SP Plus Corporation

Good day, and thank you for standing by. Welcome to the second quarter 2023 SP Plus Corporation's earnings conference call. At this time, all participants in our listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during this session, you'll need to press star one one on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chris Roy, Chief Financial Officer. Please go ahead.

Thank you, Catherine, and good afternoon, everyone. As Catherine just said, I'm Chris Roy, Chief Financial Officer of SP Plus. Welcome to our conference call following the release of our second quarter 2023 earnings. During the call today, management will make remarks that may be considered forward-looking statements. including statements as to the outlook and expectations for 2023 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 list 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 Mark Ballman, our Chairman and Chief Executive Officer.

Hey, thank you, Chris, and good afternoon, everyone. This is another strong quarter for SP+. Adjusted gross profit and adjusted EBITDA were at record levels for both the second quarter and first half of this year. By combining innovative technology solutions with a highly trained workforce, we continue to build on our competitive advantages, expand our addressable market, and execute effectively on our long-term growth strategy. Adjusted gross profit increased at a double-digit rate, reaching a second quarter record for SP+, driven by solid growth in both our commercial segment, which was up almost 9% year-on-year, and our aviation segment, which was up 24% above last year's second quarter. This strong performance is largely due to our continued success in winning new business, growing net new locations, as well as expanding the scope of services we provide at existing locations. Commercial segment adjusted gross profit growth was achieved across nearly all verticals, led by hospitality, healthcare, and large event venues. The breadth of capabilities we bring to clients is exceptional, positioning SP Plus as a leader in the digital transformation of our industry. We added 126 net new locations during the first half of 2023, with 55 net new locations added in the second quarter, our ninth consecutive quarter of net new location growth. At the same time, we succeeded in increasing our location retention rate to 94%, the highest in recent memory. Turning to aviation, Q2 adjusted gross profit increased 24% year over year, reflecting both organic and acquisition growth, as we benefited from new contract wins and renewals, as well as expanded services we provide at 160 global airports. Notably, our curbside concierge service continues to gain traction, The pilot program we launched with the second airline is performing above expectations, and we anticipate to roll out this service at additional airports with this airline in the near term. Also, we expect to bring additional airlines onto the program, which provides a cost-effective way to ease congestion and enhance the travel experience. Gross profit from technology solutions continued to grow in the second quarter, and we are on track to double the 2022 contribution as a percentage of adjusted gross profit for the full year 2023. More than a quarter of the new locations added during the second quarter were for standalone SPHERE deployments, where we currently do not provide other SP-plus services, illustrating the appeal of our technology solutions and the way they're expanding our addressable market. In addition to achieving strong financial performance, we succeeded in effectively executing on our long-term growth strategy in the second quarter. First, we strengthened our leadership position by bringing innovative technology solutions and superior operations to existing and new clients. A great example of this is the technology overhaul we implemented for the city of Richmond, Virginia. We replaced outdated equipment with our sphere technology solutions which has already resulted in increased transactions as well as a significant boost in revenue. Other benefits include improved operating performance, reduced operating costs, and a completely digital, frictionless consumer experience that eliminates the need for paper tickets. In Baltimore, SP Plus was chosen to design an ambitious and tech-forward parking plan for a large-scale development project to transform a former industrial port into a vibrant shopping and entertainment hub. Also, the City of Los Angeles, where we already operate one of the largest on-street meter programs in the United States, recently awarded us an add-on contract to manage the parking for an additional 23 facilities consisting of off-street surface lots and parking structures, demonstrating how well our solutions and services are meeting the needs of the city. We're experiencing similar positive momentum in our aviation business. Recent new awards in the aviation segment include Omaha and West Palm Beach airports, and contract renewals were secured at San Francisco, Detroit Metropolitan, and Buffalo airports. In addition, we're beginning to regain traction with our sponsored remote airline check-in service. We recently started up operations at the Orlando airport and will shortly begin to provide remote airline check-in services at an airport serving a major tourist destination on the west coast. We hope to be able to talk to you more about this win on our next call. And with the addition of one additional airline, our remote check-in services are now available to passengers traveling on eight airlines, which account for 96% of domestic travel. Secondly, we continue to increase our addressable market and achieve revenue synergies in the second quarter. SP Plus is working together with public-private partnerships, or P3s, that are helping universities monetize their assets, with our role being to manage their parking operations. The program has been so successful at one large university in Ohio that another university in the state has asked us to replicate and expand upon it on their campus. Our technology is designed to enable students, faculty, staff, and visitors to pay by phone, QR code, or via text. Based on the success of our initial P3 deployment, we're seeing strong inbound activity to replicate this success, and we expect this area of opportunity to continue to grow. With respect to revenue synergies, we recently launched our Aeroparker online parking reservation system at Houston's Intercontinental and Hobby airports, where SP Plus was already providing parking management services. We're working together with our Aeroparker colleagues to further leverage our relationships and combined expertise to gain additional synergies. Third, we continue to leverage and monetize our technology investments. In the second quarter, we processed 5.4 million transactions on SP Plus technology platforms, up 36% sequentially. Transactions in June are up almost 70% over December 2022. These transactions include reservations and on-demand transactions for both on- and off-street parking, as well as at large venues and payment processing for remote airline check-in and curbside concierge. These examples indicate how well our services are aligned with client demand and consumer preferences. And finally, last week we announced the acquisition of certain assets of Rocker, a provider of fully integrated parking solutions that simplify permit violation and enforcement management for organizations and municipalities. We believe this transaction will enable SP Plus to take advantage of the demand from municipal clients for a comprehensive mobility solution that helps them leverage smart city applications and from healthcare and university clients looking to digitize the complex permitting requirements that are common on their campuses. This is the third technology acquisition we've made in the last nine months, demonstrating our commitment to accelerate the pace of deployment of cutting-edge technology offerings, which is a key element of our continued growth. Now I'm going to turn the call back over to Chris for financial review. Chris?