust new business activity also contributed to our strong growth and gross profit has did a significant favorable change in causality insurance reserve estimates for prior years and a reduction in healthcare benefit costs, which Vance will talk about in more detail later. We are excited about the strong momentum we are seeing in new business activity, and have continues to build our pipeline. We are especially pleased with the successful results we’re having in municipal and hospitality markets. Two wins of notes, our municipal deals in Stockton, California and Louisville, Kentucky. And we just learned last night that the city of Los Angeles had awarded us a contract to operate the SP – meters in the city of Los Angeles – pardon me – for nine years. The city is plenty of collection economy services and also the on-street meters. So 33,000 on-street single-phase meters will be operated by SP Plus Municipal Services. We were collected as the best value to the city due to new technology, improved accountability and added security that we are going to provide in the collection accounting of over $45 million in count. LA has the second largest network of on-street meters in the nation, affecting only the New York City, so we are very, very much looking forward to beginning their contract in a month or so. With the addition of these municipalities we now provide on and off street parking management enforcement and citation processing services over 90 municipalities across the United States. On the hotel front, we recently won several contracts in South Florida to provide white-glove valet in parking management services. We are also pleased to report that our overall location retention rate remains strong at 89% for the 12 months ended march 31, 2015. On the cost side of the business we continue to be focus on disciplined cost management. Work is now underway to reengineer feedback office processes improve sourcing and procurement and continue to realign the management organization. While we certainly have plenty of work ahead of us I'm happy with our progress to-date and I'm confident that we have a solid strategy in place for the future. We look forward to executing on our key initiatives to achieve our profitability goals and drive value for our shareholders. With that, I’ll turn the call over to Vance to lead you through a more detailed discussion of our financial performance in the quarter and guidance for 2015.
  • Vance Johnston:
    Thanks, Marc, and hello everybody. I would like to spend a few minutes reviewing our financial results in more detail. I want to reiterate that we are presenting and we’ll focus to our comments on adjusted results, that exclude the impact of non-routine items such as but not limited to restructuring, merger and integration costs, cost related to non-routine structural and other repairs, one-time transaction costs, certain non-routine tax items and the impact of any non-routine asset sales or dispositions. We include in this last category the contribution of the company’s Click and Park business to Parkmobile, meaning that we have adjusted the 2014 results as of this the Click and Park revenues in cost had already been contributed to Parkmobile for purposes of comparability. Now on to our results. First quarter 2015, adjusted gross profit increased 18% over the same period last year to $41.3 million. As Marc mentioned, strong same location growth of 6%and strong new business activity contributed to this overall gross profit growth. We also saw favorable casualty loss revenue adjustments for prior years of $800,000 in the first quarter of this year as compared to unfavorable changes of $1.1 million in the first quarter of last year is showing that $1.9 million on a year-over-year basis. In addition, we saw significant reduction in health benefit cost in the first quarter of 2015 relative to the first quarter of 2014. Reductions in health benefit costs in early as we are self insured for the cost of medical claims upto a stop loss limit. Similar to our casualty insurance coverage. Adjusted G&A for the quarter of 2015 was flat year-over-year despite a $1.5 million increase in the expected payoffs under our 2015 performance based compensation programs as the results of improved performance in the first quarter of this year. Adjusted EBITDA for the first quarter of 2015 was $16.7 million an increase of $6.3 million over adjusted EBITDA of $10.4 million for the same period last year. And adjusted EPS was $0.13 in the first quarter of 2015, an increase of $0.18 over 2014’s first quarter adjusted loss per share of $0.05. The increase in adjusted EBITDA and adjusted EPS was primarily driven by the aforementioned increase in adjusted gross profit. Adjusted free cash flow was negative of $11.5 million during the first quarter of 2015, as compared to negative $13.9 million during the first quarter of 2014 inline with our expectations. Free cash flow tends to be lowest during the first calendar quarter for a variety of reasons including seasonality and the timing of cash distributions under the company’s performance based compensation program. In addition, free cash flow for the first quarter of 2015 reflected $4.7 million income tax payments, which is consistent with the expectation of significantly higher cash taxes in 2015 that we discussed on the last call. Based on our first quarter financial results, we expect both adjusted earnings per share and adjusted EBITDA for the full year to be towards the higher end of the guidance range and maintain our adjusted free cash flow expectation of $30 million to $36 million for the full year. That concludes our formal comments. I’ll turn the call back over to Andrew to begin the Q&A.
  • Operator:
    Thank you. [Operator Instructions] And I’m showing our first question or comment comes from the line of Daniel Moore with CJS Securities. Your line is now open.
  • Daniel Moore:
    Good morning.
  • Marc Baumann:
    Good morning, Dan,
  • Daniel Moore:
    I just wanted to follow-up on your comments around new business wins and opportunities, what are some of the key competitive differentiators that are enabling those opportunities. And how would you characterize the pipeline today versus two years ago or so when your first took over Central.
  • Marc Baumann:
    Yes, well, I think certainly the pipeline is much stronger, I mean answer that part of your question first. The one nice thing about the merger of Central and Standard is it both companies here to achieve a quite lot of success in the municipal arena. And so I think the advantage of bringing these two companies together from that point of view, is that we have a tremendous amount of credibility when we’re going in and proposing solutions for municipal clients. And we can point to local municipalities and most major markets where we’re providing services, obviously when a government agency makes a decision to either outsource, either collection or enforcement often for the first time or to disrupt long-term service contracts with these services are provided by others. They want to make sure that they are putting themselves in the hands of somebody who really knows what they are doing and so. I think some momentum is building I talked about the fact that we have 90 locations now. And it makes as one of the largest providers of these services in North America. So I think that’s a key to our credibility. The other thing of course is that as we talk before we’ve invested extensively in our capability to provide technical solution and creative ideas to municipalities and on the LA award, which I’ll just talking about a few minutes ago, one of the differentiators that they really highlighted in selecting us with that. We were bringing unique technology solutions that we’re going to give them a real time information about what was going on from a collection point of view, new vehicles with new technology and I think that’s another area where SP Plus stands out in terms of providing these services and I don’t want to mention names, they are obviously out there in the public domain, but the people that that we were competing against for this contract are people that are in the technology here as well. So I was very, very pleased to see that we got this win. One of the challenges for us in the municipal stake is that these processes can take a lot of time they have long lead times. So we certainly build the pipeline of all the municipal opportunities that we feel are out there and attractive to us. In this particular case of Los Angeles the entire process took almost three years. That’s on the longer end, but large municipalities have fairly rigorous screening processes and evaluation processes that they go through its important to make a decision like us. So we’re very optimistic we will continue to win more municipal deals on the back of what we’ve been doing now. And see this is a definite growth area for SP Plus.
  • Daniel Moore:
    Very helpful. And maybe just switching gears a little bit, remind us – fact that the sort of first year or two of the integration, most of the timeline for collapsing time keeping systems and other next level integration projects were kind of mileposts which we thinking about over the next few quarters. And any update on kind of CapEx anticipated or expected around those projects over the next year or two?
  • Vance Johnston:
    Yes. Hi, Dan, this is Vance. So let me address the first one in first in order. So as we kind of laid out on our fourth quarter call 2014 and talked about perviously, we have a number of cost reduction initiatives that the company is presuming, those tend to be in the following areas, there is some made one of those are several under that on umbrella which include as we look at kind of time keeping systems and moving from two to one monthly parking systems and other key initiatives in that area. We would expect that those, we’re working on those, well underway now our anticipation is that, we will be executing those over the next couple of years, some of those will be able to complete sooner rather than later. The second, I’d say cost initiatives that we’re focused on is on sourcing. We will believe there is an opportunity to leverage the scale of both companies coming together to get better terms and take down our cost of sourcing both direct and indirect spend. So we’re working on that and that is underway as well. Marc alluded to in his opening comments around kind of those two plus also, continuing to look at ways to be more efficient and streamline the organization as well. And then we’re also very focused on just kind of overall cost control management and putting in place tighter cost controls as well. So that’s hopefully that answers your first question, Dan. Your second question around CapEx, we haven’t given as you know, CapEx guidance for the year, per se, but what we have again provided is free cash flow guidance. And, so we don’t see anything at this point changing relative to our free cash flow guidance and we feel comfortable with the amount of CapEx that we’re spending in order to get to that point. If you look out over the next couple of years, we don’t see anything different at this point and what we’ve previously, the information we previously provided which is – but the some additional CapEx that we’ll have to spend in relation to some of these key reengineering initiatives and some other things will be doing, but we don’t view that as significant as it relates to prior years.
  • Daniel Moore:
    Very helpful. Lastly, obviously profitability improved nicely, just curious number of facilities takedown a little sequentially how much active sort of pruning of underperforming its still taking place and when, which – when we expects or should we expect the to see positive growth again, just in the overall number of facilities both managed and/or and leased?
  • Vance Johnston:
    Yes. Dan, this is Vance again. And the way I would describe that is actually in terms of pruning underperforming locations, we’ll pretty much through that, I’d say that there is leased locations that will come up overtime that are underperforming leased locations, when those come up, we’ll certainly being looking to the one renegotiate those and hopefully we’re able to do so at favorable leased rates, that allow us to make money if we’re not able to do that, then we may in the end walk away from those leases. But more what you saw in the last quarter was relative to a couple of certainly, one that we pointed out larger portfolios whereby we lost a portfolio or two that had a number of locations within those portfolios. The actual contribution that those portfolios may to our overall gross profit was not significant. So even though the location number went down the contribution to gross profit was not significant on a relative basis and that’s what you saw in the first quarter. Now having said that, as we said before and continue to be focused on our overall focus is growing location growth and that is a key thing that we’re focused on.
  • Daniel Moore:
    Very helpful, appreciate it.
  • Vance Johnston:
    Thanks.
  • Operator:
    And our next question or comment comes from the line of Nate Brochmann with William Blair and Company. Your line is now open.
  • Nate Brochmann:
    Good morning, gentlemen.
  • Vance Johnston:
    Good morning, Nate.
  • Marc Baumann:
    Good morning, Nate.
  • Nate Brochmann:
    Hey, so couple of questions Vance you throw out what the casualty reserve change our delta was $800,000 versus $1.1 million last year. But you didn’t give us the health benefit I was wondering if you could give us that number. And then second question on that is what are you doing differently there, that might be a little bit more sustainable or take some of the volatility out of that number, obviously we know throughout all the years that those reserve adjustments do vary and sometimes it’s a little bit more, sometimes it’s a little bit less. But obviously that’s a much bigger delta and then try to get a little bit of predictability there would probably be helpful if you could kind of talk about that a little.
  • Vance Johnston:
    Sure, I’ll start off and then Marc may want to add a little bit, it relates to what we’re doing on casualty, because I think that is significant focus of the company now and going forward. But put your first question on healthcare costs we saw about $1.2 million favorable adjustment on the cost and really if you think about that – that has to do with or that the program becoming more mature as we get more information and quite frankly the cost expectations that this like the casualty insurance program is based on we have an actuarial information that is put together and assumption is this. In the original assumptions that we had we’re ended up not seeing the number of clients at this point or the severity of those clients being as, we may have thought or certainly assume that they would be when the program was put into place. And now we’re starting to a give little more comfortable is that the program becomes more mature. With that what I would say is that from quarter-to-quarter, from year-to-year that can change based on the number of clients that you get in the severity of those clients. So we are positively optimistic that we hope that the trends we are seeing will continue. But once again having said that the way these things work is that you could get clients they could go on when a number of clients if you don’t expect or, the severity could change as well. So that’s how we describe healthcare costs, its relate to casualty, what I would say is that, this is relate to prior year losses, the $1.9 million swing that we saw in the first quarter of 2015, relative to 2014, really the way to think about that is – is that once again an actuary actually does look at all the information and looks at our liability and makes the calculation thereof, some of the things it could have impacted that would have been prior year losses that you know we think the liabilities loss and there is the favorable change some of you could have been knew the fact that we had some improved performance, we would like to think that in 2014, that helped us well. And then as I mentioned earlier certainly as we look going forward safety and risk management across the company is now a major pillar and a major thing that the company is tackling because but really does have an impact for us and this is an area we can really make a long-term impact based on the number of clients how quick and how well we process those clients and things like that and maybe Marc can add to that as well.
  • Marc Baumann:
    Sure. Let me before I do I just make one comment on the health plans, because we are still in the early days as Vance indicated of operating self-insured health plans. And one of the variables that impacts the financial performance of the health plans is the level of participation that we achieved and obviously most companies are still facing they’re kind of settling out of what the world looks like in the – post Obamacare scenario and for us what we have found at least so far in 2015 is that we have higher participation that we expected and if that continues that usually the good, that’s a good development from the point of view of the financial performance of the health plan independently of clients. But whether or not that which is sustainable or not whether some of that increased participation in that locations that we retain or don’t retain is very hard for us to forecast. So I think this scenario, where there will be for a while some movements that are going to be hard to forecast and hopefully though at least when they happen there going to be favorable but we can’t guarantee that obviously. On the risk management side for the casualty programs we did bring in a new leader of the risk management area really late last year and ask them to take a fresh look at all of our risk management programs, the levels of coverage that we have, how our third-party administrators operates, what is our safety culture and how do we motivate the correct behaviors out in our organization to prevent accidents and identify unsafe conditions. And all of the that is kicking off now, and as we look forward over the next couple of years we are going to expect to see positive movement in our total cost of risk. How big that will be is very, very hard to predict but at least in terms of the things that we can control directly, I'm confidence that we are now pulling in all the levers to incentivize our organization to make bringing down the total cost of risk a major component of what we do everyday. The benefits we got in the first quarter of 2015, as Vance indicated really related to 2014 and so how reflective I don’t think yet, of any of those kind of changes that we are just starting to implement now. But I will say this and this is not unusual, our casualty program has been structured and our estimates of cost are based on a presumption, that overtime the cost will come down that has been our long-term historical experience. What we saw over the past couple of years, where cost moving the other direction. And so, in 2014 was one of the years where we had the most unfavorable movement. In 2013 it’s kind of similar. So to a certain extent, what my own sort of a subjective assessment of it, – what we’re seeing now is maybe a little more of a return to norm and particularly because we have more normal weather so far this year. And that helps a lot, when we actually see terrific weather and spiking claim like we had in early 2014. They start to become very conservative about estimating. And so I think that kind of factored in to the estimates that were made during 2014 and the results that we reported last year. So hopefully, those positive trends will continue, but as you know from the following our business for sometime, these kind of things can move both direction, sometimes by large amounts. But as we’ve said, we’re getting the kind of performance on the casualty program that we would like to see and that we expect to have happen for us.
  • Nate Brochmann:
    Okay, that’s helpful. Thanks for all the detail on that. And then and I know that that variable is indeed unpredictable little bit. But to the degree that it seems that we’re kind of behind all the noise that we had in last couple of years since we went through all the integration, while there is still some ongoing integration costs and we still have some of this activity going on that hopefully I believe should be. If I recall correctly done by the end of the year. It seems like things should be a little bit more stable and your new business wins that you’ve been able to win I think show a little bit more that we have a little bit more resources going towards growth as supposed to just all the distractions from the integration. Just wondering if you could comment a little bit in terms of how you see that in your own words of – be able to move forward after having some degree of disruption last couple of years with a lot of integration issues?
  • Vance Johnston:
    That’s a great question, Nate. I think generally, I would agree with your observations. Certainly, a merger integration of the scale that we attempted and succeeded at doing is a major distraction for people at all levels of the business. And in particular, the people in the field organization who we ask to go get new business, we ask them to maintain client relationships, we ask them to operate their facilities to a high standard, at the same time, they have to massive change in their systems processes and reporting. And so that there is no doubt that there was a major distraction for the organization. Now, well over there was going on we did such a stage over the two years, to be able to grow faster and we did that by ensuring that we put added resources in our business development organizations that we trained people from both companies on our capabilities. Because we obviously we have expanded array of things that we can do. We want people to be able to go on and sale those things successfully. The growth in the municipal area that I talked about earlier has led us to add resources there. I think we’ve added two or three full time people to that area over the past six months just in recognition of the growth of that area. We’re also adding additional resources in our hospitality area, because they are represents another major growth area for us. So we’re clearly making sure that in the areas where we see the most potential for growth, the institutional space, which includes airports, hospitality space, the large event space. We’re insuring that we provide the resources of those elements of our business really need to be able to grow. And to be able to invest in these long-term multi-year process, as I talked about the lead times and the amount of investment that is needed. In some cases, over a couple of year period, we’re also expanding our investment in the marketing area, one other things that the combined company has a fairly large and probably one of the largest marketing functions of anybody that does what we do. And yes, we’re giving them additional resources there consumer start to change their way that they interact with parking equipment or parking decisions that they make. We’re putting more marketing resources out into our business. So that as we’re getting in front of clients we’re able to differentiate what we do, and offer a creative solutions to clients that other competitors are not doing.
  • Nate Brochmann:
    Fabulous, I appreciate it. I’ve few more questions. But I’ll turn it out nowhere, and get back in queue.
  • Vance Johnston:
    Thanks, Nate.
  • Operator:
    [Operator Instructions] Our next question or comments comes from the line of David Gold with Sidoti and Company. Your line is now open.
  • David Gold:
    Hey, good morning.
  • Vance Johnston:
    Good morning, David.
  • Marc Baumann:
    Good morning.
  • David Gold:
    So just follow-up the [indiscernible] Marc, mentioned if I could on the healthcare fees events if you gave the actual number for what the benefit was maybe year-to-year?
  • Marc Baumann:
    Yes, we did, in few minutes ago, it was a $1.2 million year-over-year.
  • David Gold:
    Perfect. And then part to is you gave talked a little bit about some of the things, pluses and minuses, but from where you sit today, presumably I guess the actuaries look at it. I guess unlike I get a sense presumably we must think this is sustainable right, and I guess the question is on that beyond the 1.2 how much do you think when we on an ongoing basis, we would have, so in other words to be exempt to some of that is sort of reversal and accruals. How much on ongoing basis of savings do we think there is?
  • Vance Johnston:
    Well, David, I think what we said a few minutes ago was is that, just to answer your question is. We want to moving from a, we have just over the last couple of years, put in place effectively is self insured type healthcare insurance program, we’re not now starting to see that program hopefully get to a little bit more maturity, you have to kind of wait a number of quarters until you feel confidence, and feel confident that you have more of the matured program. And having said that what we’ve seen so far is that we’ve seen that the number of clients and the severity of those clients has been left and what we in our actuaries would have anticipated upfront when we put the full program into place. Now going forward, we’ve cautiously optimistic that we will continue to see somewhat similar trends but the reality of it is, is that we don’t really know for sure. Because the number of clients they could get at anyone time, the severity of those clients could cause our liability to go up. And so that’s the way I think that we would characterize it.
  • Marc Baumann:
    And the only thing I would add is, when I made the comment about enhanced our expanded enrollment that’s an important feature because obviously they’re knowing in the Obamacare world it to what extent are the penalty that people face for not buying insurance motivating them to buy insurance. And nobody really knows yet how that’s all going to out its clearly the people that had illnesses and are likely to be using insurance are going to make the decision to buy insurance. So we’re going to obviously of those people participating in the medical plan. What a healthy plan set up needs our people they are healthy and may not use the medical plan services to also participate. So I think we’re encouraged by the higher participation that we saw in the 2015 enrollment. But whether or not those people stay with it, it has the monthly premium to have their paychecks or where they make other decisions we don’t yet knowing that and how that plays out we’ll have an impact on this financial performance of the health plan, independent of what our clients experiences.
  • David Gold:
    Sure, sure. Can you give us some framework, some still a little bit of loss, let me ask you in a different way. When you began implementing the self insurance program, what type of savings or sort of taken there, so once it’s fully implemented when you thought about the benefits what kind of savings might we see or might you guys see, yes, once we’re fully up and running and folks to planned on.
  • Marc Baumann:
    That’s impossible to gauge David. There is a tendency to think of the health plans is being like the casualty plan, because they are both self insured. But they couldn’t be more different. We – there is nothing that we can really do that’s going to drive the level of clients, that’s just going to happen.
  • David Gold:
    No, that wasn’t question, Marc. The question was presumably you did an assessment on the program before you implement right to see what type of savings you – Standard Parking might see by implementing this right. I mean if you are bigger cost driver, you wouldn’t have done it. So I guess really more trying to get a sense for what type of savings on expected by doing this it’s a cost, if you expected it to cost you more money, I can’t imagine you would have put it into place.
  • Marc Baumann:
    No, we didn’t expected to cost more money, but we didn’t really slowdown this path, because we thought there would be a giant savings. It’s much easier to operate a fully insured medical plan. The challenge for us is a business is giving our size and the population that we have. The cost of our fully insured plan would have been substantial. I should say that the pre-merger standard. We’re on a fully insured plan and we’re having trouble maintain their plan and not facing gigantic costs as Obamacare was rolling out. Central had already been on it self insured plan. And so the decision to really go to self insured route was really more about mitigating potential increases in cost, as supposed to setting ourselves up for cost reductions.
  • David Gold:
    All right, got you. Okay, that’s helpful. And then one other as we look at Parkmobile, can you give a little bit of an update there is taking a win, yes, a little bit of say the plan trajectory and what they are thinking is there so when is going to maybe a profit driver.
  • Vance Johnston:
    Yes, there is obviously like any business, there is the need in kind of it anticipate what might happen into the future. What I can say is that they are well underway and integrating on the legacy Parkmobile platform and the Click and Park platform that we contributed to that business. And they are out there aggressively selling the capabilities so they are combined platform. We’re pushing in our own organization to expand the use of Click and Park or the Parkmobile functionality to our clients that we obviously think there is tremendous value in offering that up as an alternative means of paying full parking instead of the old way of putting tickets and putting credit cards in machine, but in terms of how quickly they are going to get to their points is hard to estimate right now. I would say Parkmobile is a fairly young business, and like many young businesses they are making investments in technology and expansion of their platform and capabilities to be enable to growth that we continue to believe is there for that business. And so I would say all I can say for certain is that we are not expecting it to contribute positively to our bottom line in 2015. But beyond that we have inform the more the clear picture of when that might happen.
  • David Gold:
    Got you. All right that’s helpful. Thank you, both.
  • Vance Johnston:
    Thanks, David.
  • Operator:
    And our next question or comment comes from the line of Kevin Steinke with Barrington Research. Your line is now open.
  • Kevin Steinke:
    Good morning. Hey, as you think about the 6% same location growth and gross profit during the quarter do you have a sense is to how much you might have benefited from the weaker year ago quarter from weather?
  • Vance Johnston:
    Yes, you know, Kevin this is Vance and thanks for joining in the call and asking the question. So yes, I think that you know as we kind of mentioned in our opening comments we do believe that was a factor clearly the first quarter of 2014 was one that we saw and more of a significant of weather it was more vast in terms of areas that it impacted us. So tough to kind of really calculate year-over-year the relative change and the impact of weather but having said that, we do believe that less weather impact in first quarter of 2015 helps contribute to that 6% growth in same locations.
  • Marc Baumann:
    So let me just add a little to what Vance have said, first of all we had worse weather in some of our markets and so, New York and Boston in particular I would say we had worse weather this winter, and we certainly saw that in the performance of those markets relative to 2014. So the picture for 2015 isn’t all rosy weather conditions. It is very, very hard to estimate how much is weather and how much is all the other variables that go on in a market. But our belief is that in aggregate clearly the weather was not a severe to many parts of the country at 2014 saw extensive ice storms and other problems in the South East in particular where we have a lot of in these locations and we didn’t see that again in 2015. So I think as we look at our business we talked about our expectations for gross profit growth we want to be in the 5% to 7% range. We obviously more would be nice, but I think we’re targeting that range for our business. We have gotten close to that the past couple of quarters. We’ve been hovering around 4%. So it’s nice to see this uptick. I’d like to believe that our underlying weather adjusted gross profit growth in the quarter was right in the realm where we’ve been in the last couple of quarters. So I hope its more, but I’m certainly feeling that at least the couple of percent to the growth that we had in the quarter was due to just improved weather year-on-year.
  • Kevin Steinke:
    Okay, thanks for the color. And in terms of the new contract with Los Angeles, how sizable is that expected contribution in terms of gross profit relative to your overall contract portfolio. Is that the larger end?
  • Marc Baumann:
    Not necessarily, as we’ve talked before the larger more complex arrangements that we enter into to provide services whether that’s a large complex meter contract or whether that’s an airport or an office campus. We tend to be compensated better than on obviously a surface lot or an office – commercial office building. That’s a general statement, but in the municipal room, there is a public bidding process. And there are several criteria that a municipality will used to make a decision about who the select to provide services and certainly price is one of those. We don’t attempt, we talk about this for sometime to be the low bidder. But you can’t be believably as to what other people might did or what the incumbent has been paid, because some of the services that we’ve been awarded, we’re provided by another company for many years. And so this public information around what they are being paid for those services. So the total value of the contract award is like 27 million bucks, but that obviously includes all the expenses, there were going to be incurring to operate the contract. So we don’t disclose gross profits from a typical contract, but given that we’ve spent three years trying what win this deal, I think it’s safe to say that we thought it was worthwhile investment of our time and energy.
  • Kevin Steinke:
    Okay, great. And Vance you mentioned in your prepared comments I believe $1.5 million increase from performance payments or payouts due to the better performance thus far in the year. I mean how should we think about that impacting the G&A run rate as we go through 2015?
  • Vance Johnston:
    Yes, so I think the way to think about it is, is that first, we given that we’ve now guided to the higher end of the range toward the higher end of the range. I think that with that one would expect that our performance based compensation, which is tied to that would be a little higher and that hits G&A. And so we saw that really in the first quarter. If you may recall, as we talked about in some minute ago, in the first quarter of 2014, that will be a much more challenging quarter for us, given the weather impacting and other things the primarily the weather impacted the first quarter of 2014. So there was a year-over-year swing for our compensation programs up about $1.5 million it took place. Its tough to really kind of it really depends on our performance, but we would expect that we would have slightly higher compensation costs throughout the rest of the year based on the what we expect now to be improved performance for the year overall.
  • Kevin Steinke:
    Okay, thanks. And I just wanted to…
  • Marc Baumann:
    Kevin, I would just add that the way to think about which you are probably picking up is that obviously, we’re very focused in reducing cost. And indeed what we saw in the first quarter of 2015 and what we would expect going forward is notwithstanding any increases in compensation costs that our absolute G&A dollars will be coming down.
  • Kevin Steinke:
    Okay, and that’s – yes, that was actually my next question I mean absolute G&A in terms of on an adjusted basis coming down acts the performance bump or on a…
  • Marc Baumann:
    Yes, Kevin, yes. So the way that we – when we originally discuss this and I think on the fourth quarter of 2014 conference call, we said that the absolute G&A cost, which we were inferring that would have been our reported cost and 2014, we would expect to come down as we go into 2015 and we move forward and we still believe that’s the case and obviously we’re very focused on taking out cost, not only in G&A, but also in cost of parking as well.
  • Kevin Steinke:
    All right. That’s the reported number you are talking about including the merger and integration expenses, et cetera.
  • Marc Baumann:
    Yes, I mean that’s how we’ve got about it one just because we would expect merger and integration cost to come down. And then two, we would expect they continue to reduce our cost and so. And obviously when we thought about that we also thought about the potential for some increased compensation costs. But once again we stick with the fact that we expect cost to come down on an absolute basis relative to the reported G&A that we had in 2014.
  • Kevin Steinke:
    Okay, good. One last question for me, just maybe an update on you’ve talked about in the past year, when operational excellence group out there looking to improve performance at existing locations, any update on how that’s going any benefits you are seeing from that effort?
  • Vance Johnston:
    Sure, we’re happy to talk about that. Probably the most notable thing is that we expanded the size of their group significantly in 2015 from 2014, we closed the double the size of it, so I think we now have seven people working full time on this. And we’ll expanded more if we feel that the opportunities there for us to do something. One of the things that we have focused a lot on this year is making sure that the operational excellence group is covering a larger part of our portfolio. And so, we set some fairly aggressive targets for them and are expecting more than a doubling in the number of locations if they are going to visit this year. We’re continuing to see the same kind of impact that we’ve seen before. We’re when we compare the locations if they work at compare to our other locations we tend to see greater revenue growth and greater gross profit growth and at the existing location. So continue to see this is a valuable area for our business. And we’ll continue to add resources to that group until we reach the point we don’t see that the value is there for us.
  • Kevin Steinke:
    Okay. Thanks for taking my questions.
  • Marc Baumann:
    Thank you, Kevin.
  • Vance Johnston:
    Thank you, Kevin.
  • Operator:
    And I’m showing no further questions or comments at this time. So with that said, I would like to turn the call over to Mr. Marc Baumann.
  • Marc Baumann:
    Thank you, Andrew. And more importantly, thank you to all of you for joining us today and taking an interest in our company and our results. We really appreciate the opportunity to explain our performance for the first quarter. Now, we look forward to speaking to you again on a next quarter. Thank you. Have a great day.
  • Operator:
    Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program. You may now disconnect.