SP Plus Corporation
Q4 2015 Earnings Call Transcript

Published: 1 Mar 2016

[Operator:]

Good day ladies and gentlemen, and welcome to the SP Plus Corporation Fourth Quarter 2015 Earnings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] As a reminder today’s call is being recorded. I would now like to turn the conference over to Vance Johnston, Chief Financial Officer. Sir, you may begin.

[Vance Johnston:]

Thank you, Shannon, and good morning, everybody. As Shannon just said, I'm Vance Johnston, Chief Financial Officer at SP Plus. Welcome to the conference call for the fourth 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 2016 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 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 Plus website for 30 days from now. With that, I'll turn the call over to Marc.

[Marc Baumann:]

Thanks, Vance, and good morning, everyone. About this time last year, we communicated our goals for 2015 and beyond which were to improve operating results by increasing gross profit at existing locations, adding new business and further reducing costs. I’m very pleased with our results in 2015 and the fact that we were able to grow adjusted EBITDA by 7%, adjusted earnings per share by 31% and generate strong free cash flow. Looking back in 2015, we’ve really accomplished a lot. Most notably, we wrote more new business in 2015 than ever before and that’s the third year in a row that we’ve written record new business. We also successfully refinanced our senior credit facility, significantly reducing our interest expense. We realigned our organization to improve productivity and reduce costs, and rolled out a number of new safety and risk programs to further reduce our total cost of risk. We also made significant progress towards reducing our accounts receivable which contributed to our strong free cash flow. We achieved this 2015 performance despite a softer than planned fourth quarter. Just to give you a little more color on the Q4 and our results in the New York market, we sell reduced parking volumes at some leased locations due to required elevator repair work. As we’ve mentioned in the past, structural repairs were needed at certain leased garages that were required in this central parking merger. At some of these locations, we had to shut down car elevators, will restrict access to the garages for an extended period of time which had an impact of parking volumes in revenues. While difficult to precisely quantify, we estimate that the [indiscernible] revenue due to this could be as much as $0.5 million for the fourth quarter and $1.2 million for the full year. As the repair work is now largely complete, we expect to recover the vast majority of this revenue going forward. We also stopped fewer events than usual in the fourth quarter and in the New York market, and Vance of course will provide more detail on Q4 in a few minutes. Touching briefly on new business, we had a very active fourth quarter with continued growth in our hotel vertical market and renewals with several municipal contracts. In addition, we’ve been awarded a couple of nice transportation deals one surviving California State University at Fresno and another at Dallas/Fort Worth International Airport. We’ve highlighted some of these deals in last night’s release. Looking forward to 2016, we expect to be able to grow adjusted EBITDA in the high single digit range. Our proven ability to control cost and drive cost improvement initiatives coupled with continued growth in organic gross profit should enable us to grow EBITDA at this level. Our focus in 2016 and beyond is to continue to grow the business organically by improving same location gross profit and location retention while continuing to drive new business growth. We’re also turning more of our attention to longer term priorities and are studied to evaluate other growth opportunities and capital structure initiatives. These may include strategic acquisitions or partnerships, stock repurchases or dividends, all within driving overall growth and shareholder value. With that, I’ll turn the call over to Vance to lead you through a more detailed discussion of our financial performance in 2015 and guidance for 2016.

[Vance Johnston:]

Thanks, Marc, and hello everybody. I'd like to spend a few minutes reviewing our financial results in more detail. Fourth quarter 2015 adjusted growth profit decreased $4.2 million or 9% over the same period of 2014 largely due to the factors affect the New York market as Marc discussed. In addition, increased health benefit cost as well as the non-recurrence of the Q4 2014 Hurricane Sandy settlement and the timing of a few large rent adjustments and other timing related items impacted the year-over-year results for the fourth quarter. I want to clarify that these timing items did not impact the full year-over-year results. We did a good job managing G&A in the fourth quarter, and as a result adjusted G&A for the fourth quarter decreased by $3.5 million or 15% over the fourth quarter of 2014. The decrease was largely due to comp and benefit decreases, as a result of organizational restructuring and tighter cost controls. Q4 2015 G&A also benefited by $1.2 million due to adjusting the company’s performance based compensation payout expectations. As Marc mentioned earlier, we continue to be encouraged by our ability to control cost and drive cost improvement initiatives to reduce overall G&A, without negatively impacting the business. Resulting adjusted EBITDA for the fourth quarter of 2015 was $20.8 million, a slight decrease over the same period of 2014. Despite the year-over-year decrease in adjusted EBITDA, fourth quarter 2015 adjusted EPS increased by $0.6 compared to the fourth quarter of 2015. As increased depreciation and amortization expense was more than offset by lower interest expense and a lower normalized effective tax rate for the quarter. Even if the normalized effective tax rate were the same in both years, Q4 2015 adjusted EPS would still have increased a penny over the fourth quarter of 2014. Looking at the full year results, 2015 adjusted gross profit increased by $3.6 million or 2% over full year 2014. If you exclude the New York market, we grew same operating location gross profit by 2%. Net new business and favorable changes in casualty loss reserve estimates also contributed to the year-over-year increase. Moderating the year-over-year growth, with increased overall health benefit cost with most of the increasing cost coming in the fourth quarter as I just mentioned. Adjusted G&A for fiscal 2015 decreased $1.4 million or 2% over 2014, primarily due to tighter cost controls, overall cost reductions and organizational restructuring initiatives. We expect to see the full year benefit of many of the 2015 cost reductions in 2016, and we have new initiatives underway to drive additional cost savings. I want to emphasize that we are driving cost out by improving in optimizing processes and are not making customer will jeopardize our ability to serve our clients and to support the growth of the business. As a result, adjusted EBITDA increased by $5.6 million or 7% in fiscal 2015 as compared to fiscal 2014. Fiscal 2015 adjusted EPS was $0.98, an increase of $0.23 or 31% as compared to fiscal 2014 adjusted EPS in $0.75. Low interest rates resulting from the amended senior credit agreement that was put in place at the beginning of 2014, more than offset increases in depreciation and amortization expense to contribute significantly to the increase in EPS. Both 2015 and 2014 had set significant tax benefits resulting from certain reversals and valuation allowances, for differed tax assets as well as other non-routine items which have been excluded from the adjusted results for both years. While there were some fluctuations in the quarterly effective tax rate, the overall effective tax rates for 2015 and fiscal 2014, after adjusting for the non-routine tax items were substantially similar. The company had generated adjusted free cash flow of $36.9 million during fiscal 2015, which was greater than the expected range of $30 million to $36 million. While it was lower than the $37.4 million of adjusted free cash flow generated in fiscal 2014, we expected a lower level of free cash flow due to a significantly increased level of cash tax payments in 2015. In fact, cash tax payments were $18.1 million in 2015 as compared to $1.3 million in 2014. When you normalize for cash tax payments, we were able to increase adjusted free cash flow by 79%. Generating strong free cash flow will continue to be an area of focus. Finally, I want to cover our outlook for 2016. Our expectation for 2016 is for adjusted EBITDA to be in the range of $88 million to $93 million, an increase of 10% over adjusted 2015 at the midpoint. For the sake of clarity, I think it’s important to point out that we have defined EBITDA and adjusted EBITDA to be after deducting from minority interest expense. A full reconciliation of GAAP net income to EBITDA and adjusted EBITDA was presented in our earnings release that was issued last night. Adjusted earnings per share is expected to be in the range of a $1.16 to a $1.26, an increase of 23% over adjusted 2015 at the midpoint. Adjusted EBITDA and adjusted earnings per share will continue to exclude non-routine items such as, but not limited to, restructuring costs, asset sales, changes and valuation allowances for differed tax assets and other non-routine items. Adjusted guidance will also exclude any gains or losses resulting from our equity interest in the part mobile joint venture which will continue to be presented below operating income on the income statement. 2016 adjusted EPS anticipates a normalized effective tax rate of 41%. However the company’s tax rate could vary based on the number of factors. In addition, while our management contracts heavy portfolio provides a some major protection in economic downturns. Our guidance does not contemplate a material change in economic conditions. Adjusted free cash flow the forecast used for non-routine structural and other repairs is expected to be in the range of $40 million to $46 million, an increase of 17% over adjusted 2015 at the midpoint. As a reminder, there were some seasonality to our business as reduced air travel and hotel occupancy levels as well as increased snow removal cost in the first quarter of calendar – in the first calendar quarter of the year, resulting Q1 being our weakest quarter historically. That being said, our results for January were in line with expectations despite the severe weather winter it was experienced in parts of the country. Well we cannot draw any conclusions based on one month, we are pleased that this year is off to a good start. That concludes our formal comments. I’ll turn the call back over to Shannon to begin the Q&A.

[Operator:]

Thank you. [Operator Instructions] Our first question is from David Gold with Sidoti. You may begin.

[David Gold:]

Hi, good morning.

[Marc Baumann:]

Good morning, David.

[Vance Johnston:]

Good morning.

[David Gold:]

So just want to follow-up a little bit on two things. First, the G&A side presumably some impressive headway there, but presumably some goes-ins and goes-outs in the fourth quarter I would guess. So just curious if how we should think about it on the run rate basis, were there any sort of give backs there as you’ve adjusted comp for the year or is this a new good level to trend off of?

[Vance Johnston:]

Yeah David, this is Vance. So I think as we mentioned in our prepared remarks, we had about $1.2 million of comp adjustments if you will, so that’s basically related to kind of our performance bonus compensation. And so that would have been a year-over-year – quarter-over-quarter difference for the fourth quarter of 2015 relative to fourth quarter of 2014. Outside of that the rest of the reductions in G&A we really believe are real and we’re starting to get a lot of traction on G&A reductions. And so notwithstanding that what we would suggest is that the rest of it is very real and we would expect not necessarily the magnitude of $19 million per quarter going forward of G&A, but we would expect something not that much higher than that as we kind of contemplated what’s headed into 2016. And as we noted also, we expect to be able to get a good run rate from the G&A reductions that we’ve made in 2015, now we’ll have a full year cycle of that in 2016 and in addition, we’re also making good progress on a number of other initiatives in 2016 as well. So once again we expect absolute G&A cost to come down in 2016 relative to 2015.

[David Gold:]

Got you. So just to clarify, the $1.2 million variance is that a reversal or was that just comp not paid?

[Vance Johnston:]

Yeah, so what we do is that we on a quarterly basis we threw up our accruals for performance base compensation. And so the way to think about it is that we had – we reduced our accrual more in 2015 relative to 2014 so that’s kind of why there is the difference. So not all of the change year-over-year, it’s just pure cost reduction. There is some related to the fact that we had to reverse some performance based accruals, performance based compensation accruals, and that’s just due to kind of where we’re kind of netting out on certain targets for the year.

[David Gold:]

Right, right that makes good sense. And can you give us some help for how much of it was truly a reversal?

[Vance Johnston:]

Yeah, once again 1.2 – well there is definitely…

[David Gold:]

So, the $1.2 million was a reversal or – I’m sorry, I thought you just said part of it was?

[Vance Johnston:]

No, no, no, the $1.2 million – so if you take the whole difference from in G&A, from the fourth quarter of 2015 relative to fourth quarter of 2014, $1.2 million of that relates to performance based compensation accrual adjustments. The rest of that is pure cost reductions, which we [indiscernible].

[David Gold:]

So – got you, all right, so one check and, because I’m not sure maybe we’re using different words. So what I’m trying to get at is there are two ways that comp – or bonus accruals go down, right, one way is we just don’t accrue this period, and another is early on the year we’ve accrued some and we realize at the end of the year we’re not quite going to get there so we reverse that accrual. What I’m trying to get to or to understand is, on the $1.2 million, are you calling all of that out as a reversal or is that a combination and if it’s a combination of the two if you can give a sense for – basically the one that how much of that was give back from earlier in the year, that’s the important question I’m trying to get at.

[Vance Johnston:]

It’s effectively is a reversal.

[David Gold:]

It is a reversal, okay, okay got it. Perfect. And then one other minor, as to the step up in healthcare claims, any sense of – obviously these things weren’t possible to time I guess from your side of things, but any sense to if that’s gone back to normalized levels?

[Vance Johnston:]

Yeah I would say the reason we called it out is because we felt that what happened in the fourth quarter was unusual in terms of its size. We obviously as you know operate a self-ensured up to some limit health plan and the important thing for us is that we have lots of participation and that we are doing what we can to control claim costs, although unlike casualty is a little bit more difficult in the health area. So they tend to be what they are, claims due kind of come in throughout the year they build a little bit, so they’re little lower earlier and they get higher later in the year. We did have some unusual claims we’re aware of that, that happened later in the year and make us think that that’s not going to be continuing issue for us as we go into 2016.

[David Gold:]

Got you, perfect, that’s helpful. Thank you both.

[Vance Johnston:]

Thanks, David.

[Marc Baumann:]

You’re welcome.

[Operator:]

Thank you. Our next question is from Nate Brochmann with William Blair. You may begin.

[Unidentified Analyst:]

Good morning, this is Cobb [indiscernible] for Nate Brochmann.

[Vance Johnston:]

Good morning.

[Marc Baumann:]

Good morning.

[Unidentified Analyst:]

Yeah. So I just wanted to kind of talk about kind of the pipeline on some of your new business. I know you’ve guys had some nice winds recently, so just trying to get a feel for what that looks like going forward.

[Marc Baumann:]

Yeah I think we’re – the verticals that we’ve called out for you in our results are really the verticals where we’re seeing the most interest for new business development and that’s our municipal space, our large venue and event space and our hospitality space. I think those are the areas where there is certainly a big interest by people who own facilities in those spaces to outsource and many times for the first time or to make changes in their operators. And so I think we’ll continue to see good growth in those areas over the next several months. I think generally speaking, people are more open to making change in operators or to bring in new ideas and new creativity and we think we’re very good at doing that and that’s why we’re written record new business. But we’re also seeing that some of our existing locations are going out to bid in ways that maybe haven’t in the past. And so I think if you look at our location count and are kind of underlying business you’ll see that, while we are written record new business we’re also losing some business along the way as well.

[Unidentified Analyst:]

Okay, great. And then in terms of kind of that bidding operating environment, are you guys seeing additional pricing pressure there or more competition on some of those bids or that pretty consistent over the past few quarters?

[Marc Baumann:]

Yeah, I don’t think there is any new competitors, it’s the same kind of array of folks but we’ve talked many times before, in the municipal space which is maybe 20% of our portfolio, those contracts were going to come up on a regular basis for renewal and rebidding. And so we definitely see that happen all the time and that’s not any different than before and we’re typically bidding against the same people who tend to use the same thought processes that they have in the past. In the non-municipal space, obviously things there don’t – or we need to go out to bid, and if we’re doing our jobs we’re convincing our clients that we’re delivering for them all the time and there is really no need for them to put a property out to bid. What we’re seeing I just think, and this is maybe the economic backdrop that we’re operating in now, properties are starting to flip again, we were kind of recovered now completely from the big recession, new owners come in, new property managers come in and they say, someone has been there for a long time, it’s time you’ve to put a fresh pair of eyes look at it and make proposals. And so I think what we’re seeing is, and not just us but all of the operators are seeing an uptick in locations going out to bid that maybe they hadn’t gone out to bid before. Now we think for ourselves that’s a net positive because we’re going to be offering up new and creative solutions and enabled us to win new properties and that’s we’ve written record new business the last three years. We look at what competitors take away from us and what we take away from them and I would say generally speaking, we’re pleased with how that’s going. That being said, we do feel that in any time in an environment where more things are going out to bid, there is a chance that somebody is going to make a decision based on who is offering the lowest price for a service. We don’t try to be the low cost provider of service because we think we’re generating a lot of value add, we’re helping our clients optimize the revenue with their facility and generate more profit, we’re bringing new technologies and all the things that are going on out in our world in terms of how people choose where to park and how they choose to pay. We’re at the cutting edge of those things, we’re bringing a lot of value to our clients so we don’t think we have to price our property as the lowest possible price. Now, sometimes when a property changes hand, a new owner comes in or a new property manager who is not aware of all of that and they just think like, well they’re all the same, I’ll just go for the low priced option. So that’s the battle that we have to fight all the time to make sure that we’re educating our current clients and our perspective clients around the array things we do and why there is value add and hiring us to provide the service.

[Unidentified Analyst:]

Okay, great, thanks for that color, that’s all from me.

[Marc Baumann:]

Okay, thank you Cobb.

[Vance Johnston:]

Thanks, Cobb.

[Operator:]

Thank you. [Operator Instructions] Our next question is from Daniel Moore with CJS Securities. You may begin.

[Daniel Moore:]

Good morning.

[Vance Johnston:]

Good morning, Dan.

[Marc Baumann:]

Good morning, Dan.

[Daniel Moore:]

If you gave a range and I missed it I apologize Marc and Vance. Is there an organic gross profit growth range embedded in your 2016 guidance range?

[Marc Baumann:]

There is, we didn’t actually give that range and it’s not something we normally guide at. What I would say given our comments is that clearly we were running at I think 6% gross profit growth through the third quarter of last year and then given Q4 came in at 2% for the year which I would say for us is disappointing and certainly not where we want to be. So as we look to 2016, our desire and our expectation is that we’re going to grow faster than that, whether we can get back to where we were let’s just call it in the first three quarters of 2015 remains to be seen. But our desire is to grow our gross profit at a faster rate organically than the 2% that we delivered for 2015. We will of course do all the things that Vance talked about on the cost side of our business to ensure that if we aren’t able to drive our gross profit growth up at a faster clip that will continue to drive our EBITDA and our bottom line results in the way that we’ve guided.

[Daniel Moore:]

Very helpful. And clearly gross profit growth is more critical than number of locations that said you continue to exit less profitable contracts in the declines in number of locations has increased last couple of quarters. Do we expect that trend to continue in 2016, when do we think you can get to a point where actually growing a number of locations again?

[Marc Baumann:]

It’s certainly a prime objective for us Dan, as we keep pouring new stuff into the top of the bucket old stuff drops at the bottom. Now one of our focuses has always been looking at the array of business development opportunities that can generate the most gross profit for location and these tend to be larger more complex operations where our whole array is services are required. So at one level we don’t concern that’s too much with location count. That being said, we still don’t like to see our location count go down. We’re turning out some stuff that’s still legacy from the kind of premerger days that will probably continue during 2016. As you guys know, we also have lose some leases that we inherited in our portfolio when we did the merger between central and standard, some of those we can convert into profitable deals. When they renew in others we just have to walk away from. So I would say 2016 is going to be another year where it’s a little bit unclear whether we’ll show positive location count growth but I’m trying very hard with my operating team to bring the decline to a stop and to show positive growth because I do believe over the long haul if we’re going to generate kind of sustained gross profit growth, we’re going to need to grow a location count as well.

[Daniel Moore:]

Okay. And then just wanted to touch on New York a little bit more if $500,000 give or take was kind of the impact of structural repairs. Can you talk about what else went on in the market, you mentioned fewer events, what gives you confidence that it was more of a temporary slowdown as oppose to more structural changes in the market if you will.

[Marc Baumann:]

Yeah. I mean I think obviously the impact on New York for the quarter was bigger than the $500,000 that was the amount that was just related to the structural work as we indicated in our comments. I think New York obviously very vibrant right now, there is a lot of construction going on. To date that construction is working to our advantage because some surface parking lots are going away and being replaced by building. But we did see weaker demand whether it was in the hotel sector or with events in Times Square and Broadway and some of the other event things that occur in the fourth quarter that lets a bit of a disappointing Q4 in terms of level of activity. We’re constantly looking at our parking rates both for transit and monthly parking in New York and in our belief that we have the right staffing levels, I think we’re little slow to react when we saw a downturn in revenue in Q4, and as a consequence probably too much staffing at some of our lease locations in particular. And so I think who knows whether events are out of our control obviously, but I think we certainly saw signs that there were things that we can do both with our parking rates and with our control of our staffing levels and overtime at our facilities to try to generate the profitability our in New York that we think it can generate. And by that I mean drive positive gross profit growth in that market in 2016 compared to 2015.

[Daniel Moore:]

Got it, helpful. Free cash, strong – continues to get stronger. How much of a difference do you expect there to be between adjusted free cash flow and the actual free cash flow as far as 2016 is concerned?

[Vance Johnston:]

Yeah Dan, let me just answer to that. We would expect actually as we go forward into 2016 for that difference to be rather minimal, certainly as you kind of relative to what occurred in 2015 and 2014. So we would expect our adjusted free cash flow, and once again this is to remind everyone, in the case of free cash flow when we adjust for that, we’re just adjusting for cash outflows related to structural repairs. And so we would expect there to be much more minimal amount of structural repairs in 2016 than there was in 2015 for example.

[Daniel Moore:]

That’d be kind of sub $5 million or you don’t want to go there?

[Vance Johnston:]

I think that we would expect it to be kind of less than $5 million, I think that’s a fair statement. We don’t have a specific amount obviously for the few remaining items that we’re doing, we’re still in the process of going through that process but I think that’s a fair way to think about it.

[Daniel Moore:]

Okay. And lastly you mentioned in the prepared remarks Marc, turning your attention to capital structure and growth opportunities. Could you perhaps either rank order in order priority or likelihood acquisitions, buybacks, dividends, etcetera.

[Marc Baumann:]

Well I mean, certainly as we’ve – this is not really anything new Dan, we always look at either acquisition opportunities out there for us because if we can acquire people that have relationships that we don’t have, that can enable us to grow faster than we grow on an organic basis that’s a desirable thing to do. But our ability to complete acquisitions as a function of both of people wanting to sell their business and also having a realistic perspective on the value of their business. And of course, a lot of the companies that come up for sale in our market place are simply people who want to retire and maybe their children aren’t interested in the company, and those have not been too appealing to us. So I’m hoping that we have some people that were watching now and talking to all the time, I’m hoping that we could find some candidates and get some deals done in 2016 and 2017, but it’s a little bit out of our hands. Now, that being said, as you see if you run the numbers, we’re continuing to delever our business. And I think if now dropped below three times leverage for 2015 and there is no need for us to go below our sort of two to three range that we’ve talked about before. And so clearly, in the absence of the need for cash for an acquisition or to invest in our business, we’re going to be looking at either stock buybacks or dividends, I mean that’s obviously decision by our board of directors but we’re not going to delever down to levels that don’t make sense.

[Daniel Moore:]

Thank you very much.

[Marc Baumann:]

You’re welcome.

[Operator:]

Thank you. Our next question is from Kevin Steinke with Barrington Research. You may begin.

[Kevin Steinke:]

Good morning. Just getting quickly back to the puts and takes on the G&A expense here. In the press release you talked about finding decision related to the central parking dispute that resulted in an expense of $1.6 million in the fourth quarter [indiscernible] administrative, so I guess you think about the core G&A being even lower than the $19 million excluding that $1.6 million expense?

[Vance Johnston:]

No I think the way to think about it would be is that that $1.6 million doesn’t really play a role in kind of the significant decline that we saw in G&A in the fourth quarter of 2015 relative to 2014. So, the way to think about it is that, as we discussed we had about 3.4 – the decline was about $3.4 million from the fourth quarter of 2014 to 2015. We had $1.2 million of that was related to PBC or performance based compensation accrual adjustment, so we had a benefit of that. The rest of the decline from 2015 to 2014 in the fourth was really what we view is kind of good traction on tighter cost controls and cost reduction initiatives and we expect that to continue going forward into 2016.

[Kevin Steinke:]

Right, right. But I guess what I’m asking is that, the decline would have been even greater if you exclude that $1.6 million expense that apparently was recognized in the fourth quarter. So if you could take that out you’re more like $17.4 million instead of $19 million. Is that not the right way to think about it?

[Vance Johnston:]

It was actually – it was an add back, so when we go from reported to adjusted it was an add back, so like I said it really doesn’t figure into that calculation Kevin.

[Kevin Steinke:]

All right, fair enough. So, it looks like to me the EPS guidance for 2016, you are assuming a pretty significant reduction in interest expense and also maybe depreciation and amortization expense kind of flattening out or maybe even declining in 2016 relative to 2015. So could you just address those two areas as they factor in your 2016 guidance both the interest expense and the depreciation and amortization?

[Vance Johnston:]

Yeah, and Kevin we don’t – as you know, we don’t give guidance on the specific elements of interest expense and depreciation expense. What I would say is that, in the case of depreciation expense we had some increased depreciation and amortization expense in 2015 due to projects that we had related to the integration of other IT related projects. We would expect kind of that to be somewhat similar, not materially different as we head into 2016 per say, and once again, without giving any specific numbers or guidance. On interest expense, like what we saw in 2015 we would expect interest expense to continue to go down into 2016 and the reasons for that is that one, obviously our interest expense is big based of a LIBOR like everybody is familiar with kind of where that stands these days, so we’re not seeing any significant uptrends per say. In addition to that, our interest expense is also pegged to the level of our debt outstanding – as Marc just alluded to, we’ve been able to use excess free cash flow to pay down debt and so that’s helped us there, it’s not a debt outstanding this lower. And then third thing is that, our interest rates are actually not only pegged to a LIBOR but there are certainly thresholds and so as we reduce leverage which we’ve continue to do in 2015 and we expect to do in 2016, that will also have an impact because, well our interest rates that we’re paying in accordance with our – with the credit agreement will come down as well related to kind of what our leverage is, and so long way of saying that we would expect interest expense to continue to decline in 2016 relative to 2015.

[Kevin Steinke:]

Okay. So it sounds like one of the main uses of free cash flow in 2016 is going to be continued debt repayment.

[Vance Johnston:]

Well, yeah I mean I think the way to describe it like Marc was talking about this earlier is that, as we think about 2016 really – in our guidance we haven’t contemplated for example the use of free cash flow to do something that maybe a capital structure type initiative or to fund an acquisition or something like that, because although we’re clearly in the process for our remarks earlier in the process of evaluating those type of opportunities, we don’t have anything specific at this point that we could really kind of dedicate that cash too, so for purposes of giving guidance which I think would be normal for most companies. What we’ve done is we’ve assumed that at this point that we would use excess cash, the pay down debt and that would effectively lower our interest expense cost.

[Kevin Steinke:]

Okay, perfect. And then just lastly, if you look to 2017, is there anything in your 2016 outlook that makes you more or less confident in your ability to reach that $100 million adjusted EBITDA goal in 2017?

[Vance Johnston:]

Well I would say it’s still our goal and we perform well relative to the guidance that we gave for 2016, and that’s a goal that’s attainable for 2017. No doubt because our growth was slowing in Q4 and we landed at the end of 2015 a little lower than where we would have liked. That means that we have to perform even better to get to that goal still but I don’t think it’s an unrealistic goal for us as a company and certainly we’re going to be focusing as I mentioned in my earlier comments on increasing our rate of organic growth and gross profit.

[Kevin Steinke:]

Okay, fair enough. Thanks for taking my questions.

[Vance Johnston:]

Thanks, Kevin.

[Marc Baumann:]

Thanks, Kevin.

[Operator:]

Thank you. I’m showing no further questions at this time. I’d now like to turn the call back over to Marc Baumann for closing remarks.

[Marc Baumann:]

Thanks, Shannon. And I just wanted to thank all of you for joining us today and taking the time to listen to us, talk about our company and what we’re doing as we go forward. I think you’re going to see we’ll have some exciting announcements of our new business and other things going on in our company as we move into 2016. As Vance indicated, I think we’re confident that we’re up to a good start for the year and look forward to talking to you next time. Thank you.

[Operator:]

Ladies and gentlemen, this concludes today's conference. Thanks for your participation. Have a wonderful day.