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

Q2 2019 SP Plus Corp Earnings Call

CHICAGO Aug 29, 2019 (Thomson StreetEvents) -- Edited Transcript of SP Plus Corp earnings conference call or presentation Thursday, August 1, 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 - Interim 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

* Kevin Mark Steinke

Barrington Research Associates, Inc., Research Division - MD

* 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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Good morning, ladies and gentlemen, and welcome to the Q2 2019 SP Plus Corporation Earnings Conference Call. (Operator Instructions) As a reminder -- I would now like to turn the conference over to your host, Mr. Marc Baumann, CEO of SP Plus. You may go ahead, sir.

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G. Marc Baumann, SP Plus Corporation - President, CEO & Director [2]

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Thank you, Bella, and good morning, everybody. As Bella just said, I'm Marc Baumann, Chief Executive Officer at SP Plus. Welcome to the conference call for the second quarter of 2019. Joining me today is Kris Roy, our Senior Vice President and Corporate Controller, who is serving as our Interim CFO.

I hope all of you had a chance to review our earnings announcement that was released last evening. We'll begin our call today with a brief overview, and then Kris will 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 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 our earnings release issued yesterday, which is incorporated by reference for purposes of this call and is available on our SP Plus website and the risk factors in our annual report on Form 10-K and the quarterly reports on 10-Q and other filings with the SEC.

In addition, we'll discuss non-GAAP financial information during the call. We believe 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 the 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 that 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.

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 start with a brief overview. As you saw in the earnings release we issued last night, 2019 performance continues to be strong. Second quarter gross profit and EBITDA increased 21% and 19%, respectively, over the second quarter of 2018. While the acquired Bags business was the primary driver of the year-over-year Q2 growth, the organic business did grow by 1% or 3% if you exclude the impact of prior year favorable insurance loss reserve adjustments from both periods.

Gross profit from same operating locations for the second quarter grew at a robust 7% over the second quarter of last year driven by continued strong performance from our Airport division, in addition to solid year-over-year growth from our Commercial division, particularly in the New York market.

Turning to Bags. As we outlined in the earnings release last night, we did considerable work following the acquisition, utilizing both internal and external resources to validate the addressable market for Bags' services, prioritize the highest value opportunities and develop short- and long-term go-to-market strategies to penetrate these markets.

This work confirmed our thesis that the addressable market for Bags' services is sizable. Bags' multi-airline Remote Airline Check-in or RAC service is something that only Bags has the capability to provide in North America. Bags has the ability to check-in baggage, collect the appropriate airline baggage fees and print out boarding passes for the top 7 major airlines that account for more than 90% of all passenger travel on U.S. carriers.

The initial adoption of RAC has been at resorts, seaports and to a lesser extent at airports. But there are several reasons we expect that demand for these services will continue to grow, especially at airports. Significant increases in air travel combined with airport terminal redevelopment has driven an increase in both curbside and in-terminal congestion. Bags' proprietary RAC technology enables passengers' bags to be checked in at remote locations to help reduce curbside and in-terminal congestion.

The ability to check-in bags at the airport parking facility could also generate incremental parking revenues as well as be a differentiating factor as airports compete with off-airport parking options. In addition, airports may be able to reduce shuttle operating costs because fewer shuttles may be needed if less bags are being transported on the bus. There's also the potential to increase concessions revenues for the airports as travelers unencumbered with baggage may be more inclined to dine and shop at the airports. We believe this will improve the overall guest experience, which reflects well on both the airlines and the airports.

The natural growth synergies with SP Plus are clear as our Airport division provides parking or transportation services at 70 airports, including 7 of the top 10 largest airports in the United States. We have introduced many of our airport clients to the value proposition of sponsoring this service at the airport, and the reception has been very positive.

In addition, there are opportunities for Bags to introduce core SP Plus parking and transportation services to its airline clients. We have been fortunate to see some early cross-selling wins, but recognize that this is a multiyear strategy due to the long sales cycle within the aviation vertical.

While most of the cross-selling opportunities are within the aviation division, there are also significant additional opportunities to deploy RAC services at seaports, high-end hospitality locations as well as corporate meeting and conference event venues, and we're actively pursuing opportunities in all those areas.

Growing Bags and capturing cross-selling opportunities is just one facet of our multipronged strategy to accelerate overall company growth. Another avenue is to continue to pursue our national account strategy. Historically, we have worked with local relationships to win new business and we'll continue to do so. But by also cultivating national account relationships with large commercial asset owners and managers, national hotel interests and large healthcare systems, we believe we will be able to accelerate our growth.

We have invested additional resources over the last year to help us execute this strategy, and we're recently awarded a group purchasing agreement with a large healthcare system representing over 4,000 hospitals. The group purchasing agreement allows members to take advantage of special pricing and prenegotiated terms for parking management, valet, patient transport, shuttle and a variety of other related mobility services.

Our vertical market strategy represents a third driver of growth. Several years ago, we realigned our business to support an industry vertical focus and identify key markets such as hospitality, healthcare, municipal and large event venues that we believe represent the greatest growth opportunities.

We've had success generating new business in these verticals, but penetration is still relatively low compared to the size of these verticals. We're making investments that we believe will help us increase our market share in these verticals.

Taken together, we expect that this multipronged strategy will enable us to achieve sustainable gross profit growth of 3% to 4%, which is 50% to 100% increase over the 2% we've been able to achieve over the last few years. We also expect to drive significant operating leverage, which we believe will support additional growth in EBITDA and earnings per share.

Finally, we continue to prioritize the capital allocation program that balances our organic and acquisition growth initiatives with returning capital to stockholders. As we indicated in the earnings release, we have repurchased $19.6 million of common stock so far this year, including $6 million subsequent to the end of the second quarter. As a result, a small amount remains of the $30 million repurchase authorization from 2016.

I'm pleased to announce that our Board of Directors has approved a new $50 million share repurchase authorization, which gives us the additional flexibility as we pursue a balanced approach to capital allocation.

Our ability to generate significant free cash flow and our modest leverage enables us to invest in growth-generating initiatives as well as return value to stockholders in the form of share repurchases.

Now I'll turn the call over to Kris, who will discuss in more detail our second quarter 2019 financial performance.

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Kristopher H. Roy, SP Plus Corporation - Interim CFO, Assistant Treasurer & Principal Accounting Officer [3]

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Thanks, Marc, and good morning, everybody. As in the past, our comments will focus on adjusted results. A full reconciliation of all non-GAAP measures to their nearest GAAP measures were presented in the tables accompanying last night's earnings release, which is incorporated by reference for purposes of this call and is available on our SP Plus website.

Second quarter 2019 adjusted gross profit increased $10.7 million or 21% from the same period of 2018, which is inclusive of Bags or 1% on an organic basis. As Marc mentioned, due to strong same operating location performance, organic gross profit growth would have been 3%, excluding fluctuations in the magnitude of prior year insurance loss reserve adjustments.

Adjusted G&A for the second quarter of 2019 was $27.4 million, an increase of $6.7 million compared to the second quarter of 2018. The increase in adjusted G&A was primarily due to the Bags acquisition as well as the nonrecurrence of a $1.7 million cost recovery received from a vendor partner that reduced G&A in the second quarter of 2018 as well as higher year-over-year compensation and benefit costs.

Resulting adjusted EBITDA for the second quarter of 2019 increased $3.9 million or 13% from the second quarter of 2018, primarily due to the previously discussed factors.

Adjusted EPS was $0.81 for the second quarter of 2019 as compared to $0.77 for the same period of 2018, an increase of 5% year-over-year. As a reminder, 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 higher operating income resulting from the Bags acquisition partially offset by higher interest expense on debt used to fund the acquisition. Share repurchases completed during the first half of the year increased second quarter adjusted EPS by $0.01.

Touching briefly on first half results. Adjusted gross profit for the first half of 2019 increased $24.5 million or 27% from the same period of 2018. Again, the Bags acquisition was the primary driver of this growth. Organic gross profit grew by 5% year-over-year for the first 6 months, primarily due to strong gross profit growth at same operating locations.

While fluctuations and magnitude of prior year insurance reserve adjustments was not a meaningful factor in year-to-date organic gross profit growth, organic gross profit for the first half of 2019 did benefit from the nonrecurrence of a 2018 noncash write-off related to an early lease termination and some favorability due to the timing of a lease contract modification in 2019 Q1 that was not expected to occur until later this year.

Excluding these items, organic gross profit growth would have been 3% for the first half. Adjusted G&A for the first half of 2019 was $53.5 million or an increase of $11.8 million compared to the first half of 2018. Again, the primary drivers were G&A -- were the G&A associated with the Bags acquisition, the nonrecurrence of a $1.7 million cost recovery received from a vendor partner that reduced 2018 G&A as well as higher compensation and benefit costs.

Resulting adjusted EBITDA for the first half of 2019 increased $12.8 million or 27% over the same period of 2018. Adjusted EPS was $1.41 for the first half of 2019, an increase of $0.20 or 17% over the same period of 2018. This year-over-year increase is -- this year-over-year increase in adjusted EPS was primarily due to the contribution from the Bags acquisition partially offset by higher interest expense on debt used to fund the acquisition.

Due to the timing of share repurchases completed during the first half of the year, lower weighted average shares outstanding only added $0.01 to the 6-month adjusted EPS. However, the impact of shares repurchased this year-to-date, including amounts repurchased already during the third quarter, is expected to increase full year EPS by approximately $0.04.

Free cash flow of $14.5 million was generated during the first half of 2019. While lower than the $21 million generated in the first half of 2018, it was in line with our expectations, which contemplated certain working capital items to revert back to more normal levels in 2019. As such, we remain confident that we will continue to generate full year free cash flow in line with our guidance of $40 million to $50 million for the full year.

Based on results to date, we expect full year net income and EBITDA on a reported and adjusted basis to come in at the upper end of our previously provided guidance range. We are raising our reported and adjusted EPS expectation by $0.05 due to the overall performance of the company and the accretive nature of the share repurchases we have done to date. This concludes our formal comments.

I'll turn the call back over to Bella to begin a Q&A.

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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 Securities.

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

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I wanted to start with Premier, maybe to talk a little bit about the mechanics of that agreement and any sense of how impactful that could be from a gross profit perspective over the next few years and then opportunities for additional types of agreements with larger consortiums, that would be great.

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

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Sure. Happy to do that. A lot of industries have some sort of buying group or group purchasing organizations they use to turn to, to find vendors that have been prequalified, have been vetted for their capabilities and also, where there's been some negotiation having taken place to get favorable pricing terms and conditions.

And so what we focused on as part of our strategy over the past several months is forming relationships with a number of these organizations, and we were pleased to announce the conclusion of the contract with Premier. What that means for us, practically speaking, is now we are a preferred vendor to the hospital groups that use Premier as a group purchasing organization. And that should facilitate both introductions to new hospital opportunities for us, but also as we get in front of those prospective clients and talk to them about our capabilities, it facilitates a more smooth and quick decision-making process to award a contract to us.

So there's still work to be done to win individual contracts. We're not selling a commodity service. We are selling a specialized customized service that's tailored to the requirements and needs of individual clients and their locations, but we see this as a way to really open the door to growth opportunities in the healthcare sector and enable us to more quickly capture the attention of decision makers and win new business.

It's very, very difficult to predict how quickly we'll be able to announce things relating to that, but it's been a major focus of ours over the past 6 months to try to get into these areas, which is something that SP has never done before.

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

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Got it. Helpful. And in terms of the comments around the trajectory of gross profit growth, clearly encouraging. One of the -- maybe rank order the most critical factors that are increasing your confidence in the outlook. Is it Bags? Having been in the mix for 6 months in cross-selling? Is it the trajectory of new business wins, this deal with Premier? I guess maybe all of the above? Just kind of rank order the -- what's changed there and what gives you that confidence? And obviously, I know you probably not want to say, but any sense of timing when you think that type of growth will be achievable?

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

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Yes. Well, I think -- I mean let's -- one thing we have to look at are a couple of facts. And the facts are that we have been growing in that range over the past couple of quarters and we talked about picking out some of the things that might have impacted the reported results on the quarters, but we're clearly in that range on an underlying basis, both Q1, Q2 and year-to-date. So I think we're starting to see the results of a lot of the efforts that we've been doing and focusing on with our national account strategy, our bringing on additional resources in hospitality and healthcare, and I think bringing Bags into the equation, it's really yet to contribute to the results we're seeing already. So I mean we're -- we've had a couple of wins as we've talked about. But as I've indicated in my prepared remarks, we see a significant amount of opportunity for cross-selling with Bags primarily into airports and the SP airport client base. We are beginning to make significant progress in gaining some additional things accomplished and some wins to announce, but that's a multiyear process, as I indicated, because of the sort of sales cycles and decision-making processes that go on in those verticals.

So I'd say, initially, I'm confident because our own underlying -- let's just call it, our organic business without Bags is experiencing faster growth. And I think it's a combination of those things around new business focus that I've mentioned and quite frankly, better performance from some of our underlying cities and including New York, which we have talked about repeatedly.

So I would say, that's probably at the top, those kind of things and then following that and helping us sustain that level of growth over the next couple of years is going to be our ability to bring the Bags' cross-selling opportunities to the SP clients for SP to hopefully gain some wins in bringing new services to some Bags' clients and then importantly, and this is part of the thesis for the acquisition in the first place, is to just enable Bags to grow on its own, independently of SP, as much as possible.

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

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Lastly, and I'll jump out. In terms of capital allocation, are you clearly going down dual path here? You're now quickly paying down debt, but also buying back stock. Is there a target leverage ratio you'd like to get to this year or next year? Or would you be willing to slow the deleveraging and continue to be more aggressive buying back stock, given high levels of cash flow?

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

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Yes. No. It's a good question. And I think, obviously, given the amount of stock that we bought back in 2019, which is the most we bought back in any year since 2008, I think. We have to go back a really long time. I think there's a recognition by management and discussions with our Board of Directors and outside advisers that our old 2 to 3x leverage. We always said we're comfortable at 2 to 3x. And I think we said it so often and so long that it just became almost like it was a fact. But as we thought about our business, we clearly are comfortable operating in that range and we're certainly comfortable operating above that range. Now we have a capital structure that's primarily structured around senior lenders and senior debt, and it's worked very, very well for the company for a long, long time.

So there's, obviously, some natural limit to how high our leverage can go with that capital structure. And so I think that would clearly be an upward boundary for us, but I think independently of where our leverage is, I think we're looking at a company that generates significant amounts of free cash flow, is investing all that it needs to in the business to accelerate growth, is looking at ways to acquire other businesses either in the form of tuck-ins or other capabilities to continue our inorganic growth. And if we can get those at good prices and terms that make sense and will make sense to shareholders, we're going to pursue those. But taking all that into consideration, we feel we have the capacity and should return value to shareholders and not simply delever down like we did between the time we did the Central merger and when we did the Bags acquisition. So we're very confident in our ability to continue to generate free cash flow on a sustained basis to grow the business at a faster clip, and we think it makes sense to return value to shareholders in this way.

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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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The Premier contract, is this a renewal? Or is this a contract with a previously unserviced customer relationship?

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

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The group purchasing organization?

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

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Yes. Yes, the GPO.

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

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That's brand new to us. I mean there have been other -- there are parking companies and other providers of services similar to us have worked with those types of organizations in the past. For whatever reason, we did not. And so this is a strategy that we have identified as a way for us to accelerate growth. And so we pursued this very aggressively, and we're pleased that we were able to make that announcement a couple -- a week ago, I guess, about that new relationship. But then we are also pursuing relationships like that with other organizations and in other verticals because we think the opportunity is out there for us to accelerate growth by focusing on a multi-location, multistate, national kind of an approach in addition to our traditional way of getting new business by, in effect, identifying targets in a given city and then kind of trying to win them one at a time.

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

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So there are more of these potential types of opportunities out there, Marc, that you will be attempting to pursue?

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

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There are others in healthcare and there are others in other sectors.

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

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Okay. And you presumably have a relationship with some of the hospitals in this Premier network already. Is that how you kind of got the ball rolling with them and...

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

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It's true. We serve about, I don't know, between 100 and 200 hospitals currently nationally. And so -- and obviously, some of them -- some of our existing clients are participating in this network. And some of them are not. And -- of course, some of the hospitals we serve are part of much larger healthcare organizations. As you know, there has been a lot of consolidation in healthcare over the past 10 years.

And so one of the things that we haven't capitalized on is if we are serving 3 hospitals in a hospital organization that has 100 hospitals, how do we get to those other 97 and introduce ourselves? How do we make them aware of what we are capable of doing and what we are already doing for, let's just say, those 2 hospitals? And I have met a number of hospital CEOs and other senior executives and posed that question. And what ends up happening is that their organizations are very large too. And they sort of point us to, when we are looking for a new vendor, we don't survey all of our sister institutions to find out who they use. We're part of a group purchasing organization and we look to them to give us some guidance on who we might talk to. We're glad to see that there has been some favorable negotiation of terms and conditions. Somebody has been vetted and checked out by a third party. That's how they go and find potential vendors to provide a whole array of services, not just parking and shuttle bus transportation services.

So we brought in a new -- some new leader over our healthcare business development efforts and she came into the organization, having sold extensively into the healthcare space and was surprised that SP had not pursued a strategy of forming relationships with group purchasing organizations. And so she along with some of our other leadership here really pursued that for us.

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Timothy Michael Mulrooney, William Blair & Company L.L.C., Research Division - Analyst [17]

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Yes. It sounds like a really exciting opportunity. I think there has been a lot of excitement in the investment community since you announced that. I think the one thing that people are concerned about is that the pricing concessions that you had to give or whatever concessions you had to give in order to become part of the organization, over the long run could that have an impact on the financial profile? Or they all pretty much still within the range of what you normally serve?

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G. Marc Baumann, SP Plus Corporation - President, CEO & Director [18]

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Well, you never know how any one thing is going to work out. But what I would say is that for years and years, one thing we have done is we have formed relationships with large property management firms in the commercial real estate space. And if we go to somebody and we say, "hey, we get one location with them and we obviously tried to price competitively to win that opportunity." But we do say to those people, "hey, look, if you can give us a portfolio either in the same city or across city and we can get some economies of scale and how we manage the relationship and we can do some things to help serve you on a broader basis and of course, the value of getting more locations to us, we definitely give preferential pricing in those scenarios." And I think most companies would. So I don't see this as really any different than that. If opening a door to a relationship enables us to generate multi-location opportunities, then we're going to -- there's going to be a better pricing opportunities and for the one-off.

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Timothy Michael Mulrooney, William Blair & Company L.L.C., Research Division - Analyst [19]

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Yes. That makes perfect sense. If I could squeeze one more in. I just was looking for an update on the Bags business. Your organic gross profit growth, first half of the year, 3%. That's very solid. Things sound good in the legacy business, but I'm curious about the Bags business, particularly as it's going to be blended into your organic base later this year. I'm trying to think about how the business will be growing on a consolidated or pro forma basis once that's blended into the organic base. Is it fair to say that the Bags business is growing faster than the base business? Or is it more in line we see a material change?

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G. Marc Baumann, SP Plus Corporation - President, CEO & Director [20]

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Sure. Yes. Well, what I would say is that as we looked to acquire Bags and I made this comment before, we noticed as part of our evaluation of it that it was experiencing faster gross profit growth over a period of time than SP was. And so we know our gross profit growth has been in sort of 2% range post the period where we integrated the merger of Central and Standard. And so we are looking at ways to get that up into this range that I'm talking about. What are the ways to do that? And of course, I reviewed all those things that we're doing. So our expectation was that Bags had grown and could grow and is capable of growing on its own at a rate faster than SP was growing.

Now any one time period, you can pick data points and go, what happened in this time period or that time period. And we're not going to disaggregate it all at that level of detail, but what I would say to you is that the expectation is that Bags, as a stand-alone company, could grow faster and should grow faster than SP Plus as a stand-alone company. That being said, the argument for bringing Bags into the SP plus organization is to maximize Bags' opportunity to grow as its own stand-alone company, but also at the same time capture these cross-selling synergy opportunities that go both directions that we've been talking about. And that, in combination with bringing Bags in, should enable SP to grow at a faster clip on a sustained basis. And that really is the foundation of why I'm increasingly comfortable in putting a target out there that says that we will grow faster than where we have been in the last few years.

So it's really, really, really difficult to say, well, this part is this and that part is that. And that's why we brought Bags together with airports in to an aviation group because increasingly, so much of what we do with Bags and with our former Airport division as a stand-alone, now part of the aviation group, is sort of interrelated. And I'm expecting -- obviously, we're in a transition year where the prior year numbers are not as meaningful because there was no Bags in them. Once we get to 2020, our ability to sort of grow at this sort of sustained target range is going to be the prime focus. And certainly, we expect Bags' potential for faster growth will contribute to that.

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Operator [21]

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(Operator Instructions) Your next question comes from the line of Kevin Steinke with Barrington.

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Kevin Mark Steinke, Barrington Research Associates, Inc., Research Division - MD [22]

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So when you went through your strategic overview of Bags and the combination with the legacy business and you said you kind of built up to an addressable market. Just wondering if you could give any more detail on how you built up to the potential addressable market for Bags? Yes, obviously, there's low penetration of Remote Airline Check-in. I think you serve about 70 airports and Bags is in only 3 with the remote check-in, and I believe it was the latest number. But any other factors that went into building up that addressable market opportunity? Did you go through your clients kind of one at a time and trying to add up the cross-selling opportunities? I guess just any more color on how you built up to that opportunity?

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G. Marc Baumann, SP Plus Corporation - President, CEO & Director [23]

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Yes. Well, I think we certainly -- we definitely have looked at the 70 airports that SP operates at. And I try to get our heads around who might be in need of the remote check-in service. And obviously, the larger and more congested, let's just call it top 50 airports are going to have greater needs than maybe a smaller airport that is not experiencing as much congestion.

That being said, we are not operating at SP at all of the top 50 airports. So I think an important thing to remember is that cross-selling opportunity, obviously, is between Bags and SP, where SP has client relationships, but the stand-alone Bags opportunity is at all the places that could benefit from Bags' services. And we're not ready to talk further about the details of some of the opportunities that are being pursued, but Bags had its own pipeline of opportunities that it was pursuing at places that SP does not operate. And so they will continue to do that and we will continue to help them do that.

So I would say the addressable market for Remote Airline Check-in is not limited to the places where SP operates. And quite honestly, we don't -- we're not going to keep Bags as a captive that can only operate where we operate. We want to maximize the potential opportunity of growth for Bags as its own business. And obviously, the way that we're going to do that is to enable them to continue to go out and pursue things that don't involve SP Plus.

So I'd say that's how we thought about the addressable market for Remote Airline Check-in. Bags has other services that it provides. And some -- all of these, I think, have been talked about in the past. They provide sky cab services for major airlines. They provide wheelchair services for major airlines. They run baggage services offices. They deliver delayed luggage for 17 airlines in 270 cities in North America. So they have -- and they also operate some parking and valet operations as well that look very much like what SP does.

So when you look at all those things, they all have growth opportunities as well. And obviously, the way that you're going to grow in some of those other services is that you're going to expand a number of places that you provide those services. And many of those other services are provided by Bags at place -- at airports where Bags does not operate, so -- where SP does not operate.

So I think -- I'd say the addressable market there in a perfect world would be airline X, how many places do they have sky cab? So the market for airline X is going to be wanting all of those. That's the addressable market. And so that -- so the process that we went through, both internally, SP and Bags' management and some outside advisers, really was to try to think about what could we really capture, how do we go capture those things and set forth some plans, so that we can put steps in place that are going to get us some wins sooner and that will enable us to get that growth -- growing at the faster rate on a sustained basis. That's the plan.

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Kevin Mark Steinke, Barrington Research Associates, Inc., Research Division - MD [24]

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Okay. Great. And then to capture all these opportunities in front of you, I know you said you think with that faster growth, you can also drive faster growth in EBITDA and faster profitability growth. But to capture the growth opportunities ahead of you, do you feel like you have the right team in place? Do you need to add more business development resources? What's the strategy there?

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G. Marc Baumann, SP Plus Corporation - President, CEO & Director [25]

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I mean, first of all, because G&A is a fraction of gross profit, if we can get gross profit growing in that 3% to 4% range, even if G&A grew 3% a year, we're still going to get higher growth on EBITDA and below. So we've always been very good at trying to leverage our operating model and keep G&A growth under control.

Now given what you just said, you're absolutely right in what you're thinking. We don't want to be constrained on our gross profit growth because we failed to invest in capabilities. And so we are continuously looking at should we add another resource to do this? Should we add another resource to do that? We certainly have the right leadership in place at both SP Plus and Bags, so it's not a question of we need new talent at the top, if you will. What we -- but we may say, look, is the bandwidth sufficient to be able to pursue all these things? And I can say that we are -- it's something that the President of Bags and the President of our Airport division and I spend a lot of time talking about and looking at because we're -- often, the 3 of us are involved personally in many of these opportunities to try to make sure we're capturing them and we are certainly going to make sure we have the right additional resources to help us do that.

So -- but we also recognize that we need to have growth not just on the top, but also on the bottom. And so we have to make sure that we're making prudent decisions about adding G&A costs. If they can accelerate growth, we're going to do it. And at the same time, we're also looking at how can we better utilize technology to enable process efficiency and mitigate our cost base of operating our business on an ongoing basis, something, again, we have done for a long time, so that as we add resources to enable faster growth, ideally, we're taking some resources out of the organization and enable -- from a G&A cost point of view to enable us to afford that without necessarily driving G&A up at a faster clip.

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Operator [26]

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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 [27]

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I wanted to go over a couple of things on the -- thinking about sort of gross profit, one of the comments around gross profit per same location growth. I was wondering if you could delve a little bit more into maybe what you're seeing there that led to that strength. And then -- and also -- then I have a follow-up on facility count.

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G. Marc Baumann, SP Plus Corporation - President, CEO & Director [28]

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Got it. Well, I think -- let's be honest, we're operating actually in a good economic backdrop. So that helps. And so when we have a good economic backdrop at our lease locations, we have the ability to put up rates. And so we're actively looking at opportunities to do that. We've certainly put a lot of our focus on operating excellence at all of our locations, both our lease locations and the locations we operate on behalf of clients. And so we're looking to drive faster performance. We've talked before about the fact that we have been investing in our digital strategy to ensure that as we allocate inventory to different channels that we're maximizing the profit opportunity out of that, that we're driving online sales where it makes sense and where the market is receptive to that way of decision-making to purchase either monthly parking or transient parking.

So a number of those initiatives around growth in the online space have been in place for the last year as we've brought in additional resources to do that. So I think it's a combination of all those many factors contribute to strong same location growth in the quarter. That -- those kind of activities kind of go on a little bit independently of our focus on winning new business and driving the national account strategy, the vertical strategy and the cross-selling with Bags. So hopefully, the combination of all those activities can enable us to be in that 3% to 4% range.

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Marc Frye Riddick, Sidoti & Company, LLC - Business and Consumer Services Analyst [29]

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Excellent. And then that kind of ties in a little bit to where I was going with the facility economy. I think -- I know it's a little different than it had been in the past as far as primary focus is to the number, but I was -- wanted to get a sense of that count seems to have been kind of stable year-to-date. I was wondering maybe if you could sort of just give a broad general view as to where you feel you are with maybe pruning those large contracts that had a lot of facilities, but weren't as profitable? Sort of where you are in that process? Or maybe what inning you are in that game because it seems as though that facility count has been sort of flat year-to-date.

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G. Marc Baumann, SP Plus Corporation - President, CEO & Director [30]

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It has been flat. And bear in mind that we -- I think starting at the beginning of this year, we really just set our -- the location count that we're going to publish and talk about is really related solely to the Commercial division because the concepts of location in the context of the Bags business and to a certain extent our airport division, legacy SP Airport division, it's really not all that meaningful. And so the location count that you're talking about is really for the Commercial group.

We actually experienced a period of decline in the location count over the past couple of years for a variety of reasons, including the one you mentioned where we didn't carry on operating a couple of larger multi-location portfolios where we weren't actually making a lot of money, but did represent a lot of location counts. We also -- we're calling out some things that weren't performing. And so that led to a reduction in locations. But I've been asked many times and people have commented on strong performance, but can you really grow on a sustained basis without growing locations? And the answer is, no. We -- one of the ways that we grow on an organic basis, the same location basis is, obviously, selling additional services into an existing client at an existing place where we do things. But if we really wanted to continue that growth, we need to get more locations.

So actually, I'm quite pleased to see that our location count for the Commercial group has stabilized over the past 6 months. And you can be rest assured that a major focus of discussion that I have and the leadership of the Commercial division has is around adding locations and in more aggressively winning locations that you might say involve us getting a foot in the door with one service. I think, honestly, as a company, for many years, we say, well, if we can't make X, we're not going to bother with that. And I think we're -- our thinking has evolved to where we're saying, well, look, if we can get in the door, maybe in a small way, we start to form a relationship and that enables us to bring a broader array of services to that client over time and build up the profitability of that opportunity.

So we are definitely focusing some of our efforts on trying to bring that about. So I'm hopeful that as we look forward over the next 6 to 12 months, we're going to start to see an increase in the commercial division organic location growth.

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Marc Frye Riddick, Sidoti & Company, LLC - Business and Consumer Services Analyst [31]

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Okay. Great. And then the last one for me. The -- I think you made mention around adding maybe personnel in the national accounts area, if I heard that right. I was wondering if you could follow-up on that as to maybe potential targets or thought process behind that part.

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G. Marc Baumann, SP Plus Corporation - President, CEO & Director [32]

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Yes. Yes. That's right. So I mean we did bring in somebody out of the healthcare space to help us drive the healthcare vertical, and I touched on that earlier with the whole conversation around the group purchasing organization. We did something similar in hospitality, brought in a veteran who was sold into the hospitality space. And working with him, we're pursuing a number of opportunities at a higher level in the hospitality space that hopefully can enable us to win some portfolios and other opportunities rather than the one-by-one approach that I mentioned earlier in my comments.

And then we did also bring someone in to work on the national accounts team under our Head of National Accounts and Business Development for the Commercial group, so that we can focus on large property management relationships and people that are overseeing multiple properties and ensuring that we are delivering technology solutions, quarterly business reviews, dashboard with performance metrics and the like to those national clients and giving -- because on the same national client we have is not -- we don't have everything from them. And so we're trying to make a compelling differentiated argument to them that says, the more things that you -- the more places that you give us to operate, the more you are going to benefit by having this national relationship with us. And so that is clearly a focus.

And as I indicated to one of the prior questions, if we feel that we need more resources to focus on these areas, we're going to put them in place too. So that's something that we're constantly evaluating, so that we're not failing to capture national account opportunities in the commercial real estate space, in the healthcare space and the hospitality space for lack of resources and focus on those areas.

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Operator [33]

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And I'm showing no further questions at this time. I would now like to turn the call back over to Marc Baumann.

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G. Marc Baumann, SP Plus Corporation - President, CEO & Director [34]

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Thanks, Bella. And I just want to wrap up by thanking all of you for joining us today. We're excited to be off to a great start in 2019. As you've heard, we have a number of initiatives underway. I hope that our comments around our strategy for growth have been helpful. And really, we're positioned as a follow-up to a commitment I made earlier in the year to lay that out for all of you. And so anyway, we'll get back to work and try to ensure that we are growing and we'll look forward to speaking to you next quarter. Thank you.

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Operator [35]

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Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.