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Edited Transcript of SP earnings conference call or presentation 31-Oct-19 1:00pm GMT

Q3 2019 SP Plus Corp Earnings Call

CHICAGO Nov 2, 2019 (Thomson StreetEvents) -- Edited Transcript of SP Plus Corp earnings conference call or presentation Thursday, October 31, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* G. Marc Baumann

SP Plus Corporation - President, CEO & Director

* Kristopher H. Roy

SP Plus Corporation - CFO, Assistant Treasurer & Principal Accounting Officer

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Conference Call Participants

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* Daniel Joseph Moore

CJS Securities, Inc. - Director of Research

* Marc Frye Riddick

Sidoti & Company, LLC - Business and Consumer Services Analyst

* Timothy Michael Mulrooney

William Blair & Company L.L.C., Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good morning. And thank you for standing by. Welcome to the Q3 2019 SP Plus Corporation earnings conference call. (Operator Instructions)

I would now like to turn the conference over to your host, Mr. Kristopher Roy. Please go ahead, sir.

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Kristopher H. Roy, SP Plus Corporation - CFO, Assistant Treasurer & Principal Accounting Officer [2]

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Thank you, Tiffany, and good morning, everyone. As Tiffany just said, I'm Kristopher Roy, Chief Financial Officer at SP Plus. Welcome to our conference call following the release of our third quarter 2019 earnings.

During the call today, management will make remarks that may be considered forward-looking statements, including statements as to 2019 outlook and 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 due to a variety of risks, uncertainties or other factors, including those described in the company's earnings release issued yesterday, which is incorporated by reference for purposes of this call and is available on the SP Plus website; and the risk factors in the company's annual report on Form 10-K and quarterly reports on Form 10-Q and other filings with the SEC.

In addition, management will discuss non-GAAP financial information during the call. Management believes the presentation of non-GAAP results provides investors with useful supplemental information concerning the company's ongoing operations and is an appropriate way to evaluate the company's performance. They are provided for informational purposes only. A full reconciliation of non-GAAP financial measures to comparable GAAP financial measures were presented in the tables accompanying last night's press release, which is incorporated by reference for purposes of this call.

To the extent other non-GAAP financial measures are discussed on the call, reconciliations to the comparable GAAP measure will be posted under the Regulation G tab in the Investor Relations section of the SP Plus website. Please note this call is being broadcast live over the internet and that a replay will be available on the SP Plus website for 30 days from today.

I will now turn the call to Marc Baumann, Chief Executive Officer.

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G. Marc Baumann, SP Plus Corporation - President, CEO & Director [3]

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Thanks, Kris, and good morning, everyone. And thank you for participating in today's call to review our third quarter and 9-month 2019 results and discuss our business outlook.

I'll begin our call today with a brief overview. And then Kris will discuss our financial performance in a little more detail. I'll come back to share our thinking on the business outlook. After that, as Tiffany said, we'll open up the call for a Q&A session.

By all measures, this was a very strong quarter for SP Plus. Third quarter performance as well as the considerable growth in our year-to-date results reflected both the contribution from the Bags acquisition, which we completed in December of last year; and the strategies that we've put in place across the organization to drive long-term growth.

Gross profit increased 30% year-on-year in the third quarter, representing 9% organic growth, with the remainder attributable to Bags. Gross profit from existing business or same operating locations increased by 3.4% in the third quarter and was up 4.6% year-to-date. This year-on-year growth was broad based across most key verticals and was led by our Airports and Municipal groups. Additionally, it represented overall positive year-on-year performance across the geographies we serve. Adjusted EBITDA increased 23% in the third quarter and 26% year-to-date, despite absorbing higher G&A costs mainly associated with performance-based compensation.

Given the large number of services we provide and variations in contract type and client profiles, it's often difficult to focus on 1 or 2 overarching trends that are driving our growth. What we can say, however, is that we believe our value propositions are resonating with clients and are enabling us to both sell additional services to existing clients and to add new names to our roster. This is largely the case because our services not only address important issues facing our clients, but we provide these services in ways that significantly improve their end customers' experience. As a result, our clients generally see improved bottom-line results, which can come about either because our services generate additional revenue and/or because our services reduce their overall costs.

One common theme we hear from clients is around congestion and how often it results in lost revenues and can lead to operating inefficiencies. SP Plus has a proven track record of playing a key role in alleviating congestion at airports, hotels, parking garages, hospitals, events and other large venues. We deploy a well-trained and courteous workforce coupled with innovative technology to efficiently move vehicles, people and their belongings.

For example, SP Plus' dynamic [way-finding] solutions utilize the latest technology to allow parkers to find empty spaces as they become available in real time. They also provide parkers the ability to find a parking space, pay for parking and be directed on how to exit a facility. Optimizing ingress and egress times are critical considerations for operations where thousands of people come and go within a very short period of time.

Development of technology tools that improve efficiency as well as generate incremental revenue has been a key focus at SP Plus and continues to be an important differentiator for us in the marketplace. Some examples including Parking.com, our proprietary online distribution channel that enables consumers to locate and purchase parking online, including monthly parking. Our Insight Analytics dashboards provide our clients real-time data that can be used to optimize occupancy and maximize revenue. We also provide remote management capabilities, enabling a facility to be monitored from a remote site, with gates that can be vended remotely when needed, thereby reducing staffing costs for our clients without sacrificing customer service.

By providing highly relevant business solutions to our clients that leverage technology and well-trained staff to deliver superior service, SP Plus is an important partner to marquee clients in a broad range of industries. We are working now to harness these capabilities to accelerate our long-term growth in line with the growth expectations that we articulated last quarter.

We're doing this through several main initiatives. First, we're targeting penetration in higher-value verticals, namely hospitality, healthcare and municipal markets, where we are already a well-known provider but have the opportunity to significantly increase market penetration. Second, we're leveraging our brand by continuing to develop national account relationships. We believe this strengthens our position within existing client organizations as well as open the door for us to work with new ones.

In this regard, I'm pleased to report that we've been awarded 4 contracts and are in advanced negotiations with additional hospitals under our group purchasing agreement with Premier, Inc., an alliance of approximately 4,000 hospitals and 165,000 other healthcare providers. One of the recent wins was at the H Lee Moffitt Cancer Center in Tampa, Florida, where we will be providing valet and enforcement services at 3 garages, and 4 valet ramps serving over 1,500 vehicles per day; making this one of the largest healthcare valet operations in the country. If you recall, we inked this group purchasing agreement with Premier last quarter. So we're very pleased with the progress we've made over the last several months and believe there are more opportunities ahead.

In September, we were named a national preferred service provider to Jones Lang LaSalle, a large property and facilities management firm with over 4.6 billion square feet of commercial real estate under management. We've already been awarded 3 contracts as a result of this national level relationship, including the Capital One Campus in McLean, Virginia, which is just outside Washington, DC. We currently manage 3 parking facilities there with 1,100 spaces and will add another 1,600 spaces to the contract at the beginning of 2020, with additional growth expected throughout 2020 and 2021. We're also actively working on national accounts in the hospitality vertical and hope to be able to announce progress on this initiative soon.

Third, we continue to grow Bags business via both Bags standalone business development activities as well as by leveraging cross-selling opportunities with existing clients. We see considerable runway for long-term growth through both of these initiatives.

One exciting recent development is at Boston's Logan Airport, where the airport authority is centralizing all ride share traffic into the central parking garage in order to alleviate congestion at the airport curb and roadways. Starting in December, Bags will provide remote check-in and wheelchair services at the centralized ride share location. After being dropped off by their Lyft or Uber at the central parking garage, passengers will be able to check in their luggage with Bags and get their boarding pass and luggage tags if they're traveling on 1 of the 7 airlines that represent 90% of domestic travel, which are integrated into our proprietary solution. The traveler can then proceed to the terminal and through security without the hassle of dealing with their luggage.

We're also actively pursuing cross-selling opportunities by introducing Bags services to our existing Airport clients and have recently had 2 notable successes in this regard. We're now providing remote check-in services at Portland International Airport in Oregon, where SP Plus has managed parking, shuttle operations and taxi and ride share dispatching for several years. The remote check-in services are exclusively for parking customers with domestic flights who use the Gold Key curbside valet at the airport. Valet customers now can check their luggage and check in for their flight and obtain their boarding pass and luggage tags all with the SP Plus valet attendants before entering the terminal.

We'll also provide remote check-in services at Louis Armstrong New Orleans International Airport, another longstanding SP Plus client, where passengers parking in the new Park MSY Express economy parking garage will be able to utilize Bags' airline baggage check-in service form the comfort of their vehicles, then self-park and head to the terminal unencumbered by their luggage. This win demonstrates another use case for Bags' remote airline check-in service, which can be deployed anywhere with an internet connection, whether it be at a centralized remote parking facility, consolidated car rental facility, curbside, portside, or at hotels and venues.

To sum up. We're quite pleased with the progress we've made in our long-term growth initiatives so far this year and are looking forward to having more positive news to report in the coming periods.

I'd now like to turn the call over to Kris, who will provide more detail on our third quarter and 9-month 2019 financial performance. Kris?

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Kristopher H. Roy, SP Plus Corporation - CFO, Assistant Treasurer & Principal Accounting Officer [4]

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Thanks, Marc. We will focus our comments today on adjusted results, as we usually do. A full reconciliation of all non-GAAP measures to their nearest GAAP measures are in the tables accompanying last night's earnings release.

Third quarter 2019 adjusted gross profit increased $13.7 million to $58.7 million, growth of 30% year-over-year or 9% on an organic basis. The increase was due to continued growth across key verticals and geographies, reflecting successful execution on strategic initiatives as well as the contribution from the Bags acquisition completed in December of last year.

Adjusted G&A for the third quarter of 2019 was $26 million, an increase of $7.9 million compared to the third quarter of 2018, reflecting increased costs from the Bags acquisition and a step up in accruals for performance-based compensation programs given our strong results year-to-date.

Adjusted EBITDA of $31.8 million for the third quarter of 2019 was an increase of $5.9 million or 23% from the third quarter of 2018. Adjusted EPS was $0.77 for the third quarter of 2019 as compared to $0.69 for the same period of 2018, an increase of 12% year-over-year. Our adjusted earnings per share for both periods exclude amortization of intangible assets from the Bags acquisition as well as all prior acquisitions.

The year-over-year increase in adjusted EPS was primarily due to the acquisition of Bags and share repurchases, offset by higher interest expense resulting from the acquisition as well as higher D&A from capital lease investments. The lower count due to the share repurchases added $0.02 to the third quarter adjusted EPS.

Moving on to year-to-date results. Adjusted gross profit for the first 9 months of 2019 increased $38.2 million or 28% to $173.8 million for the first 9 months of 2018. Again, while Bags acquisition was the primary driver of this growth, organic gross profit grew 6% year-over-year for the first 9 months of 2019, reflecting improved performance from our existing business as well as strong net new business.

Adjusted G&A for the first 9 months of 2019 was $79.5 million, an increase of $19.6 million or 33% compared to the first 9 months of 2018. In addition to G&A related to the acquired Bags business, there was also a non-recurrence of $1.7 million cost recovery that reduced last year's G&A. Adjusted EBITDA of $92.1 million for the first 9 months of 2019 increased $18.8 million or 26% from the same period of 2018.

Adjusted EPS was $2.17 for the first 9 months of 2019, an increase of $0.28 or 15% compared to the same period of 2018. Share repurchases over the first 9 months of the year reduced our share count by roughly 5%, increasing our year-to-date EPS by $0.03. We expect the full year benefit of shares repurchased to date to be approximately $0.04.

We generated $44.3 million of free cash flow during the first 9 months of 2019, which marked an increase of 52% over the same period of 2018 but was largely in line with expectations. This gives us confidence to expect the full year free cash flow will be toward the upper end of the current range of $40 million to $50 million.

Finally, during the third quarter, we used $18.7 million for stock repurchases, with another $6.3 million repurchased subsequent to the end of the quarter. During calendar year 2019 and through October 29, we repurchased shares totaling $38.6 million at an average price of $34.34 per share. As a result, $34 million remains available under our current share repurchase authorization, which we will use opportunistically.

Based on the results to date, we are reaffirming our full year 2019 guidance for reported and adjusted net income, EPS, EBITDA and free cash flow. Our first 9-month results position us to achieve toward the upper end of these ranges.

I will now turn the call back over to Marc.

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G. Marc Baumann, SP Plus Corporation - President, CEO & Director [5]

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Thanks, Kris. Year-to-date results have positioned 2019 as a year of strong growth for SP Plus. And as we're heading into 2020, we have confidence that continuing to execute against our strategies will result in continued growth. Our service offerings are resonating with clients, we're expanding our footprint, and we have focused business development programs that are showing positive results.

While revenue synergies can take time to materialize, particularly in the aviation vertical, we're pleased with the progress we made together with Bags and look forward to continued cross-selling success. These developments support the guidance we provided last quarter, namely for sustainable gross profit growth of 3% to 4% over time, which represents a 50% to 100% improvement from our recent historical gross profit growth rate. Finally, our ability to generate significant free cash flow enables us to invest in growth-generating initiatives as well as return value to shareholders.

Operator, I'd now like to open the call up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Daniel Moore with CJS.

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Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [2]

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Start with 9% organic gross profit growth, among the fastest we've seen in some time. Kris, you may've touched on this, and if I missed it, I apologize. Any favorable variances in healthcare or other items which could've impacted growth? Or would you consider that pretty clean?

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G. Marc Baumann, SP Plus Corporation - President, CEO & Director [3]

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This is Marc. I would say we know that our gross profit can fluctuate up and down during a quarter from quarter-to-quarter because of some of the items you're mentioning, Dan. I think the nice thing about our business this year is that it really has not been propelled by those unusual items. It's really just the underlying business.

I think obviously, we've grown at 6% on a year-to-date basis. And in that is that early lease termination that we talked about earlier in the year. So I'd just say our underlying business growth in 2019 on a year-to-date basis is more like 5% growth.

So we're very pleased to have 9% in a quarter. But I just want to make sure that we put that in the context of a little longer trend line than just one quarter's results.

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Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [4]

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Agreed. The corollary to that is to faster organic growth and all the wins that you've had is at least flat, if not fewer, contract terminations. Are you seeing fewer terminations? Is the improvement timing related? Are there any particular steps you're taking to enhance stickiness that are sticking?

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G. Marc Baumann, SP Plus Corporation - President, CEO & Director [5]

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Well, there's a lot of things going on. I think what we're pleased to see is that our location count for our Commercial group has ticked up a bit this year. And I think, as I've talked on prior calls, getting ourselves quarter-on-quarter, year-on-year location growth is an important element to a long-term growth strategy. And we didn't have that story to tell in the past couple of years. And I think that probably contributed to our slower growth. So we have been working hard to add net new locations to the business.

We're having a strong year on new business. But as you well know, we're primarily a management contract business. Contracts come up for renewal all the time. We have a lot of leases in our portfolio. Many of them are coming up. And some are good leases, and some are not-so-good leases. And so there's always going to be some volatility around our numbers. But I think the fact that we are adding net locations and seeing growth there in the Commercial group, and having a strong new business year, sets us in a good place for continued growth in 2020 and beyond.

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Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [6]

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And lastly, maybe jump back. But Marc, the Bags acquisition -- still early, but clearly as expected, at least to date. Does that open up opportunities, additional M&A opportunities, which you might not have otherwise thought about? And just talk about your increased confidence in executing additional M&A over time?

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G. Marc Baumann, SP Plus Corporation - President, CEO & Director [7]

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Well, I think it does. And for us, the opportunity with Bags is really to bring a broader array of services to the existing SP Plus client base, particularly in the Airport space, where SP operates at 70 airports. And some of Bags' proprietary technology is used in resorts and cruise lines and the like, but not so much at airports. So we see a lot of growth opportunity there.

So I think as we think about what does M&A look like for us, I think it's looking at how to bring more value to our existing client base, and how to attract new clients who might want to have a one-stop shop for a broad array of services. That's been the strategy of the company for a long time.

So I think as we continue to cast feelers out and make ourselves aware of what's out there in the marketplace, we're looking for those kinds of things. That doesn't mean that we wouldn't pursue an acquisition in the parking space, if we could get it at the right value. And that's always an important consideration. Because, as you can see with all of our share buybacks, our focus is on driving shareholder value.

So if doing an acquisition can drive value, we're going to pursue those. But we don't want to simply be a larger version of ourselves that doesn't grow. Our mantra is we must grow, we must accelerate our growth. And if M&A can help us do that, we'll pursue it, but only if it can help us create sustained faster growth than we've been delivering over the past few years.

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Operator [8]

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Your next question comes from the line of Tim Mulrooney, with William Blair.

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Timothy Michael Mulrooney, William Blair & Company L.L.C., Research Division - Analyst [9]

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Your EPS guide looks a little conservative, even at the higher end of the range, and implies a decline, I think, year-over-year. Are there any seasonal effects we should be taking into account with respect to EPS or any other reason we might see a material sequential decline from the third quarter to the fourth quarter?

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G. Marc Baumann, SP Plus Corporation - President, CEO & Director [10]

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Yes. I think what I would say is a couple of things to that, Tim. One is, last year, we had a very, very strong fourth quarter, in part because we had some large favorable insurance reserve adjustments to the casualty programs. And that really, in effect, reversed maybe something that we were seeing in the third quarter last year. Third quarter was not as strong last year as it was this year. So as we've talked before, we never can really anticipate when those insurance reserve adjustments are going to happen. I think we have talked many times about the fact that we set up and administer our safety programs to drive down our total cost of risk. And so over an extended period of time, we expect insurance reserve adjustments to be favorable to us. But it's very hard for us to predict when they're going to occur.

So obviously, last year Q4 was boosted by that. We don't have a way of expecting what's going to happen for Q4 this year. We're always hopeful and believe that our safety programs are going to deliver for us over time. So I think that's one factor.

But I think around guidance in general, our practice for a long, long time is that we give annual guidance. And we think about on a quarterly basis whether there should be some revision to that guidance. And generally speaking, it's been a very rare case over these 15 years of being public that we've ever adjusted guidance. And that's really because there is volatility in our business. We don't always know what any one quarter's performance is going to be exactly like, because there's so many factors that go into it.

So I think as long as we're comfortable that our guidance measures are broadly reflective of what we expect for our performance, recognizing that it's possible for us to go above one of them or fall outside the range when we get our final results -- that's happened a few times -- we just didn't feel like there was a material reason to change our guidance at this time.

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Timothy Michael Mulrooney, William Blair & Company L.L.C., Research Division - Analyst [11]

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Switching gears a little bit -- in the second quarter, it was a large healthcare system. Now you're the preferred provider of a large commercial real estate firm. That's 2 big wins 2 quarters in a row. So I guess first, maybe, how goes the penetration with the large healthcare provider that you signed on the second quarter? And then, second, is there any way to quantify for us, or maybe just describe in more detail what the pipeline looks like for more of these large enterprise wins?

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G. Marc Baumann, SP Plus Corporation - President, CEO & Director [12]

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Well, I think we have sort of a two-prong approach. One is to try to secure more of these types of agreements. I think we talked earlier in the year and maybe last year about our national growth strategy is really to try to secure national relationships to supplement what we have always done, which is to try to cultivate location relationships. We are a geography-based business, and we deploy an outstanding team of people in all the major markets. And they have the job of delivering for our existing client base and also looking to create new relationships and get new wins in those local geographies. And that will continue. That has been an important underpinning to our business for a long, long time.

But we recognize that more and more, there's some consolidation in the decision making around, whether it's commercial real estate, hospitality, management companies in the hotel space, and in healthcare; and that there's real value in us trying to cultivate national relationships with these organizations. And there's an incentive for them as well. Because our SP Plus Insight Analytics dashboard enables us to put on their desktop or on their mobile device a picture of individual locations and aggregated performance for all the facilities that we manage.

And so when we go in to do a quarterly business review with those people, we can show them the things and the information and talk about our plans for growth for them for the locations we manage. But obviously, we don't have any visibility into the things we don't manage. We are also able to offer them incentives to give us more and more facilities. I mean obviously, if we have one client at one place, we try to be, and are, competitive in the marketplace. But if somebody is offering a portfolio to us, we can offer them more attractive financial terms. And so there's a financial incentive for people to give us stuff, too.

So that is just, I'd say, an increasing focus of our efforts. Now that being said, once we win or enter into those agreements that we've been talking about -- now we've talked about 2, and we have more that we are working on -- we now have to go get new opportunities. It's not a guarantee that we're going to get anything new. But what it does do is it gives us credibility, and it gives us access to the decision-makers, which are sometimes hard to get to in large organizations.

So when our local operating leadership goes into, let's just call it, a hospital in their town or a hotel in their town, or a large commercial real estate development, they may or may not be able to actually get a meeting with somebody's who's a decision-maker. But if we have -- if you want to call it like the Good Housekeeping Seal of Approval is kind of how I think of it, from a group purchasing organization or from the property management company, we're going in with some credibility. And they also know that they're going to get attractive financial terms from us as well. And so that helps a lot.

So all I can really say is these organizations and the 2 we mentioned are really large. These are very big, leading, successful companies. And we're really pleased that we have those relationships with them. And we feel that over time we will continue to add locations.

So we're at the early stages. We've announced a few things in this call, we've indicated that there's more coming. We are aggressively working on the third prong of this national strategy, which is in hospitality, and hope to have some things to talk about in the coming months along these same lines.

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Timothy Michael Mulrooney, William Blair & Company L.L.C., Research Division - Analyst [13]

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But is it fair to -- I have to think that being the preferred provider for Jones Lang LaSalle is going to put you at the table for some of those properties a lot more often than you were previously, right?

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G. Marc Baumann, SP Plus Corporation - President, CEO & Director [14]

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Yes, that's our belief. But we have to deliver value for their clients. I mean this is one of those every day you got to prove yourself kind of businesses. And so if we get to the table, and we can talk about our capabilities, we can listen carefully and understand their needs -- and every property and facility is different, so this isn't a one-size-fits-all. We deliver customized solutions for clients. And so if we are able to get some wins like the ones we've talked about and deliver exceptional value to those clients, that's going to feed back through and become kind of a virtuous circle that's going to create more opportunity and give case studies that can be talked about with other prospective clients within their portfolio.

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Timothy Michael Mulrooney, William Blair & Company L.L.C., Research Division - Analyst [15]

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Maybe my last question -- you mentioned that some locations -- to the previous analyst, you mentioned that some locations are coming up for renewal. Are there an outsized amount of leases coming up for renewal in the near term? Or was that just more of a general comment?

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G. Marc Baumann, SP Plus Corporation - President, CEO & Director [16]

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No, it's a general comment. We always have stuff coming up for renewal. But I think we've talked before, we're primarily a management contract business. And those contracts, many cases are terminable sort of at any time. That's why our focus isn't get a bunch of contracts and sit back with our feet up. Our focus is on get a contract, then deliver exceptional value, and be so appreciated and so valued by the client that they keep us for years and years. That's our approach.

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Operator [17]

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(Operator Instructions) Your next question comes from the line of Marc Riddick with Sidoti.

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Marc Frye Riddick, Sidoti & Company, LLC - Business and Consumer Services Analyst [18]

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I wanted to touch a little bit on -- just sort of following up on this thread, I guess, a little bit. So wondering if you can sort of give us a bit of an update as to maybe percentage of revenue that national accounts currently fit at this point, and what you think the capacity is currently? And then, maybe if there's additional hiring needs that would be necessary to get to the goals that you're looking at?

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G. Marc Baumann, SP Plus Corporation - President, CEO & Director [19]

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That's a really difficult question to answer, and not because we don't want to tell you. It's more that -- what is a national account? We have our own definition. And some of it is arbitrary. We're just looking at organizations that have a reach of certain size and scope for our initial efforts to create these national relationships. But as we have success with some of these organizations, it'll probably broaden our definition of a national account.

So I don't think it would be helpful. But what I would say is that we've given you some indication of the size and scale of these organizations that we're forming these relationships with. And they literally have thousands of properties that they are involved with. And I think it would be safe to say that our up-till-now involvement with them can be counted on 1 or 2 hands. We're talking about very low penetration.

And so I think what we really see is that there's no practical boundary on how much business that we can generate in this area. It will be limited really by our own ability to deliver exceptional value.

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Marc Frye Riddick, Sidoti & Company, LLC - Business and Consumer Services Analyst [20]

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And then, certainly you've had earlier initial activity (inaudible) in the hospitality vertical in this particular front. I was wondering if you could touch a little bit on maybe some of the markets where you're looking at, either geographically or customer vertical-wise, that you think could offer the greatest near-term upside for your services?

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G. Marc Baumann, SP Plus Corporation - President, CEO & Director [21]

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Well, I think -- look, we've said for many years that people are most likely going to need us when they have large complex operations, when movement of traffic and people is really important, when service standards are important. And so we have a major metropolitan area-based strategy for our business. And that doesn't mean that we're not interested in something that's not in a major metropolitan area. I mean we recently started managing all of the transportation for football for Penn State University during the season. And that is away from some of the major metropolitan areas.

But our focus is on the major cities. Because we can deploy a really talented organization there on the ground, depth of management, expertise across all the verticals. And so we can put ourselves in a position where we can say if you're in one of the top 20 or 30 markets in North America, we've got an A-team of people on the ground who can really deliver value for you.

So in that sense, at the local level, we're focused on what are all the opportunities for us to deliver value to clients who are looking for help with solving complex problems and the application of technology, to the movement of people and vehicles and their belongings.

Now that being said, we've talked about, from a national point of view, there are property management firms like Jones Lang LaSalle that we just announced. And there are others that we have relationships with, too. There are national group purchasing organizations like Premier, and there are others out there, too. And there are many hotel management companies of varying sizes, from a dozen hotels to many hundreds of hotels. And there are also hotel companies that run their own properties but have multiple locations throughout North America.

So our goal is to really focus on those 3 verticals as areas where we have a nice base of business. We are well recognized as having a strong brand and capability, but where the size of the opportunity is very large relative to our existing portfolio.

And then, obviously, the one other one is around Municipal. And we'll have some things to talk about in terms of new Municipal deals fairly soon as well. So that's another one where we have, I don't know, 90 cities maybe where we collect the money out of on-street parking meters. And there's 3,000 cities in North America that have on-street meters.

So again, we've targeted these verticals for the last couple years because we feel that our penetration is low relative to the opportunity. What we have not done until recently is to really bring on additional resources to actually up our game in terms of our ability to get in front of some of these organizations and institutions to try to show them what we're capable of doing.

So we've had the strategy for a while. We're adding resources to enable us to go effectuate that strategy more successfully. And we're now starting -- that's starting to bear fruit. We're able to share some of the successes with you.

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Operator [22]

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You do have a follow-up question from the line of Daniel Moore with CJS.

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Daniel Joseph Moore, CJS Securities, Inc. - Director of Research [23]

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Just quickly on G&A -- I recognize it's higher year-over-year, and you did incur some incremental incentive-related compensation expense. But that said, it's still actually down sequentially. Is $26 million -- is that a reasonable run rate? Do we expect to incur a little bit more incentive comp? Given the strong performance in Q4, how should we think about G&A going forward?

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Kristopher H. Roy, SP Plus Corporation - CFO, Assistant Treasurer & Principal Accounting Officer [24]

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Yes, this is Kris. I would say that if you look at kind of what we had for Q3, and you peg a little bit of an increase on that, I think that would be a reasonable assumption to kind of bake in, especially given the performance-based compensation and the performance that we've had for 2019 year-to-date and what we expect the rest of the year to end up at.

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Operator [25]

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At this time, I am currently showing no further questions in queue. I will now turn the call back over to Mr. Marc Baumann.

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G. Marc Baumann, SP Plus Corporation - President, CEO & Director [26]

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Thanks, Tiffany. And thank you, everyone, for joining us today. We really appreciate your interest in following SP Plus and speaking with us today. And look forward to joining you again when we have our Q4 results early next year.

Take care now.

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Operator [27]

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Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.