SP Plus Corporation
Q3 2015 Earnings Call Transcript

Published: 9 Nov 2015

[Operator:]

Good day ladies and gentlemen and welcome to the SP Plus Corporation Third Quarter 2015 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Vance Johnston, Chief Financial Officer. Sir, you may begin.

[Vance Johnston:]

Thank you, Bridget, and good morning everybody. As Bridget just said, I'm Vance Johnston, Chief Financial Officer at SP+. Welcome to the conference call for the third 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 bit more detail. After that, we will open up the call for the Q&A session. During the call, we will 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+ website. I would also like to refer you to the risk factor disclosures made in the Company's filings with the Securities and Exchange Commission. Finally, before we get started, I want to mention that this call is being broadcast live over the Internet and that a replay will be available on our SP+ website for 30 days from now. With that, I'll turn the call over to Marc.

[Marc Baumann:]

Thanks, Vance, and good morning everyone. We are again very pleased with our quarter and year-to-date performance. Adjusted EBITDA for the third quarter was up slightly over the third quarter of 2014 but for year-to-date it was up 11% compared to the first nine months of 2014. Growth in adjusted gross profit continues to be on track, as reflected by an increase of $7.8 million or 6% year-to-date. Our gross profit in the third quarter of 2015 was somewhat impacted by the wind-down costs related to the termination of an airport contract. However, adjusted gross profits still increased $1.7 million, or 4%, in the third quarter of 2015 as compared to last year. The growth in adjusted gross profit continues to be driven primarily by strong new business momentum, changes in casualty loss insurance reserve estimates for prior years, and same operating location gross profit growth, which grew by 2% for the quarter and 3% for year-to-date over the same periods of 2014. We've recently had several nice new business wins which we described in the release, including the award to provide outside parking and shuttle services serving the San Diego Airport and cruise ship terminals. We also started providing parking management services at the Hyatt Place Chicago and the Downtown Loop and we now provide parking management services for 30 hotels in the greater Chicago metropolitan area. Our SP+ GAMEDAY group was recently awarded a couple of nice new deals. One award is from the Chicago Park District to provide traffic transportation and even parking consulting services for the proposed Lucas Museum of Narrative Art starting with the onset of the museum's construction. And SP+ GAMEDAY was also engaged to plan and manage transport and logistics for the 2016 NCAA Football National Championship game to be held in Glendale, Arizona in January. On the municipal front, we were selected by the City of Santa Monica to continue to manage over 14,000 parking spaces serving the central business district and beach areas. Another recent development was the sale of a large portion of our security business, primarily in Southern California, which represented 61 locations. Although we will still continue to provide security services in other markets in support of our business, it made sense for us to execute this transaction to better align our strategic focus. I am pleased to report that our location retention rate increased back to 89% for the 12 months ended September 30, 2015, not including the impact of the sole security locations. And finally, I want to reiterate our commitment to safety and reducing the total cost of risk. We've engaged the business at every level to understand the impact of casualty losses and have rolled out several new safety and loss mitigation programs. In addition, we are reviewing our overall insurance program structure to find the best carrier partners, optimal attachment points, and the proper retention to ensure that the program is as efficient as possible. While still early, we believe that we are starting to see the benefit of some of these initiatives, and we expect to see continued improvement in our overall cost of risk in 2016 and beyond. We remain very focused on driving a number of initiatives in the areas of improving same location gross profit, increasing new business and implementing cost reduction opportunities, all of which will help us to continue to drive EBITDA growth. With that, I'm going to turn the call back over to Vance to take you through a more detailed discussion of our financial performance and guidance for 2015.

[Vance Johnston:]

Thanks, Marc, and hello everybody. I'd like to spend a few minutes reviewing our financial results in more detail. Consistent with prior quarters, we will focus our comments on adjusted results that exclude the impact of non-routine items. A full reconciliation of reported to adjusted numbers was provided in the tables accompanying last night's earnings release. Third quarter 2015 adjusted gross profit increased $1.7 million, or 4%, over the same period last year. Gross profit from new business and same locations as well as favorable changes in our casualty loss reserve estimates for prior years all contributed to this year-over-year growth. While adjusted G&A for the third quarter of 2015 increased by $1.5 million, or 7%, over the third quarter of last year, it decreased by $2.1 million or 9% as compared to the second quarter of 2015. Adjusted EBITDA for the third quarter of 2015 was $22.2 million, a slight increase over the same period last year. Despite this year-over-year increase in adjusted EBITDA, third quarter 2015 adjusted EPS increased by $0.02 compared with the third quarter of last year. This was due to the expected increases in income taxes and D&A expenses that more than offset lower interest expense. We have a higher effective tax rate this year due to a higher overall state tax rate as well as the fact that we had some favorable tax adjustments last year in the third quarter. If we apply the same effective tax rate to both years, third quarter 2015 adjusted EPS would have been $0.01 better than 2014 as opposed to $0.02 down. Looking at year-to-date results for the nine months, 2015 adjusted gross profit increased by $7.8 million, or 6%, over the same period last year. Again, new business growth in same location gross profit and favorable changes in casualty loss reserve estimates contributed to the year-over-year increase. In addition to these factors I've just discussed, we had a significant decrease in health benefit costs for the nine months. I will add, though, that we saw virtually all of the benefit in the first half of the year as we started to see some trends move against us in the third quarter. Adjusted G&A for the nine months of 2015 was up $1.9 million, or 3%, over the same period last year, primarily due to a $2.7 million increase in costs for our performance-based compensation and long-term incentive programs. Without this increase, adjusted G&A would have decreased by $800,000 year-over-year. We've made a lot of progress on cost reduction initiatives and as we've consistently stated, we are committed to continuously evaluating and reducing our cost structure. This will remain a key focus area in 2016 and beyond. As Marc mentioned, we are pleased with our growth in adjusted EBITDA of $6.1 million, or 11%, in the first nine months of 2015 as compared to the same period of last year. The first nine months of 2015 and 2014 had significant tax benefits resulting from the reversal of valuation allowances for deferred tax assets as well as other non-routine items which have been excluded from the adjusted results for both years. Adjusted EPS for the nine months of 2015 was $0.69 as compared to $0.52 for the same period last year, an increase of $0.17. While we saw lower interest expense resulting from the amended senior credit agreement that went into effect earlier this year it was more than offset by increases in depreciation and amortization expense from investments we made in the business as well as higher income tax expense that somewhat tempered adjusted EPS growth. The same reasons that I mentioned earlier are contributing to the year-over-year increase in income taxes. The Company generated adjusted free cash flow of $16.8 million during the first nine months of 2015. While lower than the $24.3 million generated in the same period last year, it was in line with expectations due to the anticipated increases in 2015 cash tax payments that we previously discussed. Based on the results from the nine months of the year, we continue to expect both adjusted earnings-per-share and adjusted EBITDA for the full year to be toward the higher end of the guidance range. We also continue to expect to generate between $30 million and $36 million of adjusted free cash flow for the full year. That concludes our formal comments. I will turn the call back over to Bridget to begin the Q&A.

[Operator:]

[Operator Instructions]. Nate Brochmann, William Blair.

[Nate Brochmann:]

I wonder if I could have just one quick housekeeping thing, and assuming you are willing to call it out in terms of what the changes in the loss reserves were in terms of the favorable benefit, and now with some programs in place, how sustainable that really should be.

[Marc Baumann:]

I think, Nate, our general practice is that we talk about them when they are giant numbers and you've seen as do that in some of the releases and the calls in the past. So it's not a big number for the quarter but it is a positive. And I think when you look at the initiatives that we are taking -- and we brought in a new leader of our risk management team for 2015 and he is making some fairly significant changes in our focus on safety and risk management throughout the business -- the kind of changes that we are talking about really require behavioral changes throughout the business. And those things take time to show an impact. So I think while we believe we are seeing some impact from those efforts so far, I think what we are really expecting is that, as we look into 2016 and 2017, we are going to see much more significant impact. And ultimately, I think we will see a fairly large reduction in our cost of risk as we look forward over the next couple of years.

[Nate Brochmann:]

Okay. And then good to see that retention rate back up again. How much of that do you think is reflective of just we are kind of nearing the end of kind of getting through -- and I know that there's still a lot more to go in terms of just some longer tail things -- but the unprofitable contracts in terms of just kind of continuing to kind of call those or not renew those versus whether or not there was anything in terms of the competitive environment that might have been a little bit of an issue there.

[Marc Baumann:]

I think sort of general environmental conditions are conducive to people being open to making changes in parking operators. And I think one of the reasons why we've written record new business so far this year and last year was a record before that and 2013 was a record before that is that we are putting together some very compelling proposals to clients to get them to give us their business and to give us a chance to take over from another operator. But I think there is also an environmental condition going on where people that own parking facilities in general are more receptive to the idea to making change. And so I don't know that the competitive environment is any different than it was over the last couple of years, but we are certainly seeing more openness by people who own parking facilities to put things out to bid or to consider alternatives. And so I think that is a factor that is probably weighing on the retention rate of every company. Now, as we look at what we can do, the number one area that we can focus on to drive retention up is to ensure that we are delivering value for our clients every day. And that means bringing them new ideas around how to optimize revenue for their facility, taking advantage of changes in consumer behavior as people are using the Internet to find parking and increasingly don't want to stand in line at pay stations. And so we are rolling out new technologies and new suggestions and recommendations to our existing client base to ensure that they are seeing a growing bottom line at their facility. So those kind of nuts and bolts back-to-basics kind of stuff, that needs to happen every day in every place. That's how you drive your retention rate up, particularly in an environment where a lot of the people that own parking assets or real estate that has parking are feeling their own financial pressures and are saying, hey, maybe I'm open to change. So our goal is to keep them from wanting to make a change and of course taking advantage of the willingness of some people to make changes to us. And so we are seeing a nice boost in new business. We need to continue to focus on driving to our goal of 92% retention, which is something that we've talked about for many years.

[Nate Brochmann:]

Okay. And then just final question and then I'll turn it over. But now, obviously, you know with kind of having the merger in place and getting through all the noise with that -- and I, know, again there are some lingering things here and there in terms of you know facility costs or whatnot that will pop up occasionally. But for the most part, with that behind us, how in terms of like your sales organization as we start to really get deeper into some cross-selling synergies or get deeper into relationships or get deeper into the end markets like the municipalities, how are you seeing the opportunities there in terms of the pipelines?

[Marc Baumann:]

They are huge. I think, when we talked about what our focus is from a business development and growth point of view, we've talked about the municipal sector. We are the largest provider of parking meter operations in this country, but yet we only have 100 or 130 locations where we are doing that sort of things and there's thousands of municipalities that have parking meters. And we've talked in the past about the hospitality sector where we have USA Parking that does a fantastic job in delivering Five Diamond Service to a whole array of hotel and hospitality type clients. And we have other parts of our country or business that are also focused on hospitality. So we continue to see that as a growth area for us. New hotels are opening all the time. And I think also, hotels are starting to become more receptive to outsourcing other activities in the hotel that were historically done in-house. So, while we might have provided a front door valet operation in the past and that was our service, now we are seeing opportunities to provide the concierge, to provide front desk services in some hotels. So I think there is an emerging opportunity there for people that are able to deliver very high-quality valet service and hospitality. Then you go to the institutional space, which is what we described, the university market and also the healthcare market. And in those markets, once again, historically, most of those parking operations have been done in-house. And so while we have numerous university and healthcare clients, what we are finding now is that as budget pressures affect particularly those spaces, those people are saying, you know what? I am receptive and open to the idea of outsourcing maybe for the first time. And often, in the university sector, it has to do with problems that are occurring there. Maybe there's giant traffic jams around their football Saturday activity and they've not dealt with it for years and years. So we tried to use our SP+ GAMEDAY group to go in and form a relationship, advise them on a consulting basis, and then use that to turn that into a more permanent opportunity where we can run a parking -- self-parking facilities, do permits and violations, and often run shuttle bus services around a campus. So, I think when we look at our own business and say where are the greatest opportunities to not just take business from our competitors but to go after business that wasn't really outsourced and past, those of the sectors where we think there is the most opportunity and we are focusing our business develop activities and our subject matter experts that we brought out of those verticals to try to grow in those spaces.

[Nate Brochmann:]

Great. I appreciate all of the time. Marc.

[Operator:]

[Operator Instructions] David Gold, Sidoti.

[David Gold:]

Just a little bit of follow-up. On the management contract side, both location count and revenue down about 3%. Can you bridge us to the correlation there with the airport contract going down?

[Marc Baumann:]

I think we've seen, David, and we talked about this a little bit earlier in the year, if we lose an airport contract, and a lot of these are very big revenue items and they tend to be reverse management contracts where there's millions of dollars of revenue involved and we are incurring lots and lots of cost, you will see some movement in our numbers when we lose a contract like that. But in terms of the impact on gross profit, while we don't want to lose anything, it's not as significant as the impact will be on revenue. In terms of location, we are still kind of working our way through. I think we talked about losing a bank portfolio earlier in the year which had a lot of locations but didn't generate much in gross profit. You know, it's kind of working its way through our 12-month location numbers. But, I think in terms of macro things that are really affecting the business, we are seeing continued development in a number of markets that is having the effect of taking some lease locations out of service and turning them into development locations. And some of that is happening with management too. But I don't think we are going to experience an acceleration of that kind of activity. If anything, I think the projects that have kind of gotten underway over the last couple of years are probably the projects we're going to see for a little while.

[David Gold:]

Got you. Okay. And then as we think about G&A progress, which was impressive during the quarter, think back to years past, Marc, commentary on getting it well below -- or a goal of getting it well below 50%. And so we are starting to see that, but I'm curious there on expectation. Can we continue -- that trend to continue -- can we expect the trend to continue? And do you think we could still get to maybe the mid-40s%?

[Vance Johnston:]

David, this is Vance. So what I would say is that the way we are really thinking about it is much more of a focus on absolute G&A costs. And so, we agree that we are making some really good progress and happy to see that, but we think that there is a lot of opportunity going forward, and so our focus is going to be on reducing absolute G&A costs and still focused on kind of as a percentage of gross profit but quite frankly much more focused on just continuing to take G&A costs down and manage it very closely. And so we would expect that trend to continue as we go through the rest of this year and as we go into 2016 and beyond.

[David Gold:]

Okay. On an absolute dollar basis, is there a target that you might have?

[Vance Johnston:]

You know we haven't given a target for G&A specifically, but, you know, certainly that's incorporated in the target that we did give, around $100 million of adjusted EBITDA by 2017. And that like kind of is a key component along with increasing gross profit, adjusted gross profit growth in the range that we provided as well. But that de facto is incorporated into the $100 million of adjusted EBITDA target that we provided to get to by 2017.

[Marc Baumann:]

I think one of the important things that we're making sure that we do is investing in G&A areas where we think it's helpful to the growth of the business. So you can't cut your way to prosperity. And as we position ourselves as revenue optimization experts with our client base, we're making investments in people who are interactive marketing experts and can get out there and develop new programs and recommendations to clients. As I talked earlier to Nate's question around the desire to drive up retention comes from showing value to clients and differentiating yourself from everybody else and not being seen as a commodity. And so we are making strategic investments in talent and areas that we think are helpful, and of course at the same time we're looking at things that we do that are manual or not value-adding or could be automated or technology could be upgraded so that could be more efficient. And that will enable us to take G&A down on an ongoing basis for the next few years on an absolute basis. But as Vance said, our prime focus here is really on driving the business to $100 million in EBITDA and making sure that we get the right G&A base in order to achieve that.

[David Gold:]

Perfect. Thank you both.

[Operator:]

[Operator Instructions] Kevin Steinke, Barrington Research.

[Kevin Steinke:]

I wanted to just follow up on the G&A discussion a little bit, that sequential decline that we did see. Would you attribute that to the various costs streamlining initiatives you have in place or was there anything one time? And going forward, is this -- should we think about this more as kind of the new quarterly run rate?

[Vance Johnston:]

Kevin, this is Vance. Let me provide some color on that. So, one, I think, in terms of kind of what's driving our reduction in G&A you know is the way you think about it, as we've kind of outlined, we have our G&A costs and then we also have kind of increasing compensation costs which are, as we've kind of performed better this year, we've had some increases in compensation costs. So when you strip that all out, you know, kind of year-to-date relative to -- adjusted G&A relative to 2014, we think we are about $800,000 better than we were year-to-date in 2014. And I think the key drivers of that are one is just that we have a really strong focus on discretionary G&A spend, so that gets to a variety of things, whether that's T&E, travel expenses. You know, it's kind of all the small stuff and managing the detail which, when you are trying to manage G&A in total, that becomes very important. So I think that's one contributing factor. I think the second contributing factor is that, as you know, we've taken a look at kind of realigning the organization and thinking about what works best for the Company in terms of the organization. And some of those cost reductions that we had certainly in the back end of 2014 through retirements and other decisions that were made are starting to bleed through and we are seeing that benefit for the Company as well. And in addition to that, we are focused on major back-office cost reduction initiatives. And so I think we are starting to see a little bit of benefit, although those projects tend to be kind of longer tail where we'll start to see the benefits from those starting to hit more out in the future in 2016 and 2017. So I think those are really kind of as we think about G&A and the cost reduction initiatives that are impacting, I think those are really the key drivers. And I think as it relates to the second part of your question, which is kind of run rate, I think what you are starting to see is something that we feel -- G&A can move based on as we kind of adjust our compensation on a quarterly basis and true that up and certainly with other factors. But having said that, I think what you're seeing here is kind of what we think is our base G&A. And kind of as we start to move forward into 2016 and beyond, we'll continue to kind of look at that and evaluate it and continue to execute the initiatives to reduce G&A further.

[Kevin Steinke:]

All right. That's helpful color. And since you called it out, just the cost associated with winding down the shuttle bus operations in DC, how meaningful was that to the gross profit growth in the third quarter?

[Vance Johnston:]

Yes, we didn't put the number there, but we spent probably $0.5 million on that. So, it's a fairly significant number as it relates to gross profit. It's not an unusual situation when we have a long-term contract. When it ends, we have things like accrued vacation and other things that get to be wound up. Inventory has to be sold for some things that we might have had. So, it's a common kind of scenario that goes with ending a contract like that, but obviously, when it does happen, it has a bit of an impact in the quarter where we have to recognize that.

[Kevin Steinke:]

Okay. And do you see the wind-down of those operations having any meaningful impact on gross profit growth going forward over the next few quarters, not in terms of cost but in terms of just the lower gross profit?

[Vance Johnston:]

Well, I mean we are not -- the costs that we -- we're out of those contracts now, so the costs that we had to incur to wind it down have taken place and that's over with. So, obviously what we won't have going forward is the gross profit from those contracts. You know, we obviously intended to try to retain them if we could, but in the municipal space, particularly in the airport space, there is a regular pattern of competitive bidding to renew contracts. And there's a lot of aggressive bidding going on out there. That's nothing new. We bid aggressively to take stuff away from other people and have nice rings around that. And other people bid pretty aggressively to take stuff from us, and sometimes we can hang on to it and sometimes we can't. In this case, we couldn't.

[Kevin Steinke:]

Okay, but they are not large enough or meaningful enough where the lost gross profit will, say, impact your growth rate in a noticeable way going forward?

[Marc Baumann:]

No. And it's not -- obviously, as Vance has indicated, we are reiterating our guidance that we gave last quarter. We haven't changed our guidance in light of this, so no. And if it was something very, very large and material, we'd be calling it out and that will be something that we would have called out. But we are winning new things all the time. And I don't know if I can disclose the details of it, but we've got a nice new airport-related win in Texas that were going to be starting up fairly soon. We talked about the San Diego shuttle, which is an off-airport shuttle in and around San Diego Airport, and we are talking to the San Diego Airport about other opportunities there. So, our airport group continues to explore new opportunities all of the time to add new stuff, but inevitably, because of the way municipal contracting works, that we will not retain every deal. One of the things that we have to look at is given the -- what we have to manage and the risks associated with it and the potential for insurance claims and other issues that may or may not be fairly significant, we have to decide what's a fair amount of money for us to make to continue an operation. And I can tell you that when we bid, we are not bidding to have market share or to retain something if it doesn't -- if the risk-reward doesn't make sense. So, in this particular case, we bid at a level that we felt was appropriate and fair and made sense for the work that we are doing. The party that won the contract, our belief is that they are going to actually lose money based on what they bid. But that kind of thing happens. And that doesn't deter us from our strategy, which is to try to add to our airport portfolio, but to do so on a profitable basis

[Kevin Steinke:]

Okay, sure. And I didn't mean to overly focus here on just this one deal because, obviously, the new business pipeline and the new business wins have been very good, so that's encouraging to see. And, so you talked about having the non-routine structural and repair costs I think wrapped up by early fall, maybe by the end of the third quarter. Are those pretty much behind you now?

[Vance Johnston:]

Yes, Kevin, this is Vance. So at this point, they are substantially behind us, and so that's the kind of short answer to your question. We do have other kind of merger and -- some other merger and integration related costs that will continue, some of those as well. And then we also, as we said before, as we turn the page and move into -- as we end 2015 and go to 2016, we expect to have some additional restructuring related costs as we continue to optimize the business and do things of that nature.

[Kevin Steinke:]

Okay, great. Just one last question for me here. You've talked about the 2017 adjusted EBITDA goal of $100 million. And I think, when you initially talked about that, you said you expected to make considerable progress towards that goal in 2016. And you know, I know you haven't quantified considerable progress or given guidance for 2016. But is that still how you're thinking about it, that you will make considerable progress towards the $100 million in 2016?

[Marc Baumann:]

That's certainly the objective, Kevin. But right now, we are just in the early phases of beginning to review the budget proposals that our various operating divisions and our support functions have put together and we are starting to evaluate those in terms of our plans and expectations for driving up our retention rate and new business for next year and the cost of doing all that. So we can't say with any specificity, even in our own minds, where we are going to land for 2016. But obviously, we are committed to driving this company to $100 million of EBITDA. And in order to get there, we've got to show continued progress on an annual basis, and that's what we're going to do.

[Kevin Steinke:]

Okay, thanks for taking my questions.

[Operator:]

[Operator Instructions]. Daniel Moore, CJS Securities.

[Daniel Moore:]

Just kind of dovetailing on that last question, maybe specifically with regards to gross profit, just talk about the sort of headwinds, the biggest headwinds and tailwinds as we think about 2016, be it new contract wins. And as kind of on top of that, can you just talk about the number of contracts that are up for renewal in 2016 relative to what we've seen over the last 12 months?

[Marc Baumann:]

I'll take that last part first because that's the easiest one. There's no particular pattern of contract renewal where we would say 2016 is going to be a big year relative to 2015 or 2014. We always have contracts coming up for renewal. And as you know, 80% of our portfolio are management contracts which are basically cancelable on 30 days' notice anyway. So, I think, as we look forward into the year and say what are the things that are going to help us grow gross profit, certainly we'll be looking to the management portfolio to try to drive another year of great new business. And I think the fact that we are on a record track for this year gives us a lot of confidence that we have organized our business development activity in a way that enables us to go capture new business. So will be setting expectations I would think for even more new business in 2016 than we are going to make this year. And of course, as I mentioned, our retention rate has moved up a bit now to 89%, which is moving in the right direction but certainly below the retention rate that we know the Company is capable of achieving. And when we look back to the business, the standard business, that I'm more familiar with on a premerger basis, we were regularly at the sort of 92%, 93% retention rate. So there's no reason why we can't get back to those levels and a lot of our growth will come from that. Some of our growth is going to come from the risk management activity that I talked about because our total cost of risk is included in our gross profit. So as we continue to execute our focus on improving safety throughout our business, that will give us gross profit growth. And of course we continue to bring to our existing clients new ideas on how to bring more revenue into their facilities. There's new channels out there all the time and new ways that consumers are finding places to park. And we're going to bring creative ideas to our clients to try to drive their bottom line. And as we talk to our clients about these things, we want to try to share in that wherever we can. And we have pricing structures and incentives fee structures that we'd like to put in place and we are bringing demonstrable value to clients. So it's kind of the same kinds of things that we have done for a long time. I think, because the integration is really in the rearview mirror now, our business can be solely focused on driving gross profit growth in those areas, and that's going to be our major focus for 2016.

[Daniel Moore:]

Helpful. In the press release, I noticed you spent just a few dollars of G&A related to other contemplated transactions. Are there -- are those all generally acquisitions, or are you contemplating or working on other partnerships and agreements? And maybe just talk about the M&A pipeline in general.

[Marc Baumann:]

Sure. I think one thing -- this is maybe more of a global comment about our industry, I think we had a period where we saw a lot of M&A activity in our industry and then of course the big financial crisis sort of put that onto the back burner. And there were some parking companies that changed hands. Some of our competitors changed hands. We looked at some of those companies ourselves, and of course ultimately, we ended up bringing about a merger between Standard and Central Parking. But I think as we look out into the space now, we are seeing a bit of an uptick in M&A activity taking place right now, and some of our competitors are buying primarily smaller parking operators or someone who is in a city here or there. And certainly we are plugged into all of that activity ourselves. And we'll continue to monitor and look for opportunities where we can participate. So I think the one good thing about having the integration of Central and Standard behind us is that we had the bandwidth and the capacity to do more acquisitions again ourselves. And the challenge for us is to find things that are large enough and that make a meaningful difference to our business and also enable us to grow at a faster clip. As we talked before to just become a larger version of ourselves that doesn't grow is not really a viable strategy. So we are very actively looking at what's out there, looking at what the opportunities are from an M&A point of view. And if opportunities present themselves, we'll certainly take advantage of it.

[Daniel Moore:]

Excellent. Lastly, just talk about CapEx in 2016 in relation to 2015, the general direction. And then I know this is looking further out, but 2017, do we start to see a more meaningful decline in CapEx, closer to sort of a maintenance level, or are there ongoing projects into 2017 that would probably keep that elevated? Thank you.

[Vance Johnston:]

Dan, this is Vance. So, a couple of things. One, as it relates to 2016, obviously we haven't provided any guidance on CapEx or free cash flow for 2016 at this point in time. But I think, consistent with 2015 at a high level, what we would expect is it to be kind of in that ballpark as it was in 2015 and 2014, which means that we would have maintenance CapEx and then we would have some kind of CapEx related to cost reduction projects that are bigger as you think about kind of optimizing our back office and things of that nature. And so we'll have some additional CapEx related to that. I think, as you go forward into 2017 and onward, our hopes would be at that point, notwithstanding anything else that the Company may do, that at that point in time, we would get to more of a maintenance CapEx level and so we would have -- we would anticipate that our CapEx would start to come down a little bit as we go to more of a maintenance CapEx level. The one thing I would just add is, having said that, our CapEx is not only kind of what you would normally expect, which is CapEx related to internal things that the Company may do, whether that be systems, what have you. From a maintenance standpoint, you also get to things that we're doing one-time projects. But in addition we also have CapEx related to things that we do with clients. And that can be equipment that can be cost of contract, things of those nature. And so, as big opportunities come along that we think it makes sense to invest capital because there is a relatively good return related to the risk that we would be taking, that can swing our CapEx spend as well from year-to-year.

[Daniel Moore:]

Okay. Thank you again.

[Operator:]

Thank you. It looks like we do have a follow-up from Kevin Steinke with Barrington Research.

[Kevin Steinke:]

Just one quick housekeeping, you showed a gain on sale of a business on the income statement for the third quarter. Just wondering how that came about.

[Marc Baumann:]

I think we talked about this somewhere. Maybe I said it on the call or Vance did, but we've been evaluating our security business, which we've grown over a long time on organic basis, and just look at whether that really fits with what we are trying to accomplish, and particularly in Southern California, where there's a very, very competitive environment for security services with low barriers to entry. And I think from my point of view, security is a service that we can provide the clients other by providing it ourselves or by outsourcing it ourselves and managing it on a client's behalf. And we will continue to do that throughout North America and in Canada. But I think, in this particular case, when we look at the portfolio of locations we had in Southern California and the competitive environment there, we said this is a bit of a distraction for us, and it's not really generating any real EBITDA for the Company. And so we made a decision to sell those contracts to someone who is in the security business. And interestingly, one of our competitors in the industry has just sold their securities business to the same people. So I think we probably reached a similar conclusion. So it's a very, very tough, low margin business. And I think a way that you can make security be a successful business is to be investing in technology and using that as a means to offer something that's value-add to clients. For us, it's a question of do we spend our resources investing in security technology to compete with much bigger security companies that are already investing there, or do we continue down the track that we are on, which is to invest in technology in our own business and bring things that differentiate us from other parking operators throughout the country? And so we made the decision that we would focus on that instead.

[Kevin Steinke:]

All right, perfect. Thank you.

[Operator:]

I'm not showing any further questions at this time. I will now turn the call back over to Marc Baumann, Chief Executive Officer.

[Marc Baumann:]

Okay, thanks Bridget. And I just want to thank all of you for joining us today and asking questions and listening to our comments. We're looking forward to a strong finish for 2015 as we continue to push on the things that Vance and I have been talking about. And I look forward to speaking to you again in the new year about 2016. Have a great day.

[Operator:]

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.