Earnings Transcript for SP - Q2 Fiscal Year 2021

Operator: Good day and thank you for standing by. Welcome to Quarter Two 2021 SP Plus Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Kristopher Roy, Chief Financial Officer. Sir, please go ahead.

Kristopher Roy: Thank you, Rachel, and good afternoon, everyone. As Rachel just said, I am Kristopher Roy, Chief Financial Officer of SP Plus. Welcome to our conference call following the release of our second quarter 2021 earnings. During the call today, management will make remarks that may be considered forward-looking statements, including statements as to the impact of COVID-19, outlook for 2021 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 or implied due to a variety of risks, uncertainties or other factors, including those described in the company’s earnings release issued earlier this afternoon, which is incorporated by reference for purposes of this call and 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 the earnings release. To the extent other non-GAAP financial measures are discussed on the call, reconciliations to 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 is being recorded. A replay will be available on the SP Plus website shortly after the end of the call and will be available for 30 days from today. I will now turn the call over to Marc Baumann, our Chairman and Chief Executive Officer.

Marc Baumann: Thank you, Kris, and good afternoon, everybody. This was another quarter of solid execution for SP Plus, business conditions continue to improve as COVID restrictions eased and higher vaccination rates spurred consumer activity. I am very pleased to report that we were able to manage effectively throughout this period, calibrating the service levels to accommodate increasing traffic in many locations, while keeping costs in check. This enabled us to post robust adjusted EBITDA performance, which was 31% above first quarter 2021 and represented a 51% margin on gross profit. A strong indication of how we have streamlined our company to become a leaner more flexible organization. Our better than expected performance in the second quarter was broad based, tied to the recovery that is underway in many of the verticals we serve, as well as our size, scale and reputation. This enabled SP Plus to effectively ramp up and expand our business with existing clients and win new business in both our Commercial and Aviation segments. Although, most aspects of our business have not yet returned to where they were prior to COVID, and in fact, some verticals such as large events and services, such as valet parking remain significantly affected. We’re pleased with the progress we’re making and we’re increasingly confident in our ability to exceed pre-pandemic EBITDA levels once business conditions returned to more normalized levels. In the second quarter, we started up over 80 new operations in our Commercial division, representing a mix of hotel, commercial and retail sites, and several event venues. A few are former clients who are forced to close during the pandemic, but the majority are new wins. In many instances, it was our touchless technology and other innovative tools that sealed the deal for us. And others, it was because they were attracted to our tech solutions and robust marketing campaigns that for one client increased their monthly revenue by approximately 15% from where it was before we took over. And some chose SP Plus because of poor service rendered by the incumbent operator that cause consumer complaints and issues. We’re making excellent progress in deploying our on-demand solutions for gated and gateless operations. We’re now live at over 400 gateless locations. Transactions on the gateless platform grew over 200% during Q2 as we onboard more locations and we believe that there is considerable upside at same locations as we further optimize these operations. We have 25 gated locations up and running, and another 100 locations in the implementation queue, great progress toward our goal of having 150 locations live on our gated solution by the end of the year. Reservations on Parking.com are outpacing pre-COVID volumes, as our technology offering is helping to facilitate the return of people to offices and central business districts. Additionally, increased car ownership and the consumers’ reluctance to use mass transit and rideshare services due to COVID-19, they’ve all been positive factors for our operations. Also, we’re now powering various client websites using our Sphere Custom solutions, which is enhancing our stickiness to our clients. These micro sites are an excellent fit for larger operations, like those in stadiums and convention centers, and for municipalities. 2021 has been another banner year for our Aviation division. We have a number of new wins and renewals, and are seeing additional opportunities to expand our relationships by providing additional services to our clients. A good example of this is the new white glove service we developed called Curbside Concierge, which is debuted at Tampa Airport to accommodate travelers following Superbowl 55 earlier this year. This service allows travelers to check in with the airline and check their Bags at the curbside for a nominal fee. In developing it, we combined Bags proprietary technology with the Sphere mobile point-of-sale system we built at SP Plus, giving us a unique offering that allows travelers to check in for multiple airlines. During the second quarter, we went live with his service at 10 markets with our first major airline client, with plans to expand to another 30 markets by the end of the year. We’ve seen strong interest from other airlines as well as the industry looks to provide value-added services for their customers and reduce congestion in their terminals, while also reducing their operating costs. Early survey results show 92% of respondents are highly satisfied with the service, with 95% indicating that they would use the service again. We see this as a potentially significant opportunity for Bags to build back its revenue base in a post-COVID environment. Also, just last week, we announced that in partnership with two minority owned businesses, we were awarded a 10-year contract renewal at the Bush Intercontinental Houston Hobby and Ellington airports in Houston, Texas. This involves parking management services for approximately 36,000 parking spaces at Houston’s two largest airports, as well as valet services, shuttle buses, ambassador and courtesy carts to transport passengers and engineering services. In addition, we’re also providing remote airline checking services for valet customers at Houston Hobby. And we’ve been notified of several additional awards by large airport and airline clients, but are not in a position to talk about those as of yet. We’ll be announcing some of these wins over the next several weeks. Additionally, we’re working closely with our hospitality clients to ramp up operations to accommodate the return of leisure and business travelers. And here again, we believe there will be opportunities for SP Plus to provide an expanded array of services than in the past. In summary, second quarter results showed considerable sequential improvement and with the first half completed, the added visibility of our portfolio and our expectations for continued progress in the second half of this year, we’re pleased to be able to raise our guidance for full year 2021. Specifically, for 2021, we now forecast gross profit of $170 million to $185 million, up from our prior forecast of $140 million to $160 million. At the same time, we now expect G&A to be $85 million to $90 million, as compared to $75 million to $85 million previously. The higher G&A than we previously expected relates to higher accruals for performance based compensation, as well as additional investments in technology initiatives and other resources to better position us to take advantage of new business opportunities as business activity continues to pick up. We’re also initiating cash flow guidance, which Kris will discuss in his financial review. I’ll now turn the call over to Kris.

Kristopher Roy: Thank you, Marc. Let’s take a closer look at our financial performance in the second quarter of 2021 on an adjusted basis. As a reminder, our GAAP results, as well as a full reconciliation of all non-GAAP measures to GAAP measures were issued in our earnings release after the market closed today. We are very pleased with adjusted gross profit of $46.4 million in the second quarter of 2021, which marked an increase of $42.5 million from last year second quarter. This strong year-over-year comparison primarily reflects improved business conditions, compared to a tough second quarter of 2020 that was severely impacted by COVID-19. Adjusted G&A expenses for the second quarter of 2021 were $21.8 million. While this was a 14% increase from a comparable quarter in 2020. Remember that in the year ago quarter, we took some actions to reduce G&A in response to the onset of the pandemic, including temporary pay reductions and lower accruals for performance based compensation. Second quarter 2021, mainly reflects certain compensation costs, returning to more normalized levels, including higher performance based compensation in 2021 in light of the business recovery underway. However, we are pleased to say that adjusted G&A in the second quarter of 2021 remains 20% below 2019 second quarter levels, mainly due to our continued diligent cost management. Second quarter of 2021 adjusted earnings per share were $0.49. This compares to an adjusted loss -- net loss per share of $0.86 in the second quarter of 2020. Additionally, we are very pleased to report strong second quarter and year-to-date net cash from operations and free cash flow. In the first six months of 2021, the company generated $23.3 million in net cash from operations and free cash flow of $17.1 million, driven by strong business performance and modest capital expenditures. These numbers not only give us confidence that we will have a higher free cash flow year-to-year as we previously anticipated, but also to initiate full year guidance for both these metrics. We now expect full year operating cash flow of $52 million to $66 million, representing a 47% increase at the midpoint compared to 2020 levels. Our expectation for full year 2021 free cash flow is $40 million to $50 million or 57% above 2020 levels at the midpoint. Our financial performance in the first six months of 2021 together with our expectation for continued improvement in business activity in the second half of 2021 let us to increase our guidance range for full year gross profit by $27.5 million at the midpoint, with a range of $170 million to $185 million, as Marc discussed. With that, I’ll turn the call back over to Marc for his closing remarks.

Marc Baumann: Hey. Thank you, Kris. Our improving outlook, demand trends and flexible cost structure position us well to benefit from the pickup in travel and the return to the office, both of which are expected together steam later in the year. We worked hard to support our clients as they navigated this challenging environment and we will continue to support them in any way that they need. Our clients have appreciated our flexibility and the strong service levels we delivered at a time when many of our competitors were far less focused, and we expect to see additional business opportunities and expanded scopes given that we have proven our ability to deliver. While there continue to be some concerns about the economic impact of the Delta variant. We’re confident that we’ll continue to benefit from better business conditions in the second half of the year and beyond. Operator, I’d now like to open the call up for questions.

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Daniel Moore of CJS Securities. Sir, your line is open.

Daniel Moore: Marc, Kris, good afternoon. Thank you for taking my question.

Marc Baumann: Good afternoon, Dan. Thank you.

Kristopher Roy: Good afternoon.

Daniel Moore: Obviously it’s a pretty significant progress once again this quarter. Pre-pandemic EBITDA was running just under $30 million a quarter. You are already back to $24 million. So, obviously, really good progress. I think there’s still some uncertainty among investors just in terms of what profitability would look like when we, let’s say, fully open back up or under kind of 2019 conditions. So, given the contract revisions, as well as the share gains that you’ve made, if we move back at 2019 levels, what would kind of EBITDA look like relative to or 2019 operating conditions, what would EBITDA look like in that scenario? I know it’s a difficult question, but just even qualitatively would be helpful?

Marc Baumann: Sure. I think our -- you are right in what you’re saying, Daniel, we did make a lot of changes during the pandemic. We renegotiated a lot of deals. Deals were converted from leases to management. And some lease terms were changed to try to eliminate minimum guarantees. But as we look forward at the business, and of course, we have had strong new business during the pandemic as well, our expectation is that when conditions, in other words, mobility conditions, when people are resuming their normal pre-pandemic lives, the company would -- we would expect it to be back to pre-pandemic EBITDA or greater. So I don’t think there’s anything structural that’s happened that would preclude that. One thing we have said previously, and I think, that’s still true to certain extent is that, because we did restructure some deals, it may take us a little longer to get to pre-pandemic gross profit than to get to pre pandemic EBITDA. And that’s why Kris and others here have been so focused on taking structural costs out of the business, so that we can resume pre-pandemic EBITDA once the business activity and commercial and consumer mobility returns to pre-pandemic levels.

Daniel Moore: That’s super helpful. Just housekeeping, were there any cost concessions in the gross profit numbers this quarter similar to Q1?

Kristopher Roy: Yeah. We did have some cost concessions, Dan. I think if you look at it, certainly, the cost concessions as a $1 amount is certainly reducing. I think if you go back to Q1, we would have recorded $18.4 million or so of cost concessions. If you look at Q2, that number has certainly gone down. I -- I’d say it’s just over $10 million, about $10.3 million in terms of cost concessions going to gross profit. So we are seeing those cost concessions reduce. The good news with that is that revenues increasing, which is allowing us to be able to release some of those cost concessions. So it’s certainly a good story to see the revenue go up and it’s somewhat of a good story to see those cost concessions go down.

Daniel Moore: No doubt. Just in terms of the lease portfolio, where would you say capacity utilization is today, at least locations kind of compared to pre-pandemic? How’s that performing?

Marc Baumann: Yeah. That is a hard thing to generalize around, given that we have so many hundreds of leases. We’re certainly seeing strong parking demand in a lot of markets as people have been reluctant to get onto mass transit or back into ride sharing. And I think we’ve said this before and this is a trend that has continued, at certain day parts, at certain locations, we’re seeing transient volumes, as people just showing up the park that are greater than 2019 levels. I think that’s happening more and more places. But we’re -- are -- as a business, if we start to see capacity reaching the point where we would have to put full signs out, that’s usually an opportunity to put up parking rates. And so one of the things that we’ve been doing in this immediate recovery period of the pandemic is ensuring that we’ve got the supply demand right and we’re putting up rates where there’s an opportunity to do so.

Daniel Moore: Excellent. Last one for me, I’ll hand it over. But Bags, certainly, sounds very encouraging, the agreement with Hawaiian Airlines and it sounds like you’ve got dialogues with other airlines and/or airport customers in the hopper. Is it the accelerated spike in demand for air travel? Is it your message resonating a little bit more with new -- potential new customers? Maybe just talking about, I guess, the marketing side of it versus just the macro side of it and any color around some of those new deals? I guess we’ll have to wait and hear on, but certainly, sounds encouraging? I will leave it there.

Marc Baumann: Yeah. Agree. Thanks. Good question, Dan. I think as -- everyone probably knows, pre-pandemic, Bags provide a number of services for leisure travelers and they’re tied either to airports or resorts or cruise travel. And so clearly the services they provided traditionally around airports, which was the delayed luggage delivery, where they deliver delayed luggage for 17 airlines in over 13 markets. Those services are ramping back up as more and more luggage is delayed. And I think we’ll see that ramp up even further once the airlines resumed their sort of hub and spoke networks. During this immediate period, they -- a lot of the airlines have gone to more point-to-point, which tends to keep demand for or the -- what delay, example, delays of luggage to be lower than it would be in normal times, let me say it that way. But what we also found and we’ve talked about this at the time we acquired Bags, there’s a need to reduce congestion in the terminal and it may be congestion at the counters, it may be congestion at the TSA lines or it may be congestion at the curb, as people are loading, unloading. And Bags has traditionally provided outsource skycap services for some airlines, but with their proprietary multi-airline tool, they’re able to check in passengers from any one of seven airlines using one terminal and that tool, we were pitching to all of the SP Plus airport client’s pre-pandemic as a way to alleviate congestion in the airport terminals. And we had a number of airports ready to go as the pandemic started to unfold. As we went through the pandemic period, the Bags leadership team started thinking a little bit about that tool and those capabilities and said, well, why don’t we, as airlines are looking to be cost conscious, maybe more so than pre-pandemic and airports are also facing cost pressures, because of the pandemic, maybe we could offer up a consumer pay model for that same service. And that’s what the Curbside Concierge product is that we talked about in our remarks, which we tested at -- after the Superbowl in Tampa for one day with a few airlines that worked very, very well and as a result of that one airline and soon I think other airlines are going to pick that up and enable us to sort of roll that out in many, many markets throughout the country. And I think that represents an opportunity not only to recover more quickly then maybe would have happened otherwise, but also for Bags to take market share away from some of the people that were providing the traditional skycap services, because this would be a replacement for those services. So we’re very excited about the early prospects, particularly as we talked in our remarks to consumer acceptance of this and their willingness to and eagerness to use that service going forward. And even if people felt more comfortable being back in the terminal, because COVID wanes and dissipates later, you still can’t be getting rid of your luggage outside the terminal. Now you’re free to get in there, move about, going to the shops and relax before your flight. And so we think that it really fills an important niche that consumers are looking for as they seek to travel with less friction.

Daniel Moore: Great. And my question was a little big. But that’s exactly the color I was looking for. I will circle back and jump back in queue with any follow ups. Thanks.

Marc Baumann: Thank you.

Operator: Thank you. Our next question comes from the line of Tim Mulrooney from William Blair. Sir, your line is open.

Tim Mulrooney: Marc, Kris, good afternoon. Congrats on a nice quarter.

Marc Baumann: Thank you.

Kristopher Roy: Thank you.

Tim Mulrooney: So a couple questions here. First on the guide, so the midpoint of your guide, I think, implies about $91 million in gross profit for the second half of the year, which is up about 5% versus the first half of 2021 and I think it’s great that you guys raised the guide here. But I am wondering why, you would only expect a 5% improvement in the second half of the year over the first half, when folks are expected to start going back to work after the Labor Day weekend. Is there just some conservatism in the numbers here as you take a wait and see approach or are there other considerations that I should be taking into account?

Kristopher Roy: I don’t know if there’s conservatism in there. Tim, I think, if you go back to Q1, we called out about $4.8 million or so in concessions that really went through Q1, but really related to last year 2020. So I think if you pull that out, I think the growth is in the second half would be closer to 11%, if you kind of plug that -- those concessions. So still pretty robust growth in terms of expectations for the back half of the year.

Tim Mulrooney: That’s a…

Marc Baumann: And…

Tim Mulrooney: That’s a really good point, Kris. I forgot about that. Sorry, Marc. Go ahead.

Marc Baumann: No. I was just going to say, Tim. And of course, one of the uncertainties in forecasting right now is that there has been this amazing surge in leisure travel going on right now, which is a very good for our business, because we are serving a leisure traveler and nobody knows exactly what that leisure curve will look like. I like to think that we’re just at the beginnings of a prolonged surge, because everybody has a lot of pent up cabin fever and want to get out there and do things. But we also know that normal patterns for leisure travel are that they’re very strong in the second quarter and third quarter. And then as the schools reopen and people go back to their kind of normal patterns, the leisure travel sort of fades away a bit. So, it’s challenging to try to overlay the pandemic recovery on top of the normal patterns of leisure travel. So our expectations are that there’s going to be strong leisure travel, but it remains to be seen what that pattern really looks like.

Tim Mulrooney: Right. Yeah. Okay. Thanks, Marc. Kris, you mentioned with the previous analysts cost concessions, I think you said $18 million and then $10 million. Was that on revenue?

Kristopher Roy: Well, there’ll be -- we’ve got, there’s probably two pieces to that, some of that will go through in terms of a reduction in cost of services for our leases. There’s also some service concessions, which are really more, I would say, government, quasi governmental. Just under the accounting rules that they really are lease type contracts, but concessions go through as a reduction of revenue.

Tim Mulrooney: Yeah.

Kristopher Roy: So it’s a -- or an increase in terms of gross profit. So it’s just a little bit -- under the accounting rules, it gets into a little bit of complexity there just from pointed out of one individual line item. We’re going to be filing the Q here in the next couple of days and so you’ll see that pointed out in the footnotes the dollar amounts for each of those components.

Tim Mulrooney: Thank you for clarifying that. And let me just ask this a different way, you had $4.8 million of cost concessions in the first quarter of 2021. Was -- is there any in the second quarter of 2021 that we should be taking into account here on this nice gross profit beat that you had in the second quarter?

Kristopher Roy: Well, when you -- when we called out the $4.8 million that really related to periods that we started negotiations in 2020. But under the accounting rules until we get full resolution, we weren’t really able to book that. So we booked it in Q1. If you look at the total cost concessions that we were able to get, Q1 had about $18.4 million in total cost concessions and in Q2 we have about $10.4 million. So we’ve seen some reduction in the total cost concessions that have gone through from a gross profit per -- perspective.

Tim Mulrooney: Understood. Okay. Thank you. Maybe just one more from me, within your office building clientele, I’ve heard discussion about things like multi-day passes, non-standardized pricing structures? I mean, can you talk a little bit more about what these are, if you’re seeing more demand for these types of non-standard arrangements as many companies transition to a hybrid working model?

Marc Baumann: Sure. Well, we have clearly created technology that enables all of those things. And so in the office building space, we’re generally operating under a management agreement working for a client who is either the building owner or the property manager for the building. And so generally speaking for office buildings, our -- what we are able to make in management fees is not dependent on the utilization of the parking facility. The client is paying us to manage it efficiently and optimize it for to meet their objectives. So if a client wants to offer a multi-day pass or some other discounted parking early bird specials which have been around for a long time, all of our Sphere technology is fully capable of providing for that. But -- and I will say that from the point of view of people commuting since suburbanites have not yet really resumed mass transit at the levels of pre-pandemic. I think you’re seeing this in almost all the suburban rail, they’re still operating very, very little levels, whereas the -- in Chicago we have the CTA for the industry itself. They’re running it roughly 50% of pre-pandemic, the suburban rails running at maybe 10% to 15% of pre-pandemic. So people are driving more and consequently there maybe not going to be there five days a week, they don’t want to pay the daily rate. They don’t want to buy monthly yet. And so there definitely is room for incentives and we’re well equipped to do that, as well as offer marketing programs to our clients to try to draw people to the properties.

Tim Mulrooney: Got it. Thank you very much.

Marc Baumann: Thanks, Tim.

Operator: Thank you. [Operator Instructions] Our next question comes from the line of Kevin Steinke from Barrington Research. Sir, your line is open.

Kevin Steinke: Hey. Good afternoon.

Marc Baumann: Hi, Kevin.

Kristopher Roy: Hi.

Kevin Steinke: I just wanted to talk a little bit more about your lease portfolio and you, obviously, the last few quarters went through an accelerated process of renegotiation and exit where necessary. Is that process ongoing, is that something you’re maybe backing off a little bit on now that results are recovering or kind of what’s the overall state of the lease portfolio and your ability to improve upon that?

Marc Baumann: No. It’s ongoing Kevin. One of the things that we do on a regular basis is look at the performance of each of our leases. It gets easier and easier for Kris and me to do that since we have fewer of them now. But we still have 400 plus leases in our commercial division and clearly they’re all seeing improvement as we come out of this pandemic period. As Kris indicated, we’ve had concessions and that’s helped their performance and now that revenue is growing we will -- they’ll have to stand on their own if you will as the concessions continue to go down on a forward basis. But long-term we like leases, we want to be in leases, but as we enter into new leases or renew existing leases one of the things that we’re really keenly focused on is, what happens if there’s another pandemic or a resurgence of some sort of economic downturn, can we have a way to terminate the lease early or make sure that we have concessions or provisions in the lease where it converts to percentage rent only and no base rents. So if we can get those types of terms we’re entering into new leases and because some of the other players in our industry who’ve traditionally done leases have in some cases defaulted on their lease obligations or not fulfilled them, that’s caused some of their landlords to turn to us and say, hey, what would you be willing to do. And that puts us in a position to say we would be happy to work with you, but we need to have these types of provisions in our contract. So that’s sort of our go-forward approach. If we have leases that aren’t able to make money and I kind of use 2019 as the benchmark, we had some that didn’t make money in 2019. They’re probably not going to make money in 2022 either. And so for those leases we’re trying as always to improve the terms by renegotiation, in other cases those leases will come to their natural expiration. We have very few leases that have more than five years to go on the terms. So in essence any lease we have today that we don’t like has a position to move away from over the next few years. But I expect the company will continue to see growth in its management contract portfolio. That’s our bread and butter. That’s what we’re used to serving clients. But we will continue to have leases, although, probably, that will continue to decrease as we look ahead over the next few years.

Kevin Steinke: Okay. Great. That’s helpful color. I wanted to ask about maybe an area that hasn’t been mentioned as much the last few quarters here just in light of COVID. But your growth opportunities in both the municipal and institutional markets that is healthcare, universities, et cetera. What’s the state of those opportunities? Is that kind of slowed down during the pandemic in terms of the pipeline or what sort of opportunities are you seeing coming out of the current environment in those particular markets?

Marc Baumann: Yeah. There’s been a tremendous amount of interest in the sports world. I think because in fact sports came to a standstill during the pandemic. Now everybody is realizing that we’re kind of back to normal or we’re rapidly moving back to normal with an expectation of back to normal during the fall here. And so while we continue through our SP Plus Gameday division to operate large events during the pandemic. We’re starting to see lots of inbound requests for help from universities and professional teams that are saying, we need to help planning the recovery and return from the pandemic. So, very, very strong interest in the sports and venue world for either events or activities coming this fall or in the first parts of next year. Municipalities have continued to do their, they’re putting things out to bid. We picked up a couple of smaller municipal contracts over the past few months and continue to see that vertical as a important one for the long haul. I think municipalities in general event somewhat distracted by the pandemic and their objectives of getting the public vaccinated and keeping people safe. And so there’s maybe -- for those who have not yet outsourced parking and other facilities there’s -- there hasn’t been much going on there. There is a large university that’s done a privatization exercise that will be announced fairly shortly that we are involved in. So there’s definitely activity. I think it’s probably taking a little bit of a pause during the pandemic, but we expect it to ramp back up, because once again institutions in the municipal space, they’ve got pension obligations, they’ve got budget challenges, there’s been a surge of money coming from the federal government, but that’s not going to go on forever. And so they’re going to be back to their basic question of how can we get more value out of our assets and bringing us in or SP Plus municipal services into the businesses into their operations as a way for them to drive more bottom line profitability. The hotel area and hospitality have been very, very active, aside from working with our existing clients some of whom had been shutdown and others that were operating at low levels or maybe had suspended valet parking during the pandemic, as we indicated in our remarks they’re in the process of ramping up. But we’ve also -- I think the pandemic has caused a number of players in hospitality to question whether they have the right answer from the point of view of service providers such as ourselves to provide their services. And this has giving us an opportunity to get in front of some of these people for the first time and to talk about what we can do with Sphere technology. Many of them hotels and others have antiquated technology, they’re often looking at big investments and with our Sphere technology, there’s an alternative for them that doesn’t involve upfront investment. And so, I think, you’ll see us starting to bring on more hotels. I think in the quarter, 81 commercial locations that we brought on, 20 of them were hotels. So, there’s definitely going to see an expansion of our activities in the hospitality vertical. The one area that I think has been somewhat dormant during the pandemic as far as the vertical as you mentioned is really healthcare. And I think once again, while we were very excited pre-pandemic to be designated as the preferred parking operator by three group purchasing organizations, it’s been very, very quiet. And I think that’s just a function of the fact that the healthcare systems have been prioritizing dealing with the pandemic and all of the implications that that’s had for their employee base for their -- for the -- for people that are sick and need medical care. But I think once again we come out and things stabilize as I think that will pick up again, because there still consolidation going on in the healthcare space. There’s building in urban markets on surface parking lots and parking garages. And when you create the potential for congestion and mobility friction challenges that’s where SP Plus can come in and really make a difference.

Kevin Steinke: Okay. That’s -- that all makes sense and very helpful commentary. I appreciate it. I’ll jump back in the queue. Thanks.

Marc Baumann: Thanks, Kevin.

Kristopher Roy: Thanks, Kevin.

Operator: Thank you. Our next question comes from the line of Marc Riddick from Sidoti. Sir, your line is open.

Marc Riddick: Hi. Good afternoon.

Marc Baumann: Hey. Hi, Marc.

Kristopher Roy: Hi, Marc.

Marc Riddick: So as always I really appreciate all the color and information that you’re providing your answers and so I’ll be brief and touch on a couple of things around that. I wanted to start maybe with you mentioned of being able to ramp up with your customers. So wondering if you could give sort of an update as to what you’re seeing as far as labor and what those pressures may or may not allow and maybe how that might tie into what you’re doing from a pricing standpoint. And then I have a couple of follow ups after that.

Marc Baumann: Sure. Well, like most businesses that are hiring hourly workers, we have some of the same challenges in getting people. Clearly, the labor supply has been contracted by people who are not in the labor market right now, whether because of concerns over the virus, not having been vaccinated yet or maybe schools aren’t open and they have childcare issues that they have to contend with. So those kind of macro issues affect every business. I think we’ve been successful in filling the labor needs that we have and one of the parameters that we look at is how much overtime are we paying as a percentage of payroll, because if we can’t fill jobs, then we have to pay overtime pay to the other people that we have so that we can get the job done. And our overtime levels as a percentage of payroll are running pretty much at pre-pandemic levels right now. So that suggests that we have enough staffing in place. And clearly as well the labor challenges are geographically based in some markets. It’s no problem at others. In others it’s a bigger challenge. We’ve had to put up wages in some markets or put other incentives in place. Fortunately, our portfolio is predominantly management contracts and so we are having to pay higher wage rates to fill up enrolls those higher rates and costs are passed on to our clients rather than absorbed by us. Now obviously at least locations we have to bear those costs. And as I indicated earlier in my comments, there is an opportunity put up, parking rates in most of our markets, just given those supply, demand equation, and so that’ll be the way that we cover those increased labor cost.

Marc Riddick: Okay. Great. And then, I was wondering if you could maybe switch gears and talk about certainly very strong free cash flow generation even during the challenges of pandemic. I was wondering if you talk a little bit about maybe what you’re looking at from a potential acquisition pipeline perspective and maybe what your views are, what the multiples are out there?

Marc Baumann: I’d say it’s probably premature for us to be back in the M&A market and part of that market that, you don’t really know what a business is going to be performing like after the pandemic. We’ve given some indications today where we feel that when mobility is back to pre-pandemic levels, we’ll be performing at or above pre-pandemic levels of EBITDA. That may or may not be true for all the businesses that are out there. And so I think we need to see how businesses stabilize and return from the pandemic before we can be sure what’s kind of a value attached to those sort of things. So I think that’s right down the road for us. That being said, within the parking space itself, if something sizable from a regional or national basis would become available, we would certainly take a look at it. But realistically, we’re having a pretty good experience is that winning business and taking things away from our competition. And so I don’t think we feel a strong need to do acquisitions in the parking space. So it’s something that we monitor all the time. But I don’t think that’s something that’s really on the horizon for the rest of this year.

Marc Riddick: Okay. And then I wanted to switch back over to the benefits and the progress that’s been made around the technology as far as new business wins and you touched on the marketing campaigns being part of the driving force of winning new business as well. So wondering if you could talk a little bit about maybe if there are particular verticals that have been more receptive or maybe been performed a little better as far as applying the technology or maybe finding new uses for the technology. How should we think about the -- what areas are maybe are a little more aggressive than others as far as gaining share going forward? Thank you.

Marc Baumann: Sure. Yeah. I mean, there really -- you can’t really exclude any of the verticals, because the Spheres suite of capabilities is really very broad based. And for example, for our commercial office building clients, with our Sphere gated solution or our Sphere un-gated solutions, you’re able to eliminate the need for some of the traditional parking equipment and maybe some of the traditional costs that you might have had in that operation. In fact we have the Sphere gate solution in place now at our building in Chicago where we work and I was able to use it today for the first time. I know it’s very slick, because I drove up and on my mobile devices in the Parking.com mobile app. I was able to raise the gate. I did not have to open my window or touch anything, that’s the future and so that’s a more efficient kind of a solution. Also for our commercial or multi-location property owners, our whole Sphere Analytics suite of data and dashboards is very, very appealing, because they can have tremendous visibility into the performance of their assets. In the retail mixed use space, once again people often have antiquated equipment or maybe they aren’t able to capture all of the revenue, they have complex transactions with validations or there maybe pay-in display equipment that is running near the end of its useful life. And so once again our -- the Sphere E-commerce solutions are going to be appropriate in both of those and eliminate the need to make upfront investments in capital and I think that’s very, very compelling. I was just talking to one of our leaders earlier in the week about a retail mixed use center, where they decided to spend a $125,000 to upgrade all their equipment, because they had traditional parking meters. And we said, you don’t need to do that with our Sphere solutions, people can use their smartphone, scanning QR code and pay and that has been extremely well received since we implemented that with them and consequently it kind of feeds into another part of our strategy for growth, which is to generate transaction fees for ourselves off of mobile transactions. All of our competitors in the technology space have built up that sort of a model and so people are used to the idea of convenience fee or a transaction fee. And we see the ability to generate recurring revenue streams that will benefit gross profit and give us additional growth. We’ve also seen a huge increase in demand for our remote management facilities. As people look to control labor costs or maybe labor is hard to come by, people are opening their minds to the idea that maybe I don’t need to be fully staffed or I don’t need to be staffed in certain day parts. And so I think we’ve added more locations to our remote management capabilities, probably in the last 12 months than in any 12 months since we started doing remote management more than 10 years ago. So there’s just -- everywhere you turn, there’s the ability to really drive the transformation with technology to reduce friction and our goal is that, no matter what vertical we’re talking about, no matter what size or scale the operation from something very small to something very complex, we have a technology solution that can improve performance.

Marc Riddick: That’s very helpful. Thank you very much.

Marc Baumann: All right, Marc.

Operator: Thank you. There are no further questions in queue. I am now turning the call back to Marc Baumann for final remarks.

Marc Baumann: Hey. Thank you very much. And obviously we’re delighted with our performance in the quarter and we’re hopeful that these trends will continue throughout the rest of the year and we’ll be having another great call with you next quarter. Thanks for joining us today.

Operator: Thank you. This concludes today’s conference call. You may now disconnect.