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Earnings Transcript for SP - Q4 Fiscal Year 2021

Operator: Good day, and thank you for standing by. Welcome to the Q4 2021 SP Plus Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a Q&A session. [Operator Instructions] I would now like to turn the conference over to your speaker today, Mr. Kris Roy. Please go ahead.
Kris Roy: Thank you, Chino, and good afternoon, everyone. As Chino just said, I'm Kris Roy, Chief Financial Officer of SP Plus. Welcome to our conference call following the release of our fourth 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 and expectations for 2022, 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 are presented in the tables accompanying the earnings release. In addition, GAAP gross profit has been updated to include depreciation and amortization. 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 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. Good to be with you today. We're pleased to report on the positive momentum we've experienced throughout 2021, which has accelerated our company's recovery from the pandemic and presents a runway for future growth. In other words, SP Plus has reached an inflection point, with expectations for our 2022 operating performance to approach or exceed pre-pandemic 2019, which, by the way, was a record year for SP Plus on virtually all financial measures. We've seen a steady and consistent improvement in the levels of parking activity and demand for our services throughout the year, particularly in those markets that were most severely impacted by the pandemic, such as those tied to leisure, travel, and entertainment, resulting in our improved financial performance. We're very pleased to report fourth quarter results, which were in line with our expectations and represented a strong finish to a year of progressive improvement for SP Plus. Fourth quarter 2021 adjusted gross profit was up 42% year-on-year but remained 9% below fourth quarter 2019 levels. This excellent progress indicates there's still some additional runway for recovery, particularly in certain market verticals. EBITDA was just 2% below pre-pandemic fourth quarter 2019 levels, as we were able to achieve substantial operating leverage and improving business conditions, given our streamlined cost structure, together with our success in capturing new business. Our Commercial segment was a solid performer, both in the fourth quarter and full year, as we were able to successfully capitalize on changing consumer trends and our ability to quickly respond to the dynamic needs of our clients as things start to return back to normal. In our Aviation segment, 2021 was a year of significant growth, but there is a somewhat longer road back to full recovery for this segment, given the pandemic's ongoing impact on our travel clients. That said, 2021 was a year of strong new business and renewal activity, and by all accounts, the outlook for the travel industry is bullish. We're responding to the needs of our particularly hard-hit airport, airline, and cruise line clients, and prospective clients by developing novel solutions, such as curbside concierge and consumer-paid remote airline check-in services that are gaining traction due to the positive impact on the travel experience and the ability to reduce congestion while reducing our clients' costs. In addition, we're continuing to see a lot of excitement about our suite of innovative Sphere technology offerings, and we continue to lead the digital transformation of our industry. These competitive advantages continue to differentiate SP Plus and reinforce our market leadership. Our ability to exit 2021 with such strong results is due to the strategic priorities that we put in place in early 2020, upon the onset of the pandemic. In essence, as we managed through the worst of the times, we had three key objectives in mind
Kris Roy: Thank you, Marc. I'm pleased to share more color on our financial performance in the fourth quarter, which marked a strong finish to 2021. This is reflected in the adjusted results that I'll be discussing today. As always, please refer to our earnings release issued earlier this afternoon for our GAAP results and a full reconciliation of all non-GAAP measures to GAAP measures. We reported a 42% year-over-year increase in adjusted gross profit to $49.3 million in the 2021 fourth quarter, compared to $34.6 million a year ago. This performance reflects a substantial recovery in business activity as demand for our services track the reopening of the broader economy, compared to the year ago period when we were still significantly impacted by the pandemic. While adjusted G&A expenses were up 6% year-over-year to $23.9 million in the fourth quarter of 2021 as compared to $22.5 million in the year-ago quarter, this is primarily related to added costs and investments to support the increased business level of activity. Despite this increase, 2021 fourth quarter adjusted G&A still remained 15% below the fourth quarter of 2019. The last pre-pandemic quarter, which is an indication of how we have streamlined our company to do things faster, better, smarter. While some of these costs will progressively return, we think that a significant portion of these savings will stay in place as a result of streamlining administrative functions, driving process efficiencies, and tightening control -- tightly controlling discretionary spending. Now let me briefly sum up our full-year 2021 performance. We reported a 44% increase in adjusted gross profit to $185.5 million, reflecting the substantial recovery, with COVID-19 restrictions easing and higher vaccination rates encouraging increased consumer activity, including travel and leisure in 2021. As our business conditions were nearing the pre-pandemic levels, our expenses in 2021 started to normalize as well. Adjusted G&A expenses increased 13% year-over-year, from $77.3 million in 2020 to $87 million in 2021. As a reminder, at the onset of the pandemic in 2020, we reduced compensation and tightened up on discretionary spending. But by the end of 2020, we reinstated base salaries for those employees affected by the pay reductions enacted earlier in the year. In 2021, we restored certain performance-based compensation programs, which explains the majority of our year-over-year increase. All things considered, we managed effectively throughout 2021, and with the permanent cost cuts I mentioned earlier, adjusted G&A costs in 2021 still remain 19% below the comparable period of 2019. Now switching gears a bit, full-year 2021 free cash flow was $41.8 million, a 46% increase over 2020. We realized a significant year-over-year increase, despite the fact that we paid $15.9 million in 2021 for payroll taxes that were deferred from 2020. Considering that a $20 million income tax refund we expected in 2021 was pushed to 2022, our results were in line with our expectations. So the delay is just a matter of timing, and the refund has been contemplated in our 2022 free cash flow guidance that Marc gave. Even excluding the income tax refund, our 2022 free cash flow is expected to grow more than 30% at the midpoint over 2021. With that, I'll turn the call back over to Chino to begin the Q&A session. Operator, we are now ready for Q&A.
Operator: [Operator Instructions] Your first question comes from the line of Daniel Moore from CJS Securities.
Daniel Moore: Very solid results and even more solid outlook, obviously. What impact, if any, did Omicron have on your business in Q4 and as we look into Q1? And I'm thinking both from a revenue perspective and also from a cost perspective. Historically, it was a labor-intensive business, and those that -- many others have had significant labor challenges, but you seemed to overcome them very well. So maybe just talk about that a little bit, if you could.
Marc Baumann: I mean, I'll just make one overall comment. I think the pleasant surprise that we had, given all of the labor issues, is that at the peak of Omicron, we only had about 2% of our workforce out on sick leave, and that was remarkably low. I know some people in allied industries and other industries where they were facing 20%, 30% of people out on sick leave. So I don't really -- I think our organization really did not see any significant effect in terms of our ability to staff locations and operate. Clearly, some people did make decisions to stay home -- and I'm talking about people that would been traveling and using our services -- and so there was a fall back. We saw this in air travel after the holidays, which would occur anyway. But I think everybody sort of recognizes, in looking at the media, that that wave is passed and people are getting back out there.
Daniel Moore: Indeed, very helpful. And the Aviation segment, if I have my math right, gross profit was nearly $75 million pre-pandemic, now fell to $40 million in fiscal '20. What did that look like in fiscal '21? Just trying to get a sense for how much we still have to make up as travel reemerges in some of those business lines start to reemerge over time?
Kris Roy: Yes. I would say, Dan, if you look at Aviation as a segment, if you look at how we shook out for '21 -- and we'll have this in the 10-K as we file this over the next coming days, but that shook out right around the mid-40s in terms of kind of gross profit. And so, if you look at that business, certainly, Marc mentioned this, and we've kind of mentioned this from -- in previous calls. The road for recovery in Aviation is just going to be a little bit longer. Certainly, you're seeing travel and leisure come back. I think some of our clients have been a little bit slower to implement some of the services that we had on a pre-pandemic basis, so they've got a couple of different things that they need to think through. Some of it is the cost. And certainly, you're seeing increased activity just with people movement, so I think they're -- as they evaluate our services, they're trying to find the right opportunity to bring back those services to meet both the needs of the passengers and travelers, as well as the needs from a financial perspective.
Daniel Moore: So it doesn't sound like the guidance did anticipated -- it anticipates some recovery, but clearly not giving the lion's share of it back in fiscal '22.
Marc Baumann: No. And I think one thing to remind ourselves of, when we went into the pandemic, we -- the Aviation segment, in particular, has a lot of large, complex contracts, and some of those contracts were going to perform very, very badly in 2020. And so, we set out on a path to restructure a number of those deals. We exited some deals. We changed the economic arrangements of some of those deals. We've talked about this on prior calls. And that's why we often, when referring to the recovery path, we talk about getting back to pre-COVID EBITDA faster than we can get back to pre-COVID gross profit. That's true for Aviation more so, in many ways, than the Commercial division. So we will eventually surpass 2019 gross profit in Aviation, but in order to get there, there's a combination of the recovery, which Kris is talking about -- the clients bringing us back to provide all the services. And we're certainly expecting a full crew season in 2022 and other values continue to reopen at some of our big airports, and they're bringing on more shuttle bus routes that have been mothballed. But ultimately, for us to surpass 2022 Aviation gross profit -- 2019 aviation gross profit, excuse me -- we're going to have to continue our great track record of winning new opportunities. And so, I think that it's really going to be a combination of those things that will eventually get us back above 2019 gross profit for Aviation.
Daniel Moore: Perfect. And maybe last one for me, I'll jump back. But any examples or just maybe a little bit of updated color on how Sphere is enhancing your ability to win new business, but also to expand service offerings to offer additional service offerings to existing clients.
Marc Baumann: Yes, I mean, it's become the focal point to decision-making by the client base. And what we've learned is a couple of things. Some of this, as we've talked about before, and the one is that we can capture transaction fees off of processing transactions through the Sphere platform. And I was just looking through my notes before the call, and we had about 250,000 transactions in Q3. So, if you -- I'm annualizing that now; it will be about $1 million, right? And we had a couple of days in December that were 7,000 or 8,000 transactions, so annualize those, and you're up at around $3 million. So we are continuing to push transactions through that platform. We see there's more opportunity for that. And it becomes a differentiator in the decision-making that clients are using. So, the key for us is that we have to continue to roll out and enhance the capabilities of that platform, and so we have a number of new functions and capabilities coming out over the next couple of months that we think will make it even a more attractive platform for our client base.
Daniel Moore: All right, thanks for the color. Again, I'll jump back with any follow-ups.
Operator: Next question comes from the line of Tim Mulrooney from William Blair.
Tim Mulrooney: Congrats on a nice quarter. So, a couple of questions. Number one, Kris, did you say that the Aviation segment did gross profit in the mid-40s in 2021?
Kris Roy: Yes. I don't have that number right in front of me, Tim, but I'd say it's kind of like in that just below the midpoint of $40 million in terms of the Aviation segment.
Daniel Moore: Was there a big step up in the fourth quarter? Because I have you only doing about $10 million, have you doing about $27 million through the first three quarters of 2021. So, to end at $44 million or something means there was a big step-up in gross profit in the fourth quarter. Am I thinking about that right?
Kris Roy: Yes. Certainly, we've had some increased activity in our Aviation group as you continue to see passenger travels continue, travel and leisure is resuming. Certainly, it's a more heavily trafficked time frame of the year, with the holidays and the like. So, from a seasonality perspective, our Aviation business tends to perform pretty well in the fourth quarter.
Daniel Moore: Okay. That's helpful. Another, I guess, kind of bookkeeping. When I look at 2019 gross profit, it was about $228 million. Is that directly comparable to your GAAP gross profit guide of $188 million to $208 million or your non-GAAP guide of $200 million to $220 million.
Kris Roy: Yes. The direct comparable would be the non-GAAP.
Daniel Moore: Okay. Perfect. Just wanted to make sure. I think the bags business, switching gears here, that contributed about $35 million in gross profit in 2019. Given that many of these end markets still have a ways to go to fully recover, how would you characterize the recovery of that business? Is bags back to, I don't know, 50% of the gross profit it was generating relative to pre-pandemic? Is it more or less than that? Any directional help you can give there?
Marc Baumann: Sure. No, it's not back to 50% of the pre-pandemic gross profit because, for the most part, if you look at like the curve of mobility and travel activity throughout '21, yes, we had an amazingly strong leisure travel during the summer, and there were some also very strong leisure travel in the fourth quarter. But a lot of things didn't happen. There was a truncated crew season in Alaska in 2021. There was -- many of our clients at airports and resorts did not bring back all the services, and still haven't. And so, I would say the good news is that we've turned in a performance that is as good as it is for the Company, and yet we still have more recovery story to be told in terms of bringing bags back to where it was pre-pandemic. So that's really -- there's quite a ways to go there. But as Kris indicated in his earlier remarks, the timing of when that's going to happen really as a function of the decision making that the clients make, because many of them have mothballed certain services as an economy-saving mode. We are pitching new ideas to them, and this is starting to open up. We've talked about curbside concierge. I think we indicated that there's 34 airports where we're operating with one airline. We are in advanced conversations with some other airlines about introducing it for them as well, along with some other services. So I think you'll -- it will be a steady, gradual path back, but it's not the kind of thing where we're going to be -- even if travelers are traveling at pre-pandemic levels domestically for 2022 that are comparable or above 2019 -- and that's not happening yet -- bags will not be at 2019 levels of activity that is handling because of decisions by its client base. And so, we're going to continue to see recovery in the bags business going into 2023 and potentially into 2024.
Daniel Moore: Okay. That's really helpful, Marc. And I think it's interesting, too, because if your gross profit is almost back to 2019 levels but bags isn't, that means your core business -- I mean, that's clearly showing market share gains in the core business. And I guess that leads me to my next question because that's one of the most common things that comes up in my conversations with investors is the market share gains that you've had. And now I'm thinking more about the Commercial business. We certainly see total location count ticking up in that business, but I was hoping maybe you could expand a little more and talk about where these contract wins are coming from. Any vertical in particular? And if these share gains are a result of struggling competitors, or are you winning through price? Or are most of these really a result of your technology solutions?
Marc Baumann: Yes. Well, I would say they're mostly the result of the technology solutions. And the technology solutions open up some new opportunities for us, which I'll elaborate on in a minute. But when you talk about verticals, it's a similar story to what we mentioned last quarter. Certain verticals have recovered and are back, for the Commercial segment, above pre-pandemic levels. I'm talking about the profit being generated in those verticals. And so, some of the best vertical recoveries we've seen so far are in the municipal space, the hospital space, and large venues, sporting venues and the like. We actually added 11 new hospitals in 2021, which was -- it was a great year for hospital wins for us. They finally have stabilized their efforts to focus on COVID treatment and all of that, and they're turning their attention back to trying to find the best possible service providers to support them. Our university space is nearly back to pre-pandemic, and so is our Commercial. So it's really the two verticals that continue to lag. One is the office buildings, as you might imagine, as companies have spent time reassessing and resetting their expectations to when people come back to the office; and the whole retail mixed use space, which clearly, people have adapted to online shopping. And in some cases, that's having -- the shopping was also taking place where people go to work. And if you're working from home, then you're probably not going to that store that's near where you live. So those are some of the verticals that we still see will come back. We have a lot of office business, and so I think more and more companies are making commitments about bringing people back, at least on a hybrid schedule, starting here in the next month or two. So I think that will give us a positive uplift on the Commercial group.
Daniel Moore: That's great color.
Kris Roy: Yes, and Tim, just to --
Daniel Moore: Go ahead, Kris.
Kris Roy: Tim, maybe just -- I was just going to say, just to add on to that, you mentioned kind of just the location count, and we're really pleased with kind of the activity that we've been able to see over the last year. And if you look at 2021 from a managed location, we're actually fairly significantly, but let's say maybe 45 locations up on the managed from 2019, which is really good to see in terms of the business coming back. We did have a decrease in the leases, and we've talked about that over the last several quarters here just in terms of looking at those leases and calling the ones that really are unprofitable. So I think we're really happy with our location count in terms of where we landed for the end of the year.
Daniel Moore: Yes. That was really promising to see. We were glad to see that, too. Definitely indicative of the wins and share gains you've been making. Maybe one more from me. Just a quick one, Kris. Any seasonality to keep in mind for gross profit or earnings for the 2022 quarters as we're all contemplating our models here?
Kris Roy: Yes. I mean, seasonality-wise, Q1 is always our softest, kind of softer quarter if you look at it relative to all the other quarters. That's -- it's generally a softer quarter both on the gross profit side. It kind of translates down into EBITDA. It also translates into kind of lower free cash flow as well. So Q1 is a softer part of the year. What I would say is that we're kind of getting into that spring break timeframe, and that's really where we start to see the recovery, that seasonality kind of pick up from kind of the slower part of January and first part of February. Spring break typically starts kind of at President's weekend, it kind of works its way through the end of March and into the early part of April. So far, as we kind of look at the early part of this year, it's kind of coming in as planned. We're not seeing anything that would kind of change how we're thinking about the business. Obviously, we just had our outlook, and we feel good with kind of where we're seeing the numbers come in for the first part of January and a little bit of February.
Daniel Moore: Very promising outlook and good luck in '22, guys.
Operator: [Operator Instructions] Next question comes from the line of Marc Riddick from Sidoti.
Marc Riddick: I wanted to go over a couple of things. Certainly, the outlook is certainly ahead of where my numbers were, and it's very encouraging. I was wondering if you could touch on a couple of things. Wondering, as far as the streamlining of expenses, if you could talk a little bit about how some of those decisions sort of came about, whether that's an offshoot of some of the learnings of the pandemic, or is this sort of based on being able to -- with the technology investments that you made up to this point, having greater profitability from those type of decisions? And then I have a couple of follow-ups after that.
Kris Roy: Yes. I think if you think about the G&A, certainly, there's been a lot of learnings that have come through as it relates to COVID. So there has been us just looking at the business. What I would say, maybe to lead into that is, we thought there was some opportunity to kind of redo things and rethink things in terms of driving cost out of the business. So that was on our radar kind of coming into the pandemic. I think the pandemic kind of accelerated some of those things that we kind of had in mind in terms of opportunities. And I think as we've gone through the pandemic, we've identified some additional opportunities. And what I would say is, while we're not quite done, I think we're continuing to look at opportunities to continue to drive cost out of the business. I would say that what we'd like to do is to kind of take some of those savings and reinvest it back into the business in terms of, how do we try and reinvest those dollars back into the business to accelerate growth at a faster pace? And then, some of that's going to be through our technology solutions. Some of that's going to be through additional business and development folks. Some of that's going to be just investing in our people in terms of compensation adjustments and the like. So it's kind of a little bit of everything in terms of coming into the pandemic, going through the pandemic, and as we've come out of the backside, hopefully, of the pandemic, there's been a lot of lessons learned and a lot of opportunity.
Marc Riddick: All right. Next one.
Marc Baumann: I can touch on that. There's always activity --
Marc Riddick: Hello? There we are. Sorry about that. I lost you. Yes, given the outlook that you have for the year, and certainly, that's very positive, I wonder if you could talk a little bit about what your thought process is now as far as capital allocation and when we might have an opportunity to -- does it make sense to invest in our shares and how we should be thinking about that for 2022?
Marc Baumann: Sure. I mean, I think we've had a desire over many years, given the high free cash flow generation the Company has, to try to create value for shareholders. And certainly, we have bought back a lot of stock in the past. But I think our focus right now is, are there opportunities for us to take some of the free cash flow -- and you've seen our guidance for 2022 on that, it's a pretty big number. In fact, it's bigger than 2019's record number. We're looking at -- and of course, it includes the tax refund. But we're looking and saying, are there investments we could make that could accelerate the pace of growth or the transformation, the digital transformation of our industry and our business? And so, I think that represents at least some -- the thought process of looking at, what can we do to further development of our Sphere platform and its capabilities and those sorts of things. So we'll take it one step at a time. We're going to be generating a lot of cash. We understand that after being highly leveraged last year during the pandemic, we've now come back down into the normal range for our business. We're into this -- about to be in the 2x to 3x level. And so, it does give us the chance to look for ways to accelerate growth because -- but I think we feel the best way to create value for shareholders is to try to grow faster. And that means doing the things that can drive our top line and, of course, our EBITDA.
Marc Riddick: Excellent. And then one last thing from me. I was wondering if you'd talk a little bit about the -- where we are on gateless locations and what you think we might see this year.
Marc Baumann: I was thinking about that earlier. I don't have that number in front of me, but we are well, well down the track. I mean, I think it's 600 or more gateless locations at this point. And so, we're -- we still have a ways to go. There's more where this technology can be deployed in terms of our existing portfolio. We also have the gated solution, which uses a lot of the same technology but provides access control to ensure that people are actually paying when they park. I think probably the most exciting sort of new development is there are lots and lots of places where -- and many of these are not in the downtown business core -- where employees or others, vendors and service providers and the like, take all the good parking spots. And that might be at a hotel, it might be at a shopping center or the like, and we are starting to have great experiences in deploying our day lift solution. And all that really means is the mobile app and some signs with QR codes and generating revenue. And most importantly, creating a premium space for the best customers to park in. So I think that represents a growth opportunity for us that maybe 12 months ago, we hadn't even contemplated for this technology. And there are, of course, literally thousands and thousands of places out there. And I just -- I've got the number now. It's 500 locations for the gate list. But given what I just said about the scope of and the utilization of that technology, we have a fairly, let's call it, low penetration vis-a-vis the business opportunity for that.
Marc Riddick: And then the last one for me, and this is sort of a little squishy, Marc, so I apologize before I ask it. But one of the main questions that we get is around tying the Company to a reversal of work-from-home activity and the like. And certainly, given the outlook that you have in some of the commentary that you had already, I was wondering if you could sort of give sort of a general overview of sort of maybe what thoughts you had going into the setting of outlook numbers and kind of what kind of environment you're either expecting or what have you. Because certainly, that's one of the things that gets tied in for a lot of investors, and I would love to hear your updated thoughts on that.
Marc Baumann: Yes, sure. And I mean, look, the way we budget, it's a way that has served, I think, the Company well for a long, long time, and that is at the location level, because every contract has some unique attributes to it. Some have fixed and variable components, some are leases, et cetera. Some serve commercial office buildings, and some serve other places as well. They're not just limited to one type of place or reason why people go somewhere. So I think what we can say is that gross profit for Q4 for the office building segment in commercial was about 75% of 2019, so it's not like everybody's home and nobody's going to the office. I mean, you might read that kind of thing, it's 30%, 40%. But when people do go in, they're generating more revenue because they're not buying monthly parking, and monthly parking is discounted parking. So we're not super far away from getting back to 2019 gross profit in that segment, and part of it is because we've added new locations. And part of it is because of what I just said about the way parking is paid for. So we can easily get back and exceed 2019 gross profit from the office segment without everybody returning to the office five days a week. That's not going to happen anyway.
Marc Riddick: Couldn't have said it better.
Operator: Next on queue is Kevin Steinke from Barrington Research.
Kevin Steinke: I just wanted to ask about -- obviously, a really solid outlook for 2022. But as you look at the top and bottom ends of the range that you provided for 2022, what are some of the factors you're thinking about that might get you to either end of the range? Is it mostly about the pace of recovery, new business wins, or what other factors might we think about playing into that range?
Kris Roy: Yes. Kevin, this is Kris. I think it's kind of a combination of all the above, right? I think you're going to start to see -- and Marc kind of mentioned this -- I think you're starting to see people return back to the office, and I think you're going to start to see some continued recovery. I think some verticals, as Marc mentioned, have maybe recovered a little quicker than other verticals. If you look at stadiums when you're watching the TV sporting event, certainly, those stands are full. If you come down into the office space, it's probably less full. So I think -- but I think you're going to start to see some of those recovery trends continue into other verticals that will certainly help us in 2022. And then, I think as we look to new locations, certainly we want to increase our market penetration. And I really look to Sphere, in that the technology that we're able to provide has really resonated with our client base, and I think they're looking at it and just saying, how can we use more of the Sphere ecosystem? And that really kind of has two kind of primary components to it. One, it reduces friction, right? Nobody really wants to have that friction experience. And then, the second item is, it can certainly provide opportunities for the client in terms of aggregating their parkers, aggregating information. So I think at the end of the day, you're going to see kind of a mix of both. You're going to see the recovery in terms of new business, you're going to see the recovery that's just going to happen naturally as we kind of move -- continue to move through the pandemic.
Kevin Steinke: All right. That makes sense. And as we think about your technology investments in 2022, continuing to really focus on that, are there any specific areas that you really want to continue to develop? And do you think that can be done all internally and organically? Or is it -- does it make sense to kind of look at the acquisition landscape from a technology perspective and see if you could add to your capabilities through that avenue as well.
Marc Baumann: Sure. Well, I think fundamentally, we all are experiencing use of mobile apps to pay for transactions and have low -- hopefully, low-friction experiences. And so, we're continuously monitoring what functionality capability other mobile apps provide for people using those services. And that's not limited to just the parking industry or the shuttle bus industry or other industries where we provide services. And so, we're looking at those things, and our team and I have -- our team that works on these things and I and our operating guys, we've all talked about the same thing. If our client values it, we need to have it. And that means we have to continuously be in dialogue with our clients about what they value, what their expectations are, how are things changing for their businesses, how can we help them achieve their objectives. That's the most important thing. That's why we -- what we exist to do, is to serve that client base. And when we add that information, then we look for ways to try to deliver on that as quickly as possible. And that might mean we develop it ourselves. In some cases, that might mean we acquire some functionality from somebody and fold it into our platform. In some cases, we might partner with somebody who's got a solution, and we can get to market faster. So it's never a one-size-fits-all. So there will be new functionality coming out and we're -- it's too numerous to mention now, but you'll see it. And if they're significant, we'll talk about them publicly, for sure. But the idea is simply to reduce the amount of friction in mobility. And those -- that's the focus. Now, the other side of our business, pre-pandemic, as Kris indicated earlier, we thought we were pretty efficient. We've spent money on technology to make our support functions and back office as efficient as we could. But given the pandemic gave us a little bit of time to have a reexamination of things, we identified some areas where we felt that we could do more. And some of this involves taking manual processes out of the equation. And, as it always comes down to, it's like, how do you get the information and the data that's at the parking facility or other facility we operate into our systems? Bear in mind that the technology at the facility is not owned by us; it's our clients' equipment. And so, we have lots of ways that we do that, and some of that is fully automated and just uploaded to the cloud, and some of that involves manual processes. So there's definitely opportunities for us to streamline a lot of that, automate more of that, and make that more efficient. And we're spending time and effort on that. And I think those are the kind of things that can reduce errors, get us -- capture more of the revenue, but also reduce our G&A costs as we go forward.
Kevin Steinke: Okay. Really interesting and helpful commentary. Congratulations on the results. And that's all I had.
Operator: Next one on the queue is Daniel Moore from CJS Securities.
Daniel Moore: Just a little housekeeping. This might be obvious and I missed it. What does the CapEx expectations embedded in the free cash flow guide? And Marc, clearly, your focus is on internal investments, which have paid off handsomely here in the near -- so far in the near term. Are there M&A and/or technology tuck-ins that you might look at as well? As the balance sheet continues to improve, you could be down to as low as 2x leverage based on the free cash flow guide by year-end.
Marc Baumann: I'll let Kris take the first part there and talk about CapEx, and then I'll come back to our sort of approach and how we're thinking about the technology development.
Kris Roy: Yes. I think, Dan, if you look at CapEx for '22, I think the $10 million to $15 million range is kind of where we're at, which is probably about the norm of -- in terms of what we would generally have in terms of a range, maybe a little bit higher as we continue to make some investments in Sphere, but kind of right in the same range that we've been in for the last couple of years.
Marc Baumann: And I think in terms of technology -- sorry, I'm just getting over a cold -- we have a pretty clear picture that is derived from what I was explaining to Kevin. And that is, what are our clients' expectations for technology? What is the market need for technology? What do clients value, and what are really looking to have as part of the portfolio of technology platform? And how does that compare to what our platform can do at any point in time? And so, we have a -- we definitely -- no platform is ever fully developed. There will always be some gap of some kind or another. And when we take a look at what those gaps are, and we say, if we close that gap, how does that help us generate more gross profit and EBITDA for the Company? And what will it cost to close that gap if we go out and acquire that capability from someone who already has it? What will it cost -- what will be the economic arrangement if we partner with somebody to simply provide that capability? Or, if we want to develop it ourselves, what will it cost and how long it will take? And there's a market opportunity cost, too, of moving at a certain pace. So I would just say that our goal is to have no meaningful gaps that create profit market opportunities for us with technology in the space we operate. And we're always continuously looking at all of the ways that we might close those gaps. And we are definitely not a one-size-fits-all solution provider. We have competitors out there who tout their one solution to all situations, and that's not going to work in a lot of cases. And then we have other people who say, well, I'll just go and use somebody else's technology and hope that they can provide the needs that a client has. Our goal is to satisfy clients. And that means that we will develop stuff ourselves. But in many cases, we will -- there will be some partners out there or others that can help us move faster, and we're going to then look at potentially acquiring that capability if that gets us down to where we want to be faster.
Daniel Moore: All right. Very helpful for all the color and feel better. Appreciate it.
Operator: And there are no further questions at this time. I will now turn the call over back to Marc Baumann.
Marc Baumann: Okay, Chino. Thank you so much. And we're obviously thrilled with the way the year ended. It was a great year for us, certainly ended and progressed much better than we might have thought a year ago, when we were starting out and gave our original guidance for the year. And obviously, we have big expectations for 2022. But as always, we're very focused on driving growth, driving faster growth, and utilizing technology to really differentiate ourselves in the marketplace. So thank you for being with us today, and we look forward to talking to you next quarter.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.