UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 2017
Or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 000-50796
SP Plus Corporation
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 16-1171179 | |
(State or Other Jurisdiction of | (I.R.S. Employer Identification No.) | |
Incorporation or Organization) |
200 E. Randolph Street, Suite 7700
Chicago, Illinois60601-7702
(Address of Principal Executive Offices, Including Zip Code)
(312) 274-2000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.001 par value per share | SP | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large | ☒ | Accelerated | ☐ |
Non-accelerated Filer | ☐ | Smaller Reporting Company | ☐ |
Emerging Growth Company | |||
☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES
Indicate the number of November 1, 2017, there were 22,520,672 shares outstanding of each of the issuer's classes of common stock, as of the registrant outstanding.
Class | Outstanding at August 2, 2023 | ||
Common Stock, $0.001 par value per share | 19,649,611 | Shares |
TABLE OF CONTENTS
5 | |
6 | |
7 | |
21 | |
31 | |
31 | |
33 | |
33 | |
33 | |
34 | |
34 | |
34 | |
34 | |
35 | |
36 |
Item 1. Financial Statements
SP Plus Corporation
Condensed Consolidated Balance Sheets
(millions, except for share and per share data) | September 30, 2017 | December 31, 2016 | |||||
(unaudited) | |||||||
Assets | |||||||
Cash and cash equivalents | $ | 23.4 | $ | 22.2 | |||
Notes and accounts receivable, net | 124.9 | 120.7 | |||||
Prepaid expenses and other | 10.2 | 13.7 | |||||
Total current assets | 158.5 | 156.6 | |||||
Leasehold improvements, equipment and construction in progress, net | 26.5 | 30.9 | |||||
Other assets | |||||||
Advances and deposits | 4.2 | 4.3 | |||||
Other intangible assets, net | 55.4 | 61.3 | |||||
Favorable acquired lease contracts, net | 24.4 | 30.0 | |||||
Equity investments in unconsolidated entities | 18.7 | 18.5 | |||||
Other assets, net | 17.7 | 16.3 | |||||
Deferred taxes | 19.3 | 17.9 | |||||
Cost of contracts, net | 9.5 | 11.4 | |||||
Goodwill | 431.7 | 431.4 | |||||
Total other assets | 580.9 | 591.1 | |||||
Total assets | $ | 765.9 | $ | 778.6 | |||
Liabilities and stockholders’ equity | |||||||
Accounts payable | $ | 95.9 | $ | 109.9 | |||
Accrued rent | 23.6 | 21.7 | |||||
Compensation and payroll withholdings | 21.5 | 25.7 | |||||
Property, payroll and other taxes | 9.1 | 7.6 | |||||
Accrued insurance | 19.3 | 18.1 | |||||
Accrued expenses | 20.7 | 25.5 | |||||
Current portion of obligations under Restated Credit Facility and other long-term borrowings | 20.4 | 20.4 | |||||
Total current liabilities | 210.5 | 228.9 | |||||
Long-term borrowings, excluding current portion | |||||||
Obligations under Restated Credit Facility | 153.0 | 174.5 | |||||
Other long-term borrowings | — | 0.2 | |||||
153.0 | 174.7 | ||||||
Unfavorable acquired lease contracts, net | 33.5 | 40.2 | |||||
Other long-term liabilities | 63.4 | 66.4 | |||||
Total noncurrent liabilities | 249.9 | 281.3 | |||||
Stockholders’ equity | |||||||
Preferred Stock, par value $0.01 per share; 5,000,000 shares authorized as of September 30, 2017 and December 31, 2016; no shares issued | — | — | |||||
Common stock, par value $0.001 per share; 50,000,000 shares authorized as of September 30, 2017 and December 31, 2016; 22,509,468 and 22,328,578 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively. | — | — | |||||
Treasury Stock, at cost; 305,183 shares at September 30, 2017 and December 31, 2016 | (7.5 | ) | (7.5 | ) | |||
Additional paid-in capital | 254.7 | 251.2 | |||||
Accumulated other comprehensive loss | (1.2 | ) | (1.4 | ) | |||
Retained earnings | 59.1 | 25.9 | |||||
Total SP Plus Corporation stockholders’ equity | 305.1 | 268.2 | |||||
Noncontrolling interest | 0.4 | 0.2 | |||||
Total stockholders’ equity | 305.5 | 268.4 | |||||
Total liabilities and stockholders’ equity | $ | 765.9 | $ | 778.6 |
(millions, except for share and per share data) |
| June 30, 2023 |
|
| December 31, 2022 |
| ||
| (unaudited) |
|
|
|
| |||
Assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 24.6 |
|
| $ | 12.4 |
|
Accounts receivable, net |
|
| 179.0 |
|
|
| 167.7 |
|
Prepaid expenses and other current assets |
|
| 13.2 |
|
|
| 16.7 |
|
Total current assets |
|
| 216.8 |
|
|
| 196.8 |
|
Property and equipment, net |
|
| 65.2 |
|
|
| 60.2 |
|
Right-of-use assets |
|
| 170.7 |
|
|
| 166.9 |
|
Goodwill |
|
| 543.6 |
|
|
| 543.2 |
|
Other intangible assets, net |
|
| 63.5 |
|
|
| 68.9 |
|
Deferred taxes |
|
| 42.9 |
|
|
| 44.4 |
|
Other noncurrent assets |
|
| 43.6 |
|
|
| 41.0 |
|
Total noncurrent assets |
|
| 929.5 |
|
|
| 924.6 |
|
Total assets |
| $ | 1,146.3 |
|
| $ | 1,121.4 |
|
Liabilities and stockholders’ equity |
|
|
|
|
|
| ||
Liabilities |
|
|
|
|
|
| ||
Accounts payable |
| $ | 136.6 |
|
| $ | 133.4 |
|
Accrued and other current liabilities |
|
| 117.7 |
|
|
| 137.6 |
|
Short-term lease liabilities |
|
| 57.3 |
|
|
| 60.2 |
|
Current portion of long-term borrowings |
|
| 13.5 |
|
|
| 12.4 |
|
Total current liabilities |
|
| 325.1 |
|
|
| 343.6 |
|
Long-term borrowings, excluding current portion |
|
| 352.2 |
|
|
| 331.8 |
|
Long-term lease liabilities |
|
| 156.3 |
|
|
| 158.5 |
|
Other noncurrent liabilities |
|
| 71.3 |
|
|
| 61.8 |
|
Total noncurrent liabilities |
|
| 579.8 |
|
|
| 552.1 |
|
Total liabilities |
| $ | 904.9 |
|
| $ | 895.7 |
|
Stockholders’ equity |
|
|
|
|
|
| ||
Preferred stock, par value $0.01 per share; 5,000,000 shares authorized as of June 30, 2023 and December 31, 2022, respectively; no shares issued or outstanding |
| $ | — |
|
| $ | — |
|
Common stock, par value $0.001 per share; 50,000,000 shares authorized as of June 30, 2023 and December 31, 2022; 23,444,353 and 19,649,611 shares issued and outstanding as of June 30, 2023, respectively, and 23,276,329 and 19,767,287 shares issued and outstanding as of December 31, 2022, respectively |
|
| — |
|
|
| — |
|
Treasury stock, at cost; 3,794,742 and 3,509,042 shares as of June 30, 2023 and December 31, 2022, respectively |
|
| (130.5 | ) |
|
| (120.0 | ) |
Additional paid-in capital |
|
| 278.5 |
|
|
| 274.2 |
|
Accumulated other comprehensive loss |
|
| (1.1 | ) |
|
| (1.8 | ) |
Retained earnings |
|
| 94.3 |
|
|
| 73.6 |
|
Total SP Plus Corporation stockholders’ equity |
|
| 241.2 |
|
|
| 226.0 |
|
Noncontrolling interests |
|
| 0.2 |
|
|
| (0.3 | ) |
Total stockholders’ equity |
|
| 241.4 |
|
|
| 225.7 |
|
Total liabilities and stockholders’ equity |
| $ | 1,146.3 |
|
| $ | 1,121.4 |
|
See Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Income
Three Months Ended | Nine Months Ended | ||||||||||||||
(millions, except for share and per share data) (unaudited) | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Parking services revenue | 138.5 | ||||||||||||||
Lease contracts | $ | 140.9 | $ | 136.1 | $ | 422.6 | $ | 410.3 | |||||||
Management contracts | 86.7 | 84.1 | 262.8 | 262.0 | |||||||||||
227.6 | 220.2 | 685.4 | 672.3 | ||||||||||||
Reimbursed management contract revenue | 165.1 | 177.0 | 512.7 | 501.8 | |||||||||||
Total parking services revenue | 392.7 | 397.2 | 1,198.1 | 1,174.1 | |||||||||||
Cost of parking services | |||||||||||||||
Lease contracts | 131.0 | 125.8 | 387.0 | 380.4 | |||||||||||
Management contracts | 50.7 | 50.5 | 154.5 | 162.6 | |||||||||||
181.7 | 176.3 | 541.5 | 543.0 | ||||||||||||
Reimbursed management contract expense | 165.1 | 177.0 | 512.7 | 501.8 | |||||||||||
Total cost of parking services | 346.8 | 353.3 | 1,054.2 | 1,044.8 | |||||||||||
Gross profit | |||||||||||||||
Lease contracts | 9.9 | 10.3 | 35.6 | 29.9 | |||||||||||
Management contracts | 36.0 | 33.6 | 108.3 | 99.4 | |||||||||||
Total gross profit | 45.9 | 43.9 | 143.9 | 129.3 | |||||||||||
General and administrative expenses | 19.6 | 20.3 | 63.3 | 67.0 | |||||||||||
Depreciation and amortization | 4.9 | 7.8 | 16.3 | 26.8 | |||||||||||
Operating income | 21.4 | 15.8 | 64.3 | 35.5 | |||||||||||
Other expenses (income) | |||||||||||||||
Interest expense | 2.2 | 2.7 | 7.1 | 8.1 | |||||||||||
Interest income | (0.2 | ) | (0.1 | ) | (0.5 | ) | (0.4 | ) | |||||||
Gain on sale of business | — | — | (0.1 | ) | — | ||||||||||
Equity in losses from investment in unconsolidated entity | 0.1 | 0.4 | 0.5 | 1.2 | |||||||||||
Total other expenses (income) | 2.1 | 3.0 | 7.0 | 8.9 | |||||||||||
Earnings before income taxes | 19.3 | 12.8 | 57.3 | 26.6 | |||||||||||
Income tax expense | 7.3 | 5.1 | 21.3 | 10.9 | |||||||||||
Net income | 12.0 | 7.7 | 36.0 | 15.7 | |||||||||||
Less: Net income attributable to noncontrolling interest | 0.8 | 0.7 | 2.6 | 2.2 | |||||||||||
Net income attributable to SP Plus Corporation | $ | 11.2 | $ | 7.0 | $ | 33.4 | $ | 13.5 | |||||||
Common stock data | |||||||||||||||
Net income per common share | |||||||||||||||
Basic | $ | 0.51 | $ | 0.31 | $ | 1.51 | $ | 0.60 | |||||||
Diluted | $ | 0.50 | $ | 0.31 | $ | 1.48 | $ | 0.60 | |||||||
Weighted average shares outstanding | |||||||||||||||
Basic | 22,203,023 | 22,208,139 | 22,186,556 | 22,293,776 | |||||||||||
Diluted | 22,523,036 | 22,497,111 | 22,501,378 | 22,571,933 |
| Three Months Ended |
| Six Months Ended |
| |||||||||||
(millions, except for share and per share data) (unaudited) |
| June 30, 2023 |
|
| June 30, 2022 |
| June 30, 2023 |
|
| June 30, 2022 |
| ||||
Services revenue |
|
|
|
|
|
|
|
|
|
|
| ||||
Lease type contracts |
| $ | 76.3 |
|
| $ | 70.6 |
| $ | 144.5 |
|
| $ | 133.2 |
|
Management type contracts |
|
| 145.0 |
|
|
| 125.9 |
|
| 293.1 |
|
|
| 247.7 |
|
|
| 221.3 |
|
|
| 196.5 |
|
| 437.6 |
|
|
| 380.9 |
| |
Reimbursed management type contract revenue |
|
| 220.9 |
|
|
| 184.5 |
|
| 429.9 |
|
|
| 349.9 |
|
Total services revenue |
|
| 442.2 |
|
|
| 381.0 |
|
| 867.5 |
|
|
| 730.8 |
|
Cost of services (exclusive of depreciation and amortization) |
|
|
|
|
|
|
|
|
|
|
| ||||
Lease type contracts |
|
| 62.3 |
|
|
| 55.9 |
|
| 117.5 |
|
|
| 107.9 |
|
Management type contracts |
|
| 93.1 |
|
|
| 81.8 |
|
| 195.9 |
|
|
| 162.8 |
|
|
| 155.4 |
|
|
| 137.7 |
|
| 313.4 |
|
|
| 270.7 |
| |
Reimbursed management type contract expense |
|
| 220.9 |
|
|
| 184.5 |
|
| 429.9 |
|
|
| 349.9 |
|
Total cost of services (exclusive of depreciation and amortization) |
|
| 376.3 |
|
|
| 322.2 |
|
| 743.3 |
|
|
| 620.6 |
|
General and administrative expenses |
|
| 31.8 |
|
|
| 26.7 |
|
| 62.4 |
|
|
| 51.2 |
|
Depreciation and amortization |
|
| 8.8 |
|
|
| 6.5 |
|
| 17.2 |
|
|
| 13.3 |
|
Operating income |
|
| 25.3 |
|
|
| 25.6 |
|
| 44.6 |
|
|
| 45.7 |
|
Other expense (income) |
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense |
|
| 7.3 |
|
|
| 3.5 |
|
| 14.1 |
|
|
| 8.3 |
|
Interest income |
|
| (0.1 | ) |
|
| (0.1 | ) |
| (0.2 | ) |
|
| (0.3 | ) |
Total other expenses |
|
| 7.2 |
|
|
| 3.4 |
|
| 13.9 |
|
|
| 8.0 |
|
Earnings before income taxes |
|
| 18.1 |
|
|
| 22.2 |
|
| 30.7 |
|
|
| 37.7 |
|
Income tax expense |
|
| 4.8 |
|
|
| 5.9 |
|
| 8.1 |
|
|
| 10.1 |
|
Net income |
|
| 13.3 |
|
|
| 16.3 |
|
| 22.6 |
|
|
| 27.6 |
|
Less: Net income attributable to noncontrolling interests |
|
| 1.0 |
|
|
| 0.9 |
|
| 1.9 |
|
|
| 1.5 |
|
Net income attributable to SP Plus Corporation |
| $ | 12.3 |
|
| $ | 15.4 |
| $ | 20.7 |
|
| $ | 26.1 |
|
Common stock data |
|
|
|
|
|
|
|
|
|
|
| ||||
Net income per common share |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.63 |
|
| $ | 0.73 |
| $ | 1.05 |
|
| $ | 1.23 |
|
Diluted |
| $ | 0.62 |
|
| $ | 0.72 |
| $ | 1.04 |
|
| $ | 1.22 |
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
|
| 19,631,772 |
|
|
| 21,195,819 |
|
| 19,666,684 |
|
|
| 21,211,299 |
|
Diluted |
|
| 19,839,953 |
|
|
| 21,356,464 |
|
| 19,853,900 |
|
|
| 21,347,442 |
|
See Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Comprehensive Income
Three Months Ended | Nine Months Ended | ||||||||||||||
(millions) (unaudited) | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Net income | $ | 12.0 | $ | 7.7 | $ | 36.0 | $ | 15.7 | |||||||
Other comprehensive income (expense) | 0.1 | 0.1 | 0.2 | (0.2 | ) | ||||||||||
Comprehensive income | 12.1 | 7.8 | 36.2 | 15.5 | |||||||||||
Less: Comprehensive income attributable to noncontrolling interest | 0.8 | 0.7 | 2.6 | 2.2 | |||||||||||
Comprehensive income attributable to SP Plus Corporation | $ | 11.3 | $ | 7.1 | $ | 33.6 | $ | 13.3 |
| Three Months Ended |
| Six Months Ended |
| |||||||||||
(millions) (unaudited) |
| June 30, 2023 |
|
| June 30, 2022 |
| June 30, 2023 |
|
| June 30, 2022 |
| ||||
Net income |
| $ | 13.3 |
|
| $ | 16.3 |
| $ | 22.6 |
|
| $ | 27.6 |
|
Reclassification of de-designated interest rate collars |
|
| — |
|
|
| 0.1 |
|
| — |
|
|
| 0.5 |
|
Foreign currency translation gain (loss) |
|
| 0.5 |
|
|
| (0.2 | ) |
| 0.7 |
|
|
| (0.1 | ) |
Comprehensive income |
|
| 13.8 |
|
|
| 16.2 |
|
| 23.3 |
|
|
| 28.0 |
|
Less: Comprehensive income attributable to noncontrolling interests |
|
| 1.0 |
|
|
| 0.9 |
|
| 1.9 |
|
|
| 1.5 |
|
Comprehensive income attributable to SP Plus Corporation |
| $ | 12.8 |
|
| $ | 15.3 |
| $ | 21.4 |
|
| $ | 26.5 |
|
See Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Cash Flows
Nine Months Ended | |||||||
(millions) (unaudited) | September 30, 2017 | September 30, 2016 | |||||
Operating activities | |||||||
Net income | $ | 36.0 | $ | 15.7 | |||
Adjustments to reconcile net income to net cash provided by operations: | |||||||
Depreciation and amortization | 16.9 | 27.0 | |||||
Net accretion of acquired lease contracts | (1.2 | ) | (1.4 | ) | |||
Loss (gain) on sale of equipment | 0.1 | (0.2 | ) | ||||
Net equity in (earnings) losses of unconsolidated entities (net of distributions) | (8.6 | ) | 0.6 | ||||
Gain on sale of business | (0.1 | ) | — | ||||
Amortization of debt issuance costs | 0.6 | 0.6 | |||||
Amortization of original discount on borrowings | 0.4 | 0.4 | |||||
Non-cash stock-based compensation | 3.2 | 2.8 | |||||
Provisions for losses on accounts receivable | 0.2 | 0.1 | |||||
Deferred income taxes | (1.5 | ) | 2.3 | ||||
Changes in operating assets and liabilities | |||||||
Notes and accounts receivable | (4.6 | ) | (15.6 | ) | |||
Prepaid assets | 3.5 | 1.5 | |||||
Other assets | (1.9 | ) | (5.6 | ) | |||
Accounts payable | (14.1 | ) | 2.0 | ||||
Accrued liabilities | (7.5 | ) | 0.4 | ||||
Net cash provided by operating activities | 21.4 | 30.6 | |||||
Investing activities | |||||||
Purchase of leasehold improvements and equipment | (4.9 | ) | (10.8 | ) | |||
Proceeds from sale of equipment and contract terminations | 0.9 | 2.9 | |||||
Proceeds from equity method investee's sale of assets | 8.4 | — | |||||
Proceeds from sale of business | 0.6 | — | |||||
Cost of contracts purchased | (0.6 | ) | (2.0 | ) | |||
Net cash provided by (used in) investing activities | 4.4 | (9.9 | ) | ||||
Financing activities | |||||||
Payments on senior credit facility revolver (Restated Credit Facility) | (308.7 | ) | (302.2 | ) | |||
Proceeds from senior credit facility revolver (Restated Credit Facility) | 301.5 | 301.7 | |||||
Payments on term loan (Restated Credit Facility) | (15.0 | ) | (11.2 | ) | |||
Payments on other long-term borrowings | (0.2 | ) | (0.2 | ) | |||
Distribution to noncontrolling interest | (2.4 | ) | (2.6 | ) | |||
Payments of debt issuance costs and original discount on borrowings | (0.1 | ) | (0.1 | ) | |||
Repurchase of common stock | — | (5.4 | ) | ||||
Net cash used in financing activities | (24.9 | ) | (20.0 | ) | |||
Effect of exchange rate changes on cash and cash equivalents | 0.3 | (0.1 | ) | ||||
Increase in cash and cash equivalents | 1.2 | 0.6 | |||||
Cash and cash equivalents at beginning of period | 22.2 | 18.7 | |||||
Cash and cash equivalents at end of period | $ | 23.4 | $ | 19.3 | |||
Supplemental disclosures | |||||||
Cash paid during the period for | |||||||
Interest | $ | 6.2 | $ | 6.9 | |||
Income taxes, net | $ | 21.4 | $ | 11.8 |
| Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
(millions, except share data) (unaudited) |
| Number |
|
| Par |
|
| Additional |
|
| Accumulated |
|
| Retained Earnings |
|
|
| Treasury |
|
| Noncontrolling |
|
| Total |
| |||||||||
Balance at January 1, 2023 |
|
| 23,276,329 |
|
| $ | — |
|
| $ | 274.2 |
|
| $ | (1.8 | ) |
| $ | 73.6 |
|
|
| $ | (120.0 | ) |
| $ | (0.3 | ) |
| $ | 225.7 |
| |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8.4 |
|
|
|
| — |
|
|
| 0.9 |
|
|
| 9.3 |
| |
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.2 |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 0.2 |
| |
Issuance of restricted stock units |
|
| 148,806 |
|
|
| — |
|
|
| (0.4 | ) |
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| (0.4 | ) | |
Non-cash stock-based compensation |
|
| — |
|
|
| — |
|
|
| 2.2 |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 2.2 |
| |
Noncontrolling interests buyout |
|
| — |
|
|
| — |
|
|
| (0.7 | ) |
|
| — |
|
|
|
|
| — |
|
| — |
|
|
| — |
|
|
| (0.7 | ) | |
Repurchases of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| (10.5 | ) |
|
| — |
|
|
| (10.5 | ) | |
Distributions to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| (0.5 | ) |
|
| (0.5 | ) | |
Balance at March 31, 2023 |
|
| 23,425,135 |
|
| $ | — |
|
| $ | 275.3 |
|
| $ | (1.6 | ) |
| $ | 82.0 |
|
|
| $ | (130.5 | ) |
| $ | 0.1 |
|
| $ | 225.3 |
| |
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12.3 |
|
|
|
| — |
|
|
| 1.0 |
|
|
| 13.3 |
| |
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.5 |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 0.5 |
| |
Issuance of restricted stock units |
|
| 558 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
| |
Issuance of stock grants |
|
| 18,660 |
|
|
| — |
|
|
| 0.6 |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 0.6 |
| |
Non-cash stock-based compensation |
|
| — |
|
|
| — |
|
|
| 2.6 |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 2.6 |
| |
Distributions to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| (0.9 | ) |
|
| (0.9 | ) | |
Balance at June 30, 2023 |
|
| 23,444,353 |
|
| $ | — |
|
| $ | 278.5 |
|
| $ | (1.1 | ) |
| $ | 94.3 |
|
|
| $ | (130.5 | ) |
| $ | 0.2 |
|
| $ | 241.4 |
|
| Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
(millions, except share data) (unaudited) |
| Number |
|
| Par |
|
| Additional |
|
| Accumulated |
|
| Retained Earnings |
|
| Treasury |
|
| Noncontrolling |
|
| Total |
| ||||||||
Balance at January 1, 2022 |
|
| 23,224,459 |
|
| $ | — |
|
| $ | 267.5 |
|
| $ | (2.8 | ) |
| $ | 28.4 |
|
| $ | (70.6 | ) |
| $ | (0.4 | ) |
| $ | 222.1 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10.7 |
|
|
| — |
|
|
| 0.6 |
|
|
| 11.3 |
|
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.1 |
|
Reclassification of de-designated interest rate collars |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.4 |
|
Issuance of restricted stock units |
|
| 37,235 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Non-cash stock-based compensation |
|
| — |
|
|
| — |
|
|
| 1.8 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1.8 |
|
Distributions to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.5 | ) |
|
| (0.5 | ) |
Balance at March 31, 2022 |
|
| 23,261,694 |
|
| $ | — |
|
| $ | 269.3 |
|
| $ | (2.3 | ) |
| $ | 39.1 |
|
| $ | (70.6 | ) |
| $ | (0.3 | ) |
| $ | 235.2 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 15.4 |
|
|
| — |
|
|
| 0.9 |
|
|
| 16.3 |
|
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.2 | ) |
Reclassification of de-designated interest rate collars |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.1 |
|
Issuance of stock grants |
|
| 14,635 |
|
|
| — |
|
|
| 0.4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.4 |
|
Non-cash stock-based compensation |
|
| — |
|
|
| — |
|
|
| 2.2 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2.2 |
|
Repurchases of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5.6 | ) |
|
| — |
|
|
| (5.6 | ) |
Distributions to noncontrolling interests |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (0.7 | ) |
|
| (0.7 | ) |
Balance at June 30, 2022 |
|
| 23,276,329 |
|
| $ | — |
|
| $ | 271.9 |
|
| $ | (2.4 | ) |
| $ | 54.5 |
|
| $ | (76.2 | ) |
| $ | (0.1 | ) |
| $ | 247.7 |
|
See Notes to Condensed Consolidated Financial Statements.
Condensed Consolidated Statements of Cash Flows
| Six Months Ended |
| ||||||
(millions) (unaudited) |
| June 30, 2023 |
|
| June 30, 2022 |
| ||
Operating activities |
|
|
|
|
|
| ||
Net income |
| $ | 22.6 |
|
| $ | 27.6 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 17.2 |
|
|
| 13.3 |
|
Non-cash stock-based compensation |
|
| 5.4 |
|
|
| 4.4 |
|
Provisions (reversals) for credit losses on accounts receivable |
|
| 0.7 |
|
|
| (0.1 | ) |
Deferred income taxes |
|
| 1.8 |
|
|
| 2.8 |
|
Other |
|
| (1.7 | ) |
|
| 1.3 |
|
Changes in operating assets and liabilities |
|
|
|
|
|
| ||
Accounts receivable |
|
| (11.9 | ) |
|
| (13.4 | ) |
Prepaid expenses and other current assets |
|
| 3.5 |
|
|
| 10.3 |
|
Accounts payable |
|
| 3.1 |
|
|
| 9.7 |
|
Accrued liabilities and other |
|
| (19.7 | ) |
|
| (20.2 | ) |
Net cash provided by operating activities |
|
| 21.0 |
|
|
| 35.7 |
|
Investing activities |
|
|
|
|
|
| ||
Purchases of property and equipment |
|
| (11.3 | ) |
|
| (9.1 | ) |
Acquisition of other intangible assets |
|
| — |
|
|
| (1.8 | ) |
Proceeds from sale of equipment |
|
| — |
|
|
| 0.2 |
|
Noncontrolling interest buyout |
|
| (2.2 | ) |
|
| — |
|
Net cash used in investing activities |
|
| (13.5 | ) |
|
| (10.7 | ) |
Financing activities |
|
|
|
|
|
| ||
Proceeds from credit facility revolver |
|
| 256.8 |
|
|
| 173.2 |
|
Payments on credit facility revolver |
|
| (232.9 | ) |
|
| (198.2 | ) |
Proceeds from credit facility term loan |
|
| — |
|
|
| 17.2 |
|
Payments on credit facility term loan |
|
| (2.5 | ) |
|
| (4.2 | ) |
Payments of debt issuance costs |
|
| — |
|
|
| (2.5 | ) |
Payments on other long-term borrowings |
|
| (3.8 | ) |
|
| (5.4 | ) |
Payments of withholding taxes on share-based compensation |
|
| (0.4 | ) |
|
| — |
|
Distributions to noncontrolling interests |
|
| (1.4 | ) |
|
| (1.2 | ) |
Repurchases of common stock |
|
| (11.1 | ) |
|
| (4.9 | ) |
Net cash provided by (used in) financing activities |
|
| 4.7 |
|
|
| (26.0 | ) |
Effect of exchange rate changes on cash and cash equivalents |
|
| — |
|
|
| (0.1 | ) |
Increase (decrease) in cash and cash equivalents |
|
| 12.2 |
|
|
| (1.1 | ) |
Cash and cash equivalents at beginning of year |
|
| 12.4 |
|
|
| 15.7 |
|
Cash and cash equivalents at end of period |
| $ | 24.6 |
|
| $ | 14.6 |
|
Supplemental disclosures |
|
|
|
|
|
| ||
Cash paid (received) during the period for |
|
|
|
|
|
| ||
Interest |
| $ | 13.6 |
|
| $ | 7.8 |
|
Income taxes, net |
| $ | 4.0 |
|
| $ | (12.7 | ) |
See Notes to Condensed Consolidated Financial Statements.
6
SP Plus Corporation
Notes to Condensed Consolidated Financial Statements
1. Significant Accounting Policies and Practices
The Company
SP Plus Corporation (the “Company”"Company") provides parking management, ground transportationdevelops and other ancillary services to commercial, institutional and municipal clients in urban markets and airports across the United States, Puerto Rico and Canada. These services include a comprehensive set of on-site parkingintegrates technology with operations management and ground transportation services, which include facility maintenance, training, schedulingsupport to deliver mobility solutions that enable the efficient and supervising all service personnel as well as providing customer service, marketing,time-sensitive movement of people, vehicles and accounting and revenue control functions necessary to facilitate the operation of clients’ facilities.personal travel belongings. The Company also providesis committed to providing solutions that make every moment matter for a rangeworld on the go while meeting the objectives of ancillary services suchthe Company's diverse client base in North America and Europe, which includes aviation, commercial, hospitality and institutional clients. The Company typically enters into contractual agreements with property owners or managers as airport shuttle operations, valet services, taxi and livery dispatch services, security services and municipal meter revenue collection and enforcement services.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States ("(“U.S. GAAP"GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and disclosures normally included in the Condensed Consolidated Balance Sheets, Statements of Income, Comprehensive Income and Cash Flows prepared in conformity with U.S. GAAPfinancial statements have been condensed or omitted as permitted by such rules and regulations.
All adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair presentation have been included. Operating results forduring the three and nine month periodssix months ended SeptemberJune 30, 20172023 are not necessarily indicative of the results that mightto be expected for any other interim period or the fiscal year endedending December 31, 2017.2023. The financial statements presented in this report should be read in conjunction with the Company’s annual consolidated financial statementsConsolidated Financial Statements and notes thereto included in the Annual Report on Form 10-K for the year ended December 31, 2022 filed on February 24, 2017.2023 with the Securities and Exchange Commission.
Principles of Income, Comprehensive Income, earnings per share, total assets, or total liabilities have been made to the previously issued Condensed Consolidated Statements of Cash Flows to conform to the current periods presentation of the Company'sConsolidation
The unaudited Condensed Consolidated Financial Statements. Specifically,Statements include the accounts of the Company, reclassified its wholly owned subsidiaries, and Variable Interest Entities ("VIEs") in which the Company is the primary beneficiary. The Company is the primary beneficiary of a VIE when the Company has the power to direct activities that most significantly affect the economic performance of the VIE. If the Company is not the primary beneficiary in a VIE and has significant influence, the Company accounts for the investment in the VIE as an equity in earnings (losses)method investment. As of unconsolidated entities from OtherJune 30, 2023 and December 31, 2022, assets within the changes in operatingrelated to consolidated VIEs were $58.6 million and $57.1 million, respectively, which were primarily related to right-of-use (“ROU”) assets and property and equipment, net. As of June 30, 2023 and December 31, 2022, liabilities of therelated to consolidated VIEs were $46.6 million and $50.9 million, respectively, which were primarily related to operating activities section of the Condensed Consolidated Statements of Cash Flows to Net equityand finance lease liabilities. All intercompany profits, transactions and balances have been eliminated in (earnings) losses of unconsolidated entities (net of distributions), which is a separate line within the operating activities section of the Condensed Consolidated Statements of Cash Flows.consolidation.
Cash and cash equivalents
Cash equivalents represent funds temporarily invested in money market instruments with maturities of three months or less. Cash equivalents are stated at cost, which approximates fair value. Cash and cash equivalents that are restricted as to withdrawal or use under the terms of certain contractual agreements were $0.4 million and $0.3$0.6 million as of SeptemberJune 30, 20172023 and December 31, 2016, respectively,2022, and arewere included withinin Cash and cash equivalents within the Condensed Consolidated Balance Sheets.
Allowance for Doubtful Accounts
Accounts receivable, net of the allowance for doubtful accounts, represents the Company’s estimate of the amount that ultimately will be realized in cash. The carrying valuesCompany reviews the adequacy of cash,its allowance for doubtful accounts receivableon an ongoing basis, primarily using a review of specific accounts, as well as historical collection trends and accounts payable approximate their fair value dueaging of receivables, and records adjustments to the short-term nature of these financial instruments. Book overdrafts of $26.5 million and $36.5 million areallowance as necessary. The Company’s allowance for doubtful accounts, which was included withinin Accounts payablereceivable, net, within the Condensed Consolidated Balance Sheets, was $4.1 million and $4.0 million as of SeptemberJune 30, 20172023 and December 31, 2016,2022, respectively. Long-term debt has
Property and Equipment, Net
Property and equipment includes the Company's equipment, internal-use software, vehicles, leasehold improvements and construction/development in process. Property and equipment are stated at cost, less accumulated depreciation and amortization, whenever applicable.
Certain costs incurred in the planning and evaluation stage of internal-use software projects are recorded to expense as incurred. Costs associated with directly obtaining, developing or upgrading internal-use software are capitalized and included as Software in Property and equipment, net, within the Condensed Consolidated Balance Sheets. When the internal-use software is ready for
7
its intended use, it is amortized on a carrying valuestraight-line basis over the estimated useful life of the internal-use software, which is typically 3 years.
Equipment and vehicles are depreciated on a straight-line basis over estimated useful lives ranging from 1 to 10 years. Expenditures for major renewals and improvements that approximates fair value because these instruments bear interest at variable market rates.extend the useful life of property and equipment, other than internal-use software, are capitalized. Leasehold improvements are amortized on a straight-line basis over the terms of the respective leases or the useful lives of the improvements, whichever is shorter.
Equity Investments in Unconsolidated Entities
The Company has ownership interests in 3225 active partnerships, joint ventures or similar arrangements that operate parking facilities, of which 2419 are consolidated under the VIE or voting interest models and 86 are unconsolidated where the Company’s ownership interests range from 30-5030-50 percent and for which there are no indicators of control. The Company accounts for such investments under the equity method of accounting, and itsthe Company’s underlying share of each investee’s equity isof $12.2 million and $11.9 million as of June 30, 2023 and December 31, 2022, respectively, was included in Equity investments in unconsolidated entitiesOther noncurrent assets within the Condensed Consolidated Balance Sheets. As the operations of these entities are consistent with the Company’s underlying core business operations, the equity in earnings of these investments arewere included in Parking services revenue—LeaseServices revenue - lease type contracts within the Condensed Consolidated Statements of Income. The equity in earnings in these related investments which includes earnings of $8.5 million from for our proportionate share of the net gain of an equity method investees' sale of assets for the nine months September 30, 2017, was $0.6 million and $0.7were $0.6 million for the three months ended SeptemberJune 30, 20172023 and 2016, respectively2022, and $10.6$1.3 million and $1.8$1.5 million forduring the ninesix months ended SeptemberJune 30, 20172023 and 2016,2022, respectively.
Other Noncurrent Assets
Other noncurrent assets and liabilities of its proprietary Click and Park parking prepayment business in exchange for a 30 percent interest in the newly formed legal entity called Parkmobile, LLC (“Parkmobile”). The joint venture of Parkmobile provides on-demand and prepaid transaction processing for on- and off-street parking and transportation services. The contribution of the Click and Park business in the joint venture resulted in a loss of control of the business, and therefore it was deconsolidated from the Company’s financial statements. The Company accounts for its investment in the joint venture with Parkmobile using the equity method of accounting, and its underlying shareconsisted of equity in Parkmobile is included in Equity investments inof unconsolidated entities, within the Condensed Consolidated Balance Sheets. The equity in losses in the Parkmobile joint venture is included in Equity in losses from investment in unconsolidated entity within the Condensed Consolidated Statementsadvances, deposits and cost of Income.contracts, net, as of June 30, 2023 and December 31, 2022.
Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of insurance, accrued rent, compensation, contingent consideration, payroll withholdings, property, payroll and other taxes and other accrued expenses as of June 30, 2023 and December 31, 2022.
Noncontrolling Interests
Noncontrolling interests represent the noncontrolling holders’ percentage share of income or losses(losses) from the subsidiaries in which the Company holds a majority,controlling interest, but less than 100 percent, ownership interest and theinterest. The results of whichthese subsidiaries are consolidated and included within the Condensed Consolidated Financial Statements.
During the third quarter 2015,six months ended June 30, 2023, the Company signed an agreementrecorded a $1.0 million liability related to sell and subsequently sold portionsits estimate of additional consideration (“contingent consideration") due to a former minority partner that formerly held a noncontrolling interest in a joint venture with the Company’s security business primarily operatingCompany. The Company purchased the minority partner’s interest in the Southern California market to a third-party for a gross sales price of $1.8 million, which resultedjoint venture in a gain on sale of business of $0.5 million, net of legal and other expenses.2020. The assets under the sale agreement met the definition of a business as defined by ASC 805-10-55-4. Cash consideration received during the third quarter 2015, net of legal and other expenses, was $1.0 million, with the remaining consideration for the sale of the business being classified as contingent consideration. Per the sales agreement, the contingent consideration was basedis contingent on the performance of the business and retentionoperations of current customers over an eighteen-month period ending on February 2017.the Bradley International Airport. The contingent consideration is not capped and, if any amount is due, would be payable to the former minority partner in April 2025. The $1.0 million was valued at fair value asdetermined based on a probability weighting of potential payouts and recorded in Additional paid-in capital within the date of sale of the business and resulted inCondensed Consolidated Balance Sheets. In addition, the Company recognizingrecorded a contingent consideration receivable from the buyer in the amountdeferred tax asset of $0.5 million. The buyer had sixty days from February 2017 to calculate and remit the remaining consideration. The Company received $0.6$0.3 million for the final earn out consideration from the buyer during the second quarter of 2017, which resulted in the Company recognizing an additional gain on sale of business of $0.1 million for the nine months ended September 30, 2017. See Note 6.
Additionally, during the six months ended June 30, 2023, the Company paid a former minority partner $2.2 million per the terms of estimated forfeitures previously not recognized as expense byan agreement between the Company and the former minority partner. The Company purchased the former minority partner’s entire noncontrolling interest in a joint venture with the Company as of December 31, 2016.
Goodwill
Goodwill represents the excess of the purchase price paid over the fair value of net assets acquired. In accordance with the restructuring, merger and integration costs are summarized inFinancial Accounting Standards Board's ("FASB") authoritative accounting guidance on goodwill, the following table:
Three Months Ended | Nine Months Ended | ||||||||||||||
(millions) (unaudited) | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
General and administrative expenses | $ | — | $ | 0.2 | $ | 1.1 | $ | 1.1 | |||||||
Depreciation and amortization | — | — | — | 2.4 | |||||||||||
Total | $ | — | $ | 0.2 | $ | 1.1 | $ | 3.5 |
September 30, 2017 (unaudited) | December 31, 2016 | ||||||||||||||||||||||||
(millions) | Weighted Average Life (Years) | Acquired Intangible Assets, Gross (1) | Accumulated Amortization | Acquired Intangible Assets, Net | Acquired Intangible Assets, Gross (1) | Accumulated Amortization | Acquired Intangible Assets, Net | ||||||||||||||||||
Covenant not to compete | 1.8 | $ | 0.9 | $ | (0.9 | ) | $ | — | $ | 0.9 | $ | (0.9 | ) | $ | — | ||||||||||
Trade names and trademarks | 2.3 | 9.8 | (9.7 | ) | 0.1 | 9.8 | (9.6 | ) | 0.2 | ||||||||||||||||
Proprietary know how | 2.3 | 34.7 | (34.6 | ) | 0.1 | 34.7 | (32.6 | ) | 2.1 | ||||||||||||||||
Management contract rights | 11.7 | 81.0 | (25.8 | ) | 55.2 | 81.0 | (22.0 | ) | 59.0 | ||||||||||||||||
Acquired intangible assets, net (2) | 11.6 | $ | 126.4 | $ | (71.0 | ) | $ | 55.4 | $ | 126.4 | $ | (65.1 | ) | $ | 61.3 |
Three Months Ended | Nine Months Ended | ||||||||||||||
(millions) (unaudited) | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Amortization expense related to other intangible assets included in depreciation and amortization | $ | 1.4 | $ | 3.8 | $ | 5.9 | $ | 11.4 |
(millions) (unaudited) | Region One | Region Two | Total | ||||||||
Balance as of December 31, 2016 (1) | $ | 368.7 | $ | 62.7 | $ | 431.4 | |||||
Foreign currency translation | 0.3 | — | 0.3 | ||||||||
Balance as of September 30, 2017 | $ | 369.0 | $ | 62.7 | $ | 431.7 |
8
The Company may perform a qualitative, rather than quantitative, assessment to determine whether it is more likely than not the fair value of a reporting unit is less than its carrying amountamount. If the Company determines impairment is present, the Company would need to perform a quantitative assessment. The determination of net assets assigned to the respectivefair value of a reporting unit asutilizes cash flow projections that assume certain future revenue and cost levels, comparable marketplace data, comparable company market valuations, assumed discount rates based upon current market conditions and other valuation factors, all of January 1, 2017which involve the use of significant judgment and immediately prior to the reorganization and therefore no further testing was required (Step Two). In conducting the January 1, 2017 goodwill Step One analysis, the Company analyzed actual and projected growth trends of the reporting units, gross margin, operating expenses and Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA") (which also includes forecasted five-year income statement and working capital projection, a market-based weighted average cost of capital and terminal values after five years).estimates. The Company also assesses critical areas that may impact its business, including economic conditions, market related exposures, competition, changes in service offerings and changes in key personnel. As part
Other Intangible Assets, net
Other intangible assets represent assets with finite lives that are amortized on a straight-line basis over their estimated useful lives. The Company evaluates other intangible assets on a periodic basis to determine whether events or circumstances warrant a revision to their remaining useful lives. In addition, other intangible assets are reviewed for impairment when circumstances change that would indicate the carrying value may not be recoverable. Assumptions and estimates about future values and remaining useful lives of intangible assets are complex and subjective, and can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors, such as changes in the Company's business strategy and forecasts. Although the Company believes the historical assumptions and estimates are reasonable and appropriate, different assumptions and estimates could materially impact reported financial results.
Long-Lived Assets
The Company evaluates long-lived assets, including ROU assets, leasehold improvements, equipment and construction/development in progress, for impairment whenever events or circumstances indicate that the carrying value of an asset or asset group may not be recoverable. The Company groups assets at the lowest level for which cash flows are separately identified in order to measure an impairment. Events or circumstances that would result in an impairment review include a significant change in the use of an asset, the planned sale or disposal of an asset, or a projection that demonstrates continuing losses associated with the use of a long-lived asset or asset group. Recoverability of assets to be held and used is measured by a comparison of the January 1, 2017 goodwill assessment,carrying amount of the asset or asset group to future undiscounted cash flows expected to be generated by the asset or asset group. If the asset or asset group is determined to be impaired, the impairment recognized is measured by the amount by which the carrying value of the asset or asset group exceeds its fair value.
Assumptions and estimates used to determine cash flows in the evaluation of impairment and the fair values used to determine the impairment are subject to a degree of judgment and complexity. Any future changes to the assumptions and estimates resulting from changes in actual results or market conditions from those anticipated may affect the carrying value of long-lived assets or asset groups and could result in impairment charges. Future events that may result in impairment charges include economic volatility or other factors that could decrease revenues and profitability of existing locations and changes in the cost structure of existing facilities, such as increasing labor and benefit costs.
Foreign Operations
The Company engaged a third-party to evaluate its reporting units' fair values. No impairment washas foreign operations in Canada, Puerto Rico, the United Kingdom and India. Assets and liabilities of the Company’s foreign operations are translated into U.S. dollars at the rate in effect on the respective balance sheet date, while income and expenses are translated at the average rates during the respective periods. Translation adjustments resulting from the fluctuations in exchange rates are recorded as a resultseparate component of accumulated other comprehensive loss in stockholders’ equity within the Condensed Consolidated Balance Sheets, while transaction gains and losses are recorded within the Condensed Consolidated Statements of Income. Deferred taxes are not recorded on cumulative foreign currency translation adjustments when the Company expects the foreign earnings to be permanently reinvested.
2. Acquisitions
On October 11, 2022, the Company acquired K M P Associates Limited ("KMP"), a United Kingdom based software and technology provider serving aviation and commercial parking clients, primarily through its Aeroparker technology, throughout the United States and Europe, for approximately $13.8 million, less cash acquired of $0.9 million, and assumed KMP's debt of $0.3 million. Immediately following the acquisition, the Company repaid all of the interim goodwill impairment test performed.
On November 10, 2022, the Company uses various valuation approaches withinacquired certain assets of DIVRT, Inc. ("DIVRT"), a developer of innovative software and technology solutions that enables frictionless parking capabilities, for approximately $17.6 million. In addition, the Company may be required to pay the former owner of DIVRT a maximum amount of $7.0 million in contingent consideration if certain targets related to the number of the Company's locations using the DIVRT technology are met by October 31, 2025. Based on a probability weighting of potential payouts, the Company accrued $4.0 million in projected contingent consideration as of the acquisition date, which was determined to be Level 3 under the fair value measurement framework. Fairhierarchy. The Company's estimate of the potential payout increased to $4.3 million from $4.1 million as of June 30, 2023 and December 31, 2022, respectively. The increases were due to the changes in the present value measurementsof the estimated payout. The Company recorded $0.1 million and $0.2 million of operating expense within the Condensed Consolidated Statements of Income during the three and six months ended June 30, 2023, respectively, related to the change in the present value of the contingent consideration. The Company will continue to evaluate the potential payouts in the
9
future and adjust the contingent consideration for any changes in the estimated fair value each reporting period. DIVRT's operations are determinedincluded in the Commercial segment.
Both acquisitions enhance the Company's position as a global provider of frictionless technology solutions that are independent of the Company's legacy parking management and transportation related operations. The acquisitions of KMP and DIVRT have been accounted for as business combinations, and the assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition dates. Goodwill was measured as the excess of the consideration over the assets acquired, including other intangible assets, less liabilities assumed, based on their estimated fair values at the acquisition dates. Tax deductible goodwill related to the acquisitions was $10.1 million. The results of each acquisition's operations are reflected in the Condensed Consolidated Financial Statements from the date of acquisition.
During the three and six months ended June 30, 2023, the acquisitions contributed $1.6 million and $3.2 million, respectively, of services revenue and losses before income taxes of $0.8 million and $1.7 million, respectively, primarily due to the amortization related to the acquired other intangible assets.
The Company believes the information gathered to date provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, however, the provisional measurements of fair value for the other intangible assets and goodwill of KMP and DIVRT are subject to change. As a result, during the measurement period, which may be up to one year from the acquisition dates, adjustments to assets and liabilities assumed will be recorded with corresponding adjustments to goodwill. The Company expects to complete the purchase price allocations for the KMP and DIVRT acquisitions as soon as practicable but no later than one year from the acquisition dates.
The estimated fair values of the assets acquired and liabilities assumed based on the information that was available as of the acquisition dates were as follows:
(millions) |
|
| |
Cash and cash equivalents | $ | 0.9 |
|
Accounts receivable |
| 0.7 |
|
Prepaid expenses and other current assets |
| 0.1 |
|
Other intangible assets |
| 21.7 |
|
Goodwill |
| 16.3 |
|
ROU asset |
| 0.1 |
|
Accounts payable |
| (0.1 | ) |
Accrued and other current liabilities |
| (1.5 | ) |
Deferred tax liability |
| (2.5 | ) |
Other long-term borrowings |
| (0.3 | ) |
Net assets acquired and liabilities assumed |
| 35.4 |
|
Less: cash and cash equivalents acquired |
| 0.9 |
|
Less: contingent consideration payable |
| 4.0 |
|
Net cash paid | $ | 30.5 |
|
In addition to the acquisitions discussed above, on April 18, 2022, the Company acquired certain other intangible assets for a purchase price of $1.8 million.
As discussed above, during the year ended December 31, 2022, the Company recorded additions to other intangible assets of $23.5 million. The other intangible assets acquired were recorded at their estimated fair value on the acquisition dates as follows:
(millions) |
| Estimated Life |
| Estimated Fair Value |
| |
Proprietary know how |
| 7.4 Years |
| $ | 17.3 |
|
Customer relationships |
| 5.8 Years |
|
| 3.2 |
|
Trade names |
| 13.2 Years |
|
| 1.8 |
|
Covenant not to compete |
| 4.2 Years |
| 1.2 |
| |
Estimated fair value of identified intangible assets |
|
|
| $ | 23.5 |
|
The fair values of other intangible assets acquired were determined to be Level 3 under the fair value hierarchy. The fair value estimate for all identifiable intangible assets is based on assumptions that market participants would use in pricing an asset, or liability. Applicable accounting literature establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The fair value hierarchy is based on observable or unobservable inputs to valuation techniques that are used to measure fair value. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon its own market assumptions. Applicable accounting literature defines levels within the hierarchy based on the reliability of inputs as follows:
The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis and the basis of measurement at September 30, 2017 and December 31, 2016:
Fair Value Measurement | |||||||||||||||||||||||
September 30, 2017 (unaudited) | December 31, 2016 | ||||||||||||||||||||||
(millions) | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |||||||||||||||||
Assets | |||||||||||||||||||||||
Prepaid expenses and other | |||||||||||||||||||||||
Contingent consideration receivable | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 0.5 | |||||||||||
Interest rate swap | — | — | — | — | 0.1 | — | |||||||||||||||||
Total | $ | — | $ | — | $ | — | $ | — | $ | 0.1 | $ | 0.5 |
10
3. Leases
The Company leases parking facilities, office space, warehouses, vehicles and equipment and determines if an arrangement is a lease at inception. The Company subleases certain real estate to third parties. The Company's sublease portfolio consists of operating leases for space within leased parking facilities.
As discussed in the market value of the derivative, and those related gains and losses on derivatives representing hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in earnings when incurred. No ineffectiveness was recognized during the nine months ended September 30, 2017 and 2016. The Interest Rate Swaps expired on September 30, 2017.
The components of February 2017 or eighteen months from the date of the transaction; however, the buyer had sixty days from February 2017 to calculate and remit the remaining consideration, with the contingent consideration being based on financial and operational performance of the business sold. During the second quarter 2017, the Company received $0.6 million from the buyer for the final earn out consideration, which resulted in the Company recognizing an additional gain on sale of business of $0.1 million. The significant inputs historically used to derive the Level 3 fair value contingent consideration receivable was the probability of reaching certain revenue growth of the business sold and retention of current customers over an eighteen month period. The fair value of the contingent receivable was $0.5 million as of December 31, 2016. There was no fair value of the contingent consideration receivable as of September 30, 2017.
(millions) |
| Classification |
| June 30, 2023 |
|
| December 31, 2022 |
| ||
Assets |
|
|
|
|
|
|
|
| ||
Operating |
| Right-of-use assets |
| $ | 170.7 |
|
| $ | 166.9 |
|
Finance |
| Property and equipment, net |
|
| 23.7 |
|
|
| 24.4 |
|
Total leased assets |
|
|
| $ | 194.4 |
|
| $ | 191.3 |
|
Liabilities |
|
|
|
|
|
|
|
| ||
Current |
|
|
|
|
|
|
|
| ||
Operating |
| Short-term lease liabilities |
| $ | 57.3 |
|
| $ | 60.2 |
|
Finance |
| Current portion of long-term borrowings |
|
| 7.1 |
|
|
| 7.2 |
|
Noncurrent |
|
|
|
|
|
|
|
| ||
Operating |
| Long-term lease liabilities |
|
| 156.3 |
|
|
| 158.5 |
|
Finance |
| Long-term borrowings, excluding current portion |
|
| 15.7 |
|
|
| 16.0 |
|
Total lease liabilities |
|
|
| $ | 236.4 |
|
| $ | 241.9 |
|
The components of lease cost and classification within the Condensed Consolidated Statements of Income during the three and six months ended June 30, 2023 and 2022 (unaudited) were as follows:
|
|
| Three Months Ended |
|
| Six Months Ended |
| |||||||||||
(millions) |
| Classification |
| June 30, 2023 |
|
| June 30, 2022 |
|
| June 30, 2023 |
|
| June 30, 2022 |
| ||||
Operating lease cost (a)(b) |
| Cost of services - lease type contracts |
| $ | 15.2 |
|
| $ | 14.6 |
|
| $ | 29.0 |
|
| $ | 29.7 |
|
Short-term lease (a) |
| Cost of services - lease type contracts |
|
| 5.3 |
|
|
| 5.3 |
|
|
| 10.2 |
|
|
| 10.4 |
|
Variable lease |
| Cost of services - lease type contracts |
|
| 22.8 |
|
|
| 18.8 |
|
|
| 41.0 |
|
|
| 33.3 |
|
Operating lease cost |
|
|
|
| 43.3 |
|
|
| 38.7 |
|
|
| 80.2 |
|
|
| 73.4 |
|
Finance lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Amortization of leased assets |
| Depreciation and amortization |
|
| 1.7 |
|
|
| 1.4 |
|
|
| 3.3 |
|
|
| 2.7 |
|
Interest on lease liabilities |
| Interest expense |
|
| 0.3 |
|
|
| 0.3 |
|
|
| 0.6 |
|
|
| 0.5 |
|
Net lease cost |
|
|
| $ | 45.3 |
|
| $ | 40.4 |
|
| $ | 84.1 |
|
| $ | 76.6 |
|
September 30, 2017 (unaudited) | December 31, 2016 | ||||||||||||||
(millions) | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||
Cash and cash equivalents | $ | 23.4 | $ | 23.4 | $ | 22.2 | $ | 22.2 | |||||||
Long-term borrowings | |||||||||||||||
Restated Credit Facility, net of original discount on borrowings and deferred financing costs | $ | 172.0 | $ | 172.0 | $ | 193.4 | $ | 193.4 | |||||||
Other obligations | 1.4 | 1.4 | 1.7 | 1.7 |
Sublease income was $0.5 million and $0.3 million during the three months ended June 30, 2023 and 2022, respectively, and $1.0 million and $0.6 million during the six months ended June 30, 2023 and 2022, respectively.
11
Maturities, lease term and discount rate information of lease liabilities as of June 30, 2023 (unaudited) were as follows:
(millions) |
| Operating |
|
| Finance |
|
| Total |
| |||
2023 |
| $ | 35.8 |
|
| $ | 4.4 |
|
| $ | 40.2 |
|
2024 |
|
| 59.1 |
|
|
| 7.0 |
|
|
| 66.1 |
|
2025 |
|
| 46.5 |
|
|
| 5.1 |
|
|
| 51.6 |
|
2026 |
|
| 35.6 |
|
|
| 3.8 |
|
|
| 39.4 |
|
2027 |
|
| 22.8 |
|
|
| 2.1 |
|
|
| 24.9 |
|
After 2027 |
|
| 48.7 |
|
|
| 3.1 |
|
|
| 51.8 |
|
Total lease payments |
|
| 248.5 |
|
|
| 25.5 |
|
|
| 274.0 |
|
Less: Imputed interest |
|
| 34.9 |
|
|
| 2.7 |
|
|
| 37.6 |
|
Present value of lease liabilities |
| $ | 213.6 |
|
| $ | 22.8 |
|
| $ | 236.4 |
|
Weighted-average remaining lease term (years) |
|
| 5.2 |
|
|
| 4.2 |
|
|
|
| |
Weighted-average discount rate |
|
| 5.4 | % |
|
| 5.1 | % |
|
|
|
Future sublease income for the above periods shown was excluded, as the amounts are not material.
Supplemental cash flow information related to leases during the six months ended June 30, 2023 and 2022 (unaudited) was as follows:
| Six Months Ended |
| ||||||
(millions) |
| June 30, 2023 |
|
| June 30, 2022 |
| ||
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
| ||
Operating cash outflows related to operating leases |
| $ | 44.2 |
|
| $ | 46.7 |
|
Operating cash outflows related to interest on finance leases |
|
| 0.5 |
|
|
| 0.5 |
|
Financing cash outflows related to finance leases |
|
| 3.8 |
|
|
| 5.4 |
|
Leased assets obtained in exchange for new operating liabilities |
|
| 31.2 |
|
|
| 5.8 |
|
Leased assets obtained in exchange for new finance lease liabilities |
|
| 3.5 |
|
|
| 4.9 |
|
4. Revenue
The carrying valueCompany recognizes revenue when control of cashthe promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.
Contracts with customers and clients
The Company accounts for a contract when it has the approval and commitment from both parties, the rights of the parties are identified, the payment terms are identified, the contract has commercial substance and collectability of consideration is probable. Once a contract is identified, the Company evaluates whether the contract should be accounted for as more than one performance obligation. Substantially all of the Company’s revenues come from the following two types of arrangements: Lease type and Management type contracts.
Lease type contracts
Lease type contract revenue includes gross receipts (net of local taxes), consulting fees, e-commerce technology fees, customer convenience fees, gains on sales of contracts and payments for exercising termination rights. Performance obligations related to lease type contracts include parking for transient and monthly parkers. Revenue is recognized over time as the Company provides services. Under lease type arrangements, the Company pays the property owner a fixed base rent, percentage rent that is tied to the facility’s financial performance, or a combination of both. The Company operates the parking facility and is responsible for most operating expenses, but typically is not responsible for major maintenance, capital expenditures or real estate taxes. Certain expenses, primarily rental expense for the contractual arrangements that meet the definition of service concession arrangements, are recorded as a reduction of Service revenue – lease type contracts.
Management type contracts
Management type contract revenue consists of management fees, including both fixed and performance-based fees, and in some cases e-commerce technology fees, customer convenience fees and monthly subscription fees related to the use of the Company's technology solutions. In exchange for this consideration, the Company may have a bundle of integrated services that comprise one performance obligation and include services such as managing the facility, as well as ancillary services such as accounting, equipment leasing, consulting, insurance and other value-added services. Management type contract revenues do not include gross customer collections at the managed facilities as these revenues belong to the property owners rather than the Company. Management type contracts generally provide the Company with management fees regardless of the operating performance of the underlying facilities. Revenue is recognized over time as the Company provides services.
12
Service concession arrangements
Certain expenses (primarily rental expense), as well as depreciation and amortization, related to service concessions arrangements for lease type contracts, are recorded as a reduction of Service revenue – lease type contracts.
The Company recorded cost concessions related to service concession arrangements (recognized as an increase to revenue) of $2.7 million and $5.6 million during the three and six months ended June 30, 2023, respectively, and $2.9 million and $6.1 million during the three and six months ended June 30, 2022, respectively.
Disaggregation of revenue
The Company disaggregates its revenue from contracts with customers by type of arrangement for each of the reportable segments. The Company has concluded that such disaggregation of revenue best depicts the overall economic nature, timing and uncertainty of the Company's revenue and cash equivalents approximates their fair valueflows affected by the economic factors of the respective contractual arrangement. See Note 13. Segment Information for further information on disaggregation of the Company's revenue by segment.
Performance obligations
As of June 30, 2023, the Company had $199.2 million related to performance obligations that were unsatisfied or partially unsatisfied for which the Company expects to recognize revenue. This amount excludes variable consideration primarily related to contracts where the Company and customer share the gross revenues or operating profit for the location and contracts where transaction prices include performance incentives that are constrained at contract inception. These performance incentives are based on measures that are ascertained exclusively by future performance and therefore cannot be estimated at contract inception by the Company. The Company applies the practical expedient that permits exclusion of information about the remaining performance obligations that have original expected durations of one year or less.
The Company expects to recognize the remaining performance obligations as revenue in future periods as follows:
(millions) (unaudited) |
| Remaining |
| |
2023 |
| $ | 40.5 |
|
2024 |
|
| 58.8 |
|
2025 |
|
| 37.2 |
|
2026 |
|
| 28.6 |
|
2027 |
|
| 17.1 |
|
2028 and thereafter |
|
| 17.0 |
|
Total |
| $ | 199.2 |
|
Contract balances
Contract assets and liabilities are reported on a contract-by-contract basis and are included in Accounts receivable, net, and Accrued and other current liabilities, respectively, within the Condensed Consolidated Balance Sheets.
The following table provides information about accounts receivable, contract assets and contract liabilities with customers and clients as of June 30, 2023 (unaudited) and December 31, 2022:
(millions) |
| June 30, 2023 |
|
| December 31, 2022 |
| ||
Accounts receivable |
| $ | 180.6 |
|
| $ | 169.9 |
|
Contract asset |
|
| 2.5 |
|
|
| 1.8 |
|
Contract liabilities |
|
| (12.3 | ) |
|
| (17.4 | ) |
Changes in contract assets, which include the recognition of additional consideration due from the client, are offset by reclassifications of contract asset balances to accounts receivable when the short-term natureCompany obtains an unconditional right to consideration, thereby establishing an accounts receivable. The following table provides information about changes to contract assets during the six months ended June 30, 2023 and 2022 (unaudited):
| Six Months Ended |
| ||||||
(millions) |
| June 30, 2023 |
|
| June 30, 2022 |
| ||
Balance, beginning of period |
| $ | 1.8 |
|
| $ | 2.3 |
|
Additional contract assets |
|
| 2.5 |
|
|
| — |
|
Reclassification to accounts receivable |
|
| (1.8 | ) |
|
| (2.3 | ) |
Balance, end of period |
| $ | 2.5 |
|
| $ | — |
|
13
Changes in contract liabilities primarily include additional contract liabilities and reductions of contract liabilities when revenue is recognized. The following table provides information about changes to contract liabilities during the six months ended June 30, 2023 and 2022 (unaudited):
| Six Months Ended |
| ||||||
(millions) |
| June 30, 2023 |
|
| June 30, 2022 |
| ||
Balance, beginning of period |
| $ | (17.4 | ) |
| $ | (15.7 | ) |
Additional contract liabilities |
|
| (12.3 | ) |
|
| (8.3 | ) |
Recognition of revenue from contract liabilities |
|
| 17.4 |
|
|
| 15.7 |
|
Balance, end of period |
| $ | (12.3 | ) |
| $ | (8.3 | ) |
Cost of contracts, net
Cost of contracts expense related to service concession arrangements and certain management type contracts are recorded as a reduction of revenue. Cost of contracts expense during the three and six months ended June 30, 2023 and 2022 (unaudited), which was included as a reduction to Services revenue – management type contracts within the Condensed Consolidated Statements of Income, was as follows:
| Three Months Ended |
| Six Months Ended |
| |||||||||||
(millions) |
| June 30, 2023 |
|
| June 30, 2022 |
| June 30, 2023 |
|
| June 30, 2022 |
| ||||
Cost of contracts expense |
| $ | 0.3 |
|
| $ | 0.3 |
| $ | 0.5 |
|
| $ | 0.5 |
|
As of June 30, 2023 (unaudited) and December 31, 2022, cost of contracts, net of accumulated amortization, included in Other noncurrent assets within the Condensed Consolidated Balance Sheets was $2.7 million and $2.9 million, respectively.
5. Legal and Other Commitments and Contingencies
The Company is subject to claims and litigation in the normal course of its business, including those related to labor and employment, contracts, personal injury and other related matters, some of which allege substantial monetary damages and claims. Some of these actions may be brought as class actions on behalf of a class or purported class of employees. While the outcomes of claims and legal proceedings brought against the Company are subject to uncertainty, the Company believes the final outcome will not have a material adverse effect on its financial instrumentsposition, results of operations or cash flows.
6. Other Intangible Assets, net
The components of other intangible assets, net, as of June 30, 2023 (unaudited) and has been classifiedDecember 31, 2022, were as a Level 1. follows:
|
|
|
| June 30, 2023 |
|
| December 31, 2022 |
| ||||||||||||||||||||
(millions) |
| Weighted |
|
| Intangible |
|
| Accumulated |
|
| Intangible |
|
| Intangible |
|
| Accumulated |
|
| Intangible |
| |||||||
Covenant not to compete |
|
| 3.4 |
|
| $ | 2.9 |
|
| $ | (1.8 | ) |
| $ | 1.1 |
|
| $ | 2.9 |
|
| $ | (1.4 | ) |
| $ | 1.5 |
|
Trade names and trademarks |
|
| 12.0 |
|
|
| 3.0 |
|
|
| (0.9 | ) |
|
| 2.1 |
|
|
| 2.8 |
|
|
| (0.7 | ) |
|
| 2.1 |
|
Proprietary know how |
|
| 6.4 |
|
|
| 22.0 |
|
|
| (4.4 | ) |
|
| 17.6 |
|
|
| 21.7 |
|
|
| (2.7 | ) |
|
| 19.0 |
|
Management contract rights |
|
| 6.0 |
|
|
| 81.0 |
|
|
| (55.4 | ) |
|
| 25.6 |
|
|
| 81.0 |
|
|
| (52.9 | ) |
|
| 28.1 |
|
Customer relationships |
|
| 8.1 |
|
|
| 24.9 |
|
|
| (7.8 | ) |
|
| 17.1 |
|
|
| 24.8 |
|
|
| (6.6 | ) |
|
| 18.2 |
|
Other intangible assets, net |
|
| 6.8 |
|
| $ | 133.8 |
|
| $ | (70.3 | ) |
| $ | 63.5 |
|
| $ | 133.2 |
|
| $ | (64.3 | ) |
| $ | 68.9 |
|
Amortization expense related to other intangible assets during the three and six months ended June 30, 2023 and 2022, (unaudited), respectively, which was included in Depreciation and amortization within the Condensed Consolidated Statements of Income, was as follows:
| Three Months Ended |
| Six Months Ended |
| |||||||||||
(millions) |
| June 30, 2023 |
|
| June 30, 2022 |
| June 30, 2023 |
|
| June 30, 2022 |
| ||||
Amortization expense |
| $ | 3.0 |
|
| $ | 2.1 |
| $ | 6.0 |
|
| $ | 4.9 |
|
14
7. Goodwill
The fair value of the Restated Credit Facility and Other obligations were estimated to not be materially different fromchanges in the carrying amount and are generally measured using a discounted cash flow analysis based on current market interest rates for similar types of financial instruments and would be classifiedgoodwill during the six months ended June 30, 2023 (unaudited) were as a Level 2.follows:
(millions) |
| Commercial |
|
| Aviation |
|
| Total |
| |||
Net book value as of December 31, 2022 |
|
|
|
|
|
|
|
|
| |||
Goodwill |
| $ | 387.0 |
|
| $ | 215.7 |
|
| $ | 602.7 |
|
Accumulated impairment losses |
|
| — |
|
|
| (59.5 | ) |
|
| (59.5 | ) |
Total |
| $ | 387.0 |
|
| $ | 156.2 |
|
| $ | 543.2 |
|
Foreign currency translation |
|
| 0.1 |
|
|
| 0.3 |
|
|
| 0.4 |
|
Net book value as of June 30, 2023 |
|
|
|
|
|
|
|
|
| |||
Goodwill |
| $ | 387.1 |
|
| $ | 216.0 |
|
| $ | 603.1 |
|
Accumulated impairment losses |
|
| — |
|
|
| (59.5 | ) |
|
| (59.5 | ) |
Total |
| $ | 387.1 |
|
| $ | 156.5 |
|
| $ | 543.6 |
|
8. Borrowing Arrangements
Long-term borrowings, as of June 30, 2023 (unaudited) and December 31, 2022, in order of preference, consist of:
| Amount Outstanding |
| ||||||
(millions) |
| June 30, |
|
| December 31, |
| ||
Senior Credit Facility, net of original discount on borrowings(1) |
| $ | 343.9 |
|
| $ | 322.3 |
|
Other borrowings(2) |
|
| 23.9 |
|
|
| 24.3 |
|
Deferred financing costs |
|
| (2.1 | ) |
|
| (2.4 | ) |
Total obligations |
|
| 365.7 |
|
|
| 344.2 |
|
Less: Current portion of long-term borrowings |
|
| 13.5 |
|
|
| 12.4 |
|
Total long-term borrowings, excluding current portion |
| $ | 352.2 |
|
| $ | 331.8 |
|
Amount Outstanding | |||||||||
(millions) | Maturity Date | September 30, 2017 | December 31, 2016 | ||||||
(unaudited) | |||||||||
Restated Credit Facility, net of original discount on borrowings and deferred financing costs | February 20, 2020 | $ | 172.0 | $ | 193.4 | ||||
Other borrowings | Various | 1.4 | 1.7 | ||||||
Total obligations under Restated Credit Facility and other borrowings | 173.4 | 195.1 | |||||||
Less: Current portion of obligations under Restated Credit Facility and other borrowings | 20.4 | 20.4 | |||||||
Total long-term obligations under Restated Credit Facility and other borrowings | $ | 153.0 | $ | 174.7 |
Senior Credit Facility
On October 2, 2012,April 21, 2022 (the “Fifth Amendment Effective Date”), the Company entered into a fifth amendment (the “Fifth Amendment”) to the Company’s credit agreement (“(as amended prior to the Fifth Amendment Effective Date, the “Credit Agreement”; the Credit Agreement, as amended by the Fifth Amendment, the “Amended Credit Agreement”) with Bank of America, N.A. ("(“Bank of America"America”), as administrative agent, Wells Fargo Bank, N.A. ("Wells Fargo Bank")Administrative Agent, swing-line lender and JPMorgan Chase Bank, as co-syndication agents, U.S. Bank National Association, First Hawaiian Bank and General Electric Capital Corporation, as co-documentation agents, Merrill Lynch, Pierce, Fenner & Smith Inc., Wells Fargo Securities, LLC and J.P. Morgan Securities LLC, as joint lead arrangers and joint book managers, and the lenders party thereto.
As of the revolving credit facility in an aggregate additional principal amount of $100.0 million. The Restated Credit Facility matures on February 20, 2020.
As of SeptemberJune 30, 2017,2023, the Company had $129.4 million of borrowing availability under the Restated Credit Agreement, of which the Company could have borrowed $129.4 million on September 30, 2017 and remained in compliance with the above described covenants as of such date. The additional borrowing availability under the Restated Credit Agreement is limited only as of the Company’s fiscal quarter-end by the covenant restrictions described above. At September 30, 2017, the Company had $51.6$39.1 million of letters of credit outstanding under the Restated Senior Credit Facility with aggregateand borrowings against the Restated Senior Credit Facility aggregated to $345.0 million.
The weighted average interest rate on the Senior Credit Facility was 6.5% and 3.3% during the six months ended June 30, 2023 and 2022, respectively. That rate included the letters of $174.1 million (excluding debt discountcredit for both years and interest rate collars during the three months ended June 30, 2022. The weighted average interest rate on all outstanding borrowings, not including letters of $0.9 millioncredit, was 7.0% and deferred financing cost3.4% during the six months ended June 30, 2023 and 2022, respectively.
15
Table of $1.2 million).Contents
Subordinated Convertible Debentures
The Company acquired Subordinated Convertible Debentures ("Convertible Debentures") as a result of the October 2, 2012 acquisition of Central Parking Corporation. As of October 2, 2012, the Convertible Debentures were no longer redeemable for shares. The Convertible Debentures mature April 1, 2028 at $25 per share. The Convertible Debenture holders have the right to redeem the Convertible Debentures for $19.18 per share upon acceleration or earlier repayment of the Convertible Debentures. There have been no redemptions of the Convertible Debentures during the periods ended June 30, 2023 and December 31, 2022. The approximate redemption value of the Convertible Debentures outstanding as of June 30, 2023 and December 31, 2022 was $1.1 million.
9. Stock Repurchase Plan
On February 14, 2023, the Company's Board of Directors (the "Board") authorized the Company to repurchase, on the open market, shares of itsthe Company's outstanding common stock in an amount not to exceed $30.0 million in aggregate. Purchases of$60.0 million. No shares have been repurchased under this program.
In May 2022, the Company's common stock may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with Rule 10b-18 and 10b5-1 under the Securities Exchange Act of 1934 ("Exchange Act"). The share repurchase program does not obligateBoard authorized the Company to repurchase, any particular amounton the open market, shares of the Company’s outstanding common stock and has no fixed termination date.
Stock repurchase activity under the May 2022 stock repurchase program during the six months ended June 30, 2023 and 2022 (unaudited) was as follows:
(millions, except for share and per share data) |
| June 30, 2023 |
|
| June 30, 2022 |
| ||
Total number of shares repurchased |
|
| 285,700 |
|
|
| 176,500 |
|
Average price paid per share |
| $ | 36.53 |
|
| $ | 31.51 |
|
Total value of common stock repurchased |
| $ | 10.4 |
|
| $ | 5.6 |
|
No stock repurchases were made during the three months ended June 30, 2023 or the three months ended March 31, 2022.
The Company recorded $0.1 million in program-to-date purchases. No shares were repurchasedadditional paid-in capital within the Condensed Consolidated Balance Sheets during the ninesix months ended SeptemberJune 30, 2017.2023, related to the excise tax on net repurchases of common stock that was a provision of the Inflation Reduction Act of 2022.
The remaining authorized repurchase amount under the May 2022 and February 2023 stock repurchase programs as of June 30, 2023 (unaudited), was as follows:
(millions) |
| June 30, 2023 |
| |
Total authorized repurchase amount |
| $ | 120.0 |
|
Total value of shares repurchased |
|
| 59.8 |
|
Total remaining authorized repurchase amount |
| $ | 60.2 |
|
10. Stock-Based Compensation
Stock Grants
The Company entered into a 25-year agreement withgranted 18,660 and 14,635 shares of common stock to the StateBoard during the six months ended June 30, 2023 and 2022, respectively. The Company recognized $0.6 million and $0.4 million of Connecticut (“State”) that expires on April 6, 2025, under which it operatesstock-based compensation expense related to stock grants during the surface parkingthree and 3,500 garage parking spaces at Bradley International Airport (“Bradley”) located insix months ended June 30, 2023 and 2022, respectively.
Restricted Stock Units
During the Hartford, Connecticut metropolitan area.
Nonvested restricted stock units as of SeptemberJune 30, 20172023, and changes during the six months ended June 30, 2023 (unaudited) were as follows:
(millions) | 2017 | ||
Balance at December 31, 2016 | $ | 9.9 | |
Deficiency payments made | 0.2 | ||
Deficiency repayment received | (1.9 | ) | |
Balance at September 30, 2017 | $ | 8.2 |
|
| Shares |
|
| Weighted Average Grant-Date Fair Value |
| ||
Nonvested as of December 31, 2022 |
|
| 338,448 |
|
| $ | 33.28 |
|
Granted |
|
| 126,931 |
|
|
| 34.57 |
|
Vested |
|
| (8,426 | ) |
|
| 35.95 |
|
Nonvested as of June 30, 2023 |
|
| 456,953 |
|
| $ | 33.62 |
|
16
Three Months Ended | Nine Months Ended | ||||||||||||||
(millions) (unaudited) | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Deficiency repayments | $ | 0.5 | $ | — | $ | 1.7 | $ | 1.2 | |||||||
Interest | $ | — | $ | 0.2 | $ | 0.2 | $ | 0.3 | |||||||
Premium | $ | — | $ | — | $ | 0.2 | $ | 0.2 |
The reimbursement of principal, interest and premium are recognized when received. There were no amounts of estimated deficiency payments accrued as of September 30, 2017 and December 31, 2016, as the Company concluded that the potential for future deficiency payments did not meet the criteria of both probable and estimable.
| Three Months Ended |
| Six Months Ended |
| |||||||||||
(millions) |
| June 30, 2023 |
|
| June 30, 2022 |
| June 30, 2023 |
|
| June 30, 2022 |
| ||||
Stock-based compensation expense |
| $ | 1.4 |
|
| $ | 1.5 |
| $ | 2.5 |
|
| $ | 2.8 |
|
Three Months Ended | Nine Months Ended | ||||||||||||||
(millions) (unaudited) | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Stock-based compensation expense | $ | — | $ | — | $ | 0.5 | $ | 0.7 |
As of June 30, 2017, no restricted stock units were authorized by the Company. During the nine months ended September 30, 2017 and 2016, 4,399, and 1,415 restricted stock units vested, respectively. During the nine months ended September 30, 2017 and 2016, 4,537 and 4,124 restricted stock units, respectively, were forfeited under the Company's Amended and Restated Long-Term Incentive Plan and became available for reissuance.
Three Months Ended | Nine Months Ended | ||||||||||||||
(millions) (unaudited) | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Stock-based compensation expense | $ | 0.2 | $ | 0.2 | $ | 0.6 | $ | 0.6 |
Performance Share Units
During the Board of Directors authorized a performance-based incentive program under the Company’s Amendedsix months ended June 30, 2023 and Restated Long-Term Incentive Plan (“Performance-Based Incentive Program”), whereby2022, the Company will issue performance share unitsgranted 126,921 and 132,304 PSUs, respectively, to certain executive management individuals that represent shares potentially issuable in the future.executives. The objective of the Performance-Based Incentive Programperformance target is to link compensation to business performance, encourage ownership of Company stock, retain executive talent, and reward executive performance. The Performance-Based Incentive Program provides participating executive management individuals with the opportunity to earn vested common stock if certain performance targets for pre-tax free cash flow are achieved over a three year performance period and recipients satisfy service-based vesting requirements. The stock-based compensation expense associated with unvested performance share units are recognized on a straight-line basis over the shorter of the vesting period or minimum service period and dependent upon the probable outcome of the number of shares that will ultimately be issued based on the achievement of pre-tax free cash flowa certain level of operating income, excluding depreciation and amortization, as well as certain other discretionary adjustments by the Board, over a three-year performance period. The ultimate number of shares issued could change depending on the Company’s results over the cumulative three yearperformance period. DuringThe maximum amount of shares that could be issued for the ninePSU's granted in 2023 ("2023 PSUs"), the PSU's granted in 2022 ("2022 PSUs") and the PSU's granted in 2021 ("2021 PSUs") are 253,842, 258,114 and 97,096, respectively. The Company is currently recognizing expense for the 2023 PSUs based on a payout of 130,729 shares, the 2022 PSUs based on a payout of 197,457 shares, and the maximum payout of 97,096 shares for the 2021 PSUs.
Nonvested PSUs as of June 30, 2023, and changes during the six months ended SeptemberJune 30, 2017 and 2016, the Company granted 76,120 and 98,078 performance share units, respectively, to certain individuals within executive management. During the nine months ended September 30, 2017 and 2016, 11,770 and 4,493, performance share units, respectively,2023 (unaudited), were forfeited under the Amended and Restated Long-Term Incentive Plan and became available for reissuance. As of September 30, 2017, 14,195 shares were vested related to certain participating executives being eligible for retirement.as follows:
|
| Shares |
|
| Weighted Average Grant-Date Fair Value |
| ||
Nonvested as of December 31, 2022 |
|
| 177,605 |
|
| $ | 31.94 |
|
Granted |
|
| 126,921 |
|
|
| 34.57 |
|
Nonvested as of June 30, 2023 |
|
| 304,526 |
|
| $ | 33.04 |
|
The table below shows the Company's stock-based compensation expense related to the Performance-Based Incentive Program forPSUs during the three and ninesix months ended SeptemberJune 30, 20172023 and 2016, respectively, and is2022 (unaudited), which was included in General and administrative expenses within the Condensed Consolidated Statements of Income.Income, was as follows:
| Three Months Ended |
| Six Months Ended |
| |||||||||||
(millions) |
| June 30, 2023 |
|
| June 30, 2022 |
| June 30, 2023 |
|
| June 30, 2022 |
| ||||
Stock-based compensation expense |
| $ | 1.2 |
|
| $ | 0.7 |
| $ | 2.3 |
|
| $ | 1.2 |
|
Three Months Ended | Nine Months Ended | ||||||||||||||
(millions) (unaudited) | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Stock-based compensation expense | $ | 0.6 | $ | 0.5 | $ | 1.8 | $ | 1.5 |
As of June 30, 2023, there was $7.8 million of unrecognized stock-based compensation expense for currently outstanding awards under the Performance-Based Incentive Program could reach a maximum of $9.0 million. Stock-based compensation for the Performance-Based Incentive Program isexpenses related to PSUs that are expected to be recognized over a weighted average remaining period of 1.8approximately 1.9 years.
11. Net Income per Common Share
Basic net income per common share is computed by dividing net income by the weighted daily average number of shares of common stock outstanding during the period. Diluted net income per common share is based upon the weighted daily average number of shares of common stock outstanding forduring the period plus all potentially dilutive potential common shares,stock-based awards, including stock options and restricted stock and performance share units, using the treasury-stock method.
17
Basic and diluted net income per common share and a reconciliation of the weighted average basic common shares outstanding to the weighted average diluted common shares outstanding is as follows:
Three Months Ended | Nine Months Ended | ||||||||||||||
(millions, except share and per share data) (unaudited) | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Net income attributable to SP Plus Corporation | $ | 11.2 | $ | 7.0 | $ | 33.4 | $ | 13.5 | |||||||
Basic weighted average common shares outstanding | 22,203,023 | 22,208,139 | 22,186,556 | 22,293,776 | |||||||||||
Dilutive impact of share-based awards | 320,013 | 288,972 | 314,822 | 278,157 | |||||||||||
Diluted weighted average common shares outstanding | 22,523,036 | 22,497,111 | 22,501,378 | 22,571,933 | |||||||||||
Net income per common share | |||||||||||||||
Basic | $ | 0.51 | $ | 0.31 | $ | 1.51 | $ | 0.60 | |||||||
Diluted | $ | 0.50 | $ | 0.31 | $ | 1.48 | $ | 0.60 |
|
| Three Months Ended |
| Six Months Ended |
| ||||||||||
(millions, except share and per share data) |
| June 30, 2023 |
|
| June 30, 2022 |
| June 30, 2023 |
|
| June 30, 2022 |
| ||||
Net income attributable to SP Plus Corporation |
| $ | 12.3 |
|
| $ | 15.4 |
| $ | 20.7 |
|
| $ | 26.1 |
|
Basic weighted average common shares outstanding |
|
| 19,631,772 |
|
|
| 21,195,819 |
|
| 19,666,684 |
|
|
| 21,211,299 |
|
Dilutive impact of share-based awards |
|
| 208,181 |
|
|
| 160,645 |
|
| 187,216 |
|
|
| 136,143 |
|
Diluted weighted average common shares outstanding |
|
| 19,839,953 |
|
|
| 21,356,464 |
|
| 19,853,900 |
|
|
| 21,347,442 |
|
Net income per common share |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| $ | 0.63 |
|
| $ | 0.73 |
| $ | 1.05 |
|
| $ | 1.23 |
|
Diluted |
| $ | 0.62 |
|
| $ | 0.72 |
| $ | 1.04 |
|
| $ | 1.22 |
|
There were excluded from the computation of weighted average diluted common share outstanding because the number of shares ultimately issuable is contingent on the Company's performance goals, which were not achieved as of the reporting dates.
12. Comprehensive Income
The components of other comprehensive income consists of(loss) and the following components, net of tax:income tax benefit allocated to each component during the three and six months ended June 30, 2023 and 2022 (unaudited) were as follows:
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||
(millions) |
| Before Tax Amount |
|
| Income Tax |
|
| Net of Tax Amount |
|
| Before Tax Amount |
|
| Income Tax |
|
| Net of Tax Amount |
| ||||||
Translation adjustments |
| $ | 0.5 |
|
| $ | — |
|
| $ | 0.5 |
|
| $ | 0.7 |
|
| $ | — |
|
| $ | 0.7 |
|
Other comprehensive income |
| $ | 0.5 |
|
| $ | — |
|
| $ | 0.5 |
|
| $ | 0.7 |
|
| $ | — |
|
| $ | 0.7 |
|
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||
(millions) |
| Before Tax Amount |
|
| Income Tax |
|
| Net of Tax Amount |
|
| Before Tax Amount |
|
| Income Tax |
|
| Net of Tax Amount |
| ||||||
Translation adjustments |
| $ | (0.2 | ) |
| $ | — |
|
| $ | (0.2 | ) |
| $ | (0.1 | ) |
| $ | — |
|
| $ | (0.1 | ) |
De-designation of interest rate collars |
|
| 0.1 |
|
|
| — |
|
|
| 0.1 |
|
|
| 0.7 |
|
|
| 0.2 |
|
|
| 0.5 |
|
Other comprehensive income (loss) |
| $ | (0.1 | ) |
| $ | — |
|
| $ | (0.1 | ) |
| $ | 0.6 |
|
| $ | 0.2 |
|
| $ | 0.4 |
|
Three Months Ended | Nine Months Ended | ||||||||||||||
(millions) (unaudited) | September 30, 2017 | September 30, 2016 | September 30, 2017 | September 30, 2016 | |||||||||||
Net income | $ | 12.0 | $ | 7.7 | $ | 36.0 | $ | 15.7 | |||||||
Effective portion of unrealized loss on cash flow hedge | (0.1 | ) | 0.2 | — | (0.1 | ) | |||||||||
Foreign currency translation gain (loss) | 0.2 | (0.1 | ) | 0.2 | (0.1 | ) | |||||||||
Comprehensive income | 12.1 | 7.8 | 36.2 | 15.5 | |||||||||||
Less: Comprehensive income attributable to noncontrolling interest | 0.8 | 0.7 | 2.6 | 2.2 | |||||||||||
Comprehensive income attributable to SP Plus Corporation | $ | 11.3 | $ | 7.1 | $ | 33.6 | $ | 13.3 |
The changes to accumulated other comprehensive loss is comprised of unrealized gains (losses) on cash flow hedges and foreign currency translation adjustments. by component during the six months ended June 30, 2023 (unaudited) were as follows:
(millions) |
|
|
| Foreign |
|
| Total Accumulated |
| ||
Balance as of December 31, 2022 |
|
|
| $ | (1.8 | ) |
| $ | (1.8 | ) |
Other comprehensive income before reclassification |
|
|
|
| 0.7 |
|
|
| 0.7 |
|
Balance as of June 30, 2023 |
|
|
| $ | (1.1 | ) |
| $ | (1.1 | ) |
The components of changes into accumulated other comprehensive loss net of tax, forby component during the ninesix months ended SeptemberJune 30, 20172022 (unaudited) were as follows:
(millions) |
| Foreign |
|
| Interest Rate Collars |
|
| Total Accumulated |
| |||
Balance as of December 31, 2021 |
| $ | (2.3 | ) |
| $ | (0.5 | ) |
| $ | (2.8 | ) |
Other comprehensive loss before reclassification |
|
| (0.1 | ) |
|
| — |
|
|
| (0.1 | ) |
Amounts reclassified from accumulated other comprehensive loss |
|
| — |
|
|
| 0.5 |
|
|
| 0.5 |
|
Balance as of June 30, 2022 |
| $ | (2.4 | ) |
| $ | — |
|
| $ | (2.4 | ) |
18
(millions) (unaudited) | Foreign Currency Translation Adjustments | Effective Portion of Unrealized Gain (Loss) on Cash Flow Hedge | Total Accumulated Other Comprehensive Loss | ||||||||
Balance at December 31, 2016 | $ | (1.4 | ) | $ | — | $ | (1.4 | ) | |||
Change in other comprehensive income | 0.2 | — | 0.2 | ||||||||
Balance at September 30, 2017 | $ | (1.2 | ) | $ | — | $ | (1.2 | ) |
Reclassifications from accumulated other comprehensive loss during the three and six months ended SeptemberJune 30, 2017, the Company recognized an income tax expense of $7.3 million on pre-tax earnings of $19.3 million compared to $5.1 million income tax expense on pre-tax earnings of $12.8 million for the three months ended September 30, 2016. For the nine months ended September 30, 2017, the Company recognized income tax expense of $21.3 million on pre-tax earnings of $57.3 million compared to income tax expense of $10.9 million on pre-tax earnings of $26.6 million for the nine months ended September 30, 2016. The effective tax rate was approximately was 37.2% for the nine months ended September 30, 2017 compared to approximately 41.0% for the nine months ended September 30, 2016. The effective tax rate for the nine months ended September 30, 2017 was lower than the nine months ended September 30, 2016 primarily due to additional 2017 year-to-date federal employer income tax credits recognized ($0.5 million)2023 and the adoption of ASU 2016-09 and the related excess tax benefits now recognized2022 (unaudited) were as a reduction of income tax expense ($0.7 million).follows:
(millions) |
| Three Months Ended |
|
| Six Months Ended |
|
| Classification in the Condensed Consolidated Statements of Income | ||||||||||
Interest Rate Collars: |
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
|
|
| ||||
Net realized loss |
| $ | — |
|
| $ | 0.1 |
|
| $ | — |
|
| $ | 0.7 |
|
| Other expenses |
Reclassifications before tax |
|
| — |
|
|
| 0.1 |
|
|
| — |
|
|
| 0.7 |
|
|
|
Income tax benefit |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 0.2 |
|
|
|
Reclassifications, net of tax |
| $ | — |
|
| $ | 0.1 |
|
| $ | — |
|
| $ | 0.5 |
|
|
|
13. Segment Information
Segment information is presented in accordance with a “management approach,” which designates the internal reporting used by the Company's Chief Operating Decision Maker (“CODM”) for making decisions and assessing performance as the source of the Company’s reportable segments. The Company’s segments are organized in a manner consistent with which discrete financial information is available and evaluated regularly by the Company’s CODM in deciding how to allocate resources and in assessingassess performance.
An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenue and incur expenses, and about which separate financial information is regularly evaluated by the Company’s CODM. The CODM is the Company’s chief executive officer.
Each of the operating segments isare directly responsible for revenue and expenses related to their operations, including direct regionalsegment general and administrative costs. Finance, information technology, human resources, and legal are shared functions that are not allocated back to the two operating segments.expenses. The CODM assesses the performance of each operating segment using information about its revenue and gross profitoperating income (loss) as its primary measure of performance, but does not evaluate segments using discrete asset information. Therefore, assets are not presented at the segment level. There arewere no inter-segment transactions during the three and six months ended June 30, 2023, and the Company does not allocate interest and other income,expense (income), interest expense depreciation and amortization(income) or taxesincome tax expense (benefit) to the operating segments. The accounting policies for segment reporting are the same as for the Company as a whole.
The Company’s operating segments are internally reported as Region One (Commercial)Commercial and Region Two (Airports). All prior periods presented have been restated to reflectAviation:
The Other segment includes costs related to the Company’s operational support teams and costs related to common and shared infrastructure, including finance, accounting, information technology, human resources, procurement, legal and corporate items.
19
Revenue, operating income (loss), general and administrative expenses and depreciation and amortization by executive vice presidents. The following is a summary of revenues (excluding reimbursed management contract revenue) and gross profit by regions foroperating segment during the three and ninesix months ended SeptemberJune 30, 20172023 and 2016:
|
| Three Months Ended | Six Months Ended |
| ||||||||||||
(millions) |
| June 30, 2023 |
|
| June 30, 2022 |
|
| June 30, 2023 |
|
| June 30, 2022 |
| ||||
Services revenue |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Lease type contracts |
| $ | 72.4 |
|
| $ | 67.1 |
|
| $ | 137.0 |
|
| $ | 126.3 |
|
Management type contracts |
|
| 75.2 |
|
|
| 65.8 |
|
|
| 155.0 |
|
|
| 137.8 |
|
Total Commercial |
|
| 147.6 |
|
|
| 132.9 |
|
|
| 292.0 |
|
|
| 264.1 |
|
Aviation |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Lease type contracts |
|
| 3.9 |
|
|
| 3.5 |
|
|
| 7.5 |
|
|
| 6.9 |
|
Management type contracts |
|
| 69.8 |
|
|
| 60.1 |
|
|
| 138.1 |
|
|
| 109.9 |
|
Total Aviation |
|
| 73.7 |
|
|
| 63.6 |
|
|
| 145.6 |
|
|
| 116.8 |
|
Reimbursed management type contract revenue |
|
| 220.9 |
|
|
| 184.5 |
|
|
| 429.9 |
|
|
| 349.9 |
|
Total services revenue |
| $ | 442.2 |
|
| $ | 381.0 |
|
| $ | 867.5 |
|
| $ | 730.8 |
|
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
| $ | 36.1 |
|
| $ | 34.7 |
|
| $ | 67.3 |
|
| $ | 63.3 |
|
Aviation |
|
| 9.6 |
|
|
| 8.5 |
|
|
| 18.2 |
|
|
| 16.6 |
|
Other |
|
| (20.4 | ) |
|
| (17.6 | ) |
|
| (40.9 | ) |
|
| (34.2 | ) |
Total operating income |
| $ | 25.3 |
|
| $ | 25.6 |
|
| $ | 44.6 |
|
| $ | 45.7 |
|
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial |
| $ | 9.3 |
|
| $ | 7.8 |
|
| $ | 17.5 |
|
| $ | 13.9 |
|
Aviation |
|
| 4.0 |
|
|
| 2.9 |
|
|
| 7.9 |
|
|
| 5.6 |
|
Other |
|
| 18.5 |
|
|
| 16.0 |
|
|
| 37.0 |
|
|
| 31.7 |
|
Total general and administrative expenses |
| $ | 31.8 |
|
| $ | 26.7 |
|
| $ | 62.4 |
|
| $ | 51.2 |
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial(1) |
| $ | 3.8 |
|
| $ | 2.8 |
|
| $ | 7.4 |
|
| $ | 5.8 |
|
Aviation(2) |
|
| 3.1 |
|
|
| 2.1 |
|
|
| 5.9 |
|
|
| 5.0 |
|
Other |
|
| 1.9 |
|
|
| 1.6 |
|
|
| 3.9 |
|
|
| 2.5 |
|
Total depreciation and amortization |
| $ | 8.8 |
|
| $ | 6.5 |
|
| $ | 17.2 |
|
| $ | 13.3 |
|
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||
(millions) (unaudited) | 2017 | Gross Margin % | 2016 | Gross Margin % | 2017 | Gross Margin % | 2016 | Gross Margin % | |||||||||||||||||||
Parking Services Revenue | |||||||||||||||||||||||||||
Region One | |||||||||||||||||||||||||||
Lease contracts | $ | 108.9 | $ | 104.9 | $ | 326.0 | $ | 316.6 | |||||||||||||||||||
Management contracts | 62.5 | 61.1 | 190.1 | 185.5 | |||||||||||||||||||||||
Total Region One | 171.4 | 166.0 | 516.1 | 502.1 | |||||||||||||||||||||||
Region Two | |||||||||||||||||||||||||||
Lease contracts | 32.0 | 31.2 | 96.6 | 93.7 | |||||||||||||||||||||||
Management contracts | 22.2 | 20.6 | 66.4 | 69.1 | |||||||||||||||||||||||
Total Region Two | 54.2 | 51.8 | 163.0 | 162.8 | |||||||||||||||||||||||
Other | |||||||||||||||||||||||||||
Lease contracts | — | — | — | — | |||||||||||||||||||||||
Management contracts | 2.0 | 2.4 | 6.3 | 7.4 | |||||||||||||||||||||||
Total Other | 2.0 | 2.4 | 6.3 | 7.4 | |||||||||||||||||||||||
Reimbursed management contract revenue | 165.1 | 177.0 | 512.7 | 501.8 | |||||||||||||||||||||||
Total Parking Services Revenue | $ | 392.7 | $ | 397.2 | $ | 1,198.1 | $ | 1,174.1 | |||||||||||||||||||
Gross Profit | |||||||||||||||||||||||||||
Region One | |||||||||||||||||||||||||||
Lease contracts | $ | 7.8 | 7 | % | $ | 8.8 | 8 | % | $ | 28.9 | 9 | % | $ | 25.3 | 8 | % | |||||||||||
Management contracts | 25.3 | 40 | % | 24.4 | 40 | % | 74.7 | 39 | % | 70.7 | 38 | % | |||||||||||||||
Total Region One | 33.1 | 33.2 | 103.6 | 96.0 | |||||||||||||||||||||||
Region Two | |||||||||||||||||||||||||||
Lease contracts | 1.6 | 5 | % | 1.5 | 5 | % | 4.9 | 5 | % | 4.0 | 4 | % | |||||||||||||||
Management contracts | 6.2 | 28 | % | 6.2 | 30 | % | 19.5 | 29 | % | 18.0 | 26 | % | |||||||||||||||
Total Region Two | 7.8 | 7.7 | 24.4 | 22.0 | |||||||||||||||||||||||
Other | |||||||||||||||||||||||||||
Lease contracts | 0.5 | — | % | — | — | % | 1.8 | — | % | 0.6 | — | % | |||||||||||||||
Management contracts | 4.5 | 225 | % | 3.0 | 125 | % | 14.1 | 224 | % | 10.7 | 145 | % | |||||||||||||||
Total Other | 5.0 | 3.0 | 15.9 | 11.3 | |||||||||||||||||||||||
Total gross profit | $ | 45.9 | $ | 43.9 | $ | 143.9 | $ | 129.3 | |||||||||||||||||||
General and administrative expenses | 19.6 | 20.3 | 63.3 | 67.0 | |||||||||||||||||||||||
General and administrative expense percentage of gross profit | 43 | % | 46 | % | 44 | % | 52 | % | |||||||||||||||||||
Depreciation and amortization | 4.9 | 7.8 | 16.3 | 26.8 | |||||||||||||||||||||||
Operating income | 21.4 | 15.8 | 64.3 | 35.5 | |||||||||||||||||||||||
Other expenses (income) | |||||||||||||||||||||||||||
Interest expense | 2.2 | 2.7 | 7.1 | 8.1 | |||||||||||||||||||||||
Interest income | (0.2 | ) | (0.1 | ) | (0.5 | ) | (0.4 | ) | |||||||||||||||||||
Gain on sale of business | — | — | (0.1 | ) | — | ||||||||||||||||||||||
Equity in losses from investment in unconsolidated entity | 0.1 | 0.4 | 0.5 | 1.2 | |||||||||||||||||||||||
Total other expenses (income) | 2.1 | 3.0 | 7.0 | 8.9 | |||||||||||||||||||||||
Earnings before income taxes | 19.3 | 12.8 | 57.3 | 26.6 | |||||||||||||||||||||||
Income tax expense | 7.3 | 5.1 | 21.3 | 10.9 | |||||||||||||||||||||||
Net income | 12.0 | 7.7 | 36.0 | 15.7 | |||||||||||||||||||||||
Less: Net income attributable to noncontrolling interest | 0.8 | 0.7 | 2.6 | 2.2 | |||||||||||||||||||||||
Net income attributable to SP Plus Corporation | $ | 11.2 | $ | 7.0 | $ | 33.4 | $ | 13.5 |
14. Subsequent Event
On July 25, 2023, the Company acquired certain assets of Roker Inc., a United States based provider of fully-integrated parking solutions that simplify permit, violation and enforcement management for organizations and municipalities, for approximately $3.1 million. The Company utilized borrowings under its Senior Credit Facility and cash on hand to fund the acquisition.
20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of ourSP Plus Corporation’s (“we”, “us” or “our”) results of operations should be read in conjunction with the condensed consolidated financial statements and the notes thereto contained in this Quarterly Report on Form 10-Q and the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
Important Information Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q is being filed by SP Plus Corporation (“we”, “SP Plus” or the “Company”)us with the Securities and Exchange Commission (“SEC”) and contains forward-looking statements, which are based on our current assumptions and expectations, within the meaning of Section 27A of the Securities Act of 1933, as amended ("the Securities Act"), Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").statements. These statements are typically accompanied by the words “expect,” “estimate,” “intend”, “will,” “predict,” “project,” “may,” “should,” “could,” “believe,” “would,” “might,” “anticipate,” or words of similar terms and phrases, but such words, terms and phrases are not the exclusive means of identifying such statements. These expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as enacted under the Private Securities Litigation Reform Act of 1995. These forward looking statements are made based on management'sour expectations, beliefs and projections concerning future events and are subject to uncertainties and factors relating to operations and the business environment, all of which are difficult to predict and many of which are beyond management'sour control. These forward lookingforward-looking statements are not guarantees of future performance and there can be no assurance that our expectations, beliefs and projections will be realized.
Our actual results, performance and achievements could be materially different. The most importantdifferent from those expressed in, or implied by, our forward-looking statements. Important factors which could cause or contribute to our actual results, to differperformance or achievements being different from those expressed in, or implied by, our forward-looking statements include, but are set forth on our description of risk factorsnot limited to, those discussed in Part I, Item 1A.
Overview
Acquisitions
On October 11, 2022, we acquired K M P Associates Limited ("KMP"), a United Kingdom based software and technology provider serving aviation and commercial parking management, ground transportation and other ancillary services to commercial, institutional and municipal clients, in urban markets and airports acrossprimarily through its AeroParkertechnology, throughout the United States Puerto Rico and Canada.Europe, for approximately $13.8 million, less cash acquired of $0.9 million, and assumed KMP’s debt of $0.3 million. Immediately following the acquisition, we repaid all of the debt assumed. KMP’s operations are included in the Aviation segment.
On November 10, 2022, we acquired certain assets of DIVRT, Inc. ("DIVRT"), a developer of innovative software and technology solutions that enables frictionless parking capabilities, for approximately $17.6 million. In addition, we may be required to pay the former owner of DIVRT a maximum amount of $7.0 million in contingent consideration if certain targets related to the number of our locations using the DIVRT technology are met by October 31, 2025. Based on a probability weighting of potential payouts, we accrued $4.0 million in projected contingent consideration as of the acquisition date. Our services includeestimate of the potential payout increased to $4.3 million as of June 30, 2023, due to the changes in the present value of the estimated payout. We will continue to evaluate the potential payouts in the future and adjust the contingent consideration for any changes in the estimated fair value each reporting period. DIVRT’s operations are included in the Commercial segment.
As discussed in Note 14. Subsequent Events within the notes to the Condensed Consolidated Financial Statements, we recently acquired Roker Inc.
The acquisitions noted above enhance our position as a comprehensive setglobal provider of on-sitefrictionless technology solutions that are independent of our legacy parking management and ground transportation services, which include facility maintenance, security services, training, schedulingrelated operations.
Our Business
We develop and supervising all service personnel, as well asintegrate technology with operations management and support to deliver mobility solutions that enable the efficient and time-sensitive movement of people, vehicles and personal travel belongings. We are committed to providing customer service, marketing, and accounting and revenue control functions necessary to facilitatesolutions that make every moment matter for a world on the operationgo while meeting the objectives of our clients' facilities or events. We also provide a range of ancillary services such as airport shuttle operations, valet services, taxidiverse client base in North America and livery dispatch services, security servicesEurope, which includes aviation, commercial, hospitality and municipal meter revenue collection and enforcement services. institutional clients.
We typically enter into contractual relationships with property owners or managers as opposed to owning facilities.
21
As of SeptemberJune 30, 2017,2023, in our Commercial segment, we operated 81%approximately 87% of our locations under management type contracts and 19%13% under leases.
In evaluating our financial condition and operating performance, management’sour primary area of focus is on our gross profit and total general and administrative expense. Although the underlying economics to us of management contracts and leases are similar, the manner in which we are required to account for them differs.operating income. Revenue from leaseslease type contracts includes all gross customer collections derived from our leased locations (net of local parking taxes), whereas revenue from management type contracts only includes our contractually agreed upon management fees and amounts attributable to ancillary services. Gross customer collections at facilities under management type contracts, therefore, are not included in our revenue. Accordingly, while a change in the proportion of our operating agreements that are structured as leases versus managementlease type contracts may cause significant fluctuations in reported revenue and expensecost of parking services, that changeour operating income under lease type contracts will not artificially affect our gross profit. For example, as of September 30, 2017, 81% of our locations were operatedbe comparable to the operating income under management contracts and 75% of our gross profit for the nine months ended September 30, 2017 was derived from managementtype contracts. Only 38% of total revenue (excluding reimbursed management contract revenue), however, was from management contracts because under those contracts the revenue collected from parking customers belongs to our clients. Therefore, gross profit and total general and administrative expense, rather than revenue, are management’s primary focus.
General Business Trends
We believe that sophisticated commercial real estate developers and property managers and ownersclients recognize the potential for technology-driven mobility solutions, parking services, parking management, ground transportation services, baggage handling services and relatedother ancillary services to be a profit generator rather thanand/or a cost center. Often, the parking experience makes both the first and the last impressions onservice differentiator to their properties' tenants and visitors.customers. By outsourcing these services, theyour clients are able to capture additional profit and improve customer experiences by leveraging the unique technology, operational skills and controls that an experienced parking management companyservices and technology solutions provider can offer. Our ability to consistently deliver a uniformly high level of parking and related services to our clients, including the use of various technologicaltechnology solutions and enhancements, allows us to maximize the profit toand/or customer experience for our clients and improves our ability to win contracts and retain existing locations.clients. Our focus on customer service and satisfaction is a key driver of our high location retention rate, which was approximately 92%94% and 87%91% for the twelve monthtwelve-month periods ended SeptemberJune 30, 20172023 and 2016, respectively.
Commercial Segment Facilities
The following table reflects our Commercial facilities (by contractual type) operated on the dates indicated:
|
| June 30, 2023 |
|
| December 31, |
|
| June 30, 2022 |
| |||
Leased facilities |
|
| 414 |
|
|
| 421 |
|
|
| 428 |
|
Managed facilities |
|
| 2,842 |
|
|
| 2,709 |
|
|
| 2,660 |
|
Total Commercial segment facilities |
|
| 3,256 |
|
|
| 3,130 |
|
|
| 3,088 |
|
Aviation Segment - Airports Served
The following table reflects the number of airports where at the endleast one of our services was provided as of dates indicated:
|
| June 30, 2023 |
|
| December 31, |
|
| June 30, 2022 |
| |||
North America |
|
| 102 |
|
|
| 100 |
|
|
| 90 |
|
Europe |
|
| 58 |
|
|
| 58 |
|
|
| — |
|
Total Airports |
|
| 160 |
|
|
| 158 |
|
|
| 90 |
|
The increase as of December 31, 2022 included 65 unique airports added as a result of the periods indicated:
September 30, 2017 | December 31, 2016 | September 30, 2016 | ||||||
Leased facilities | 683 | 688 | 696 | |||||
Managed facilities | 2,964 | 2,966 | 2,993 | |||||
Total facilities (1) (2) | 3,647 | 3,654 | 3,689 |
Revenue
We recognize parking services revenue from leaseour contracts and management contractscertain fees for using our technology-driven mobility solutions as the related services are provided. Substantially all of our revenue comes from the following two sources:
Lease type contracts
.Management type contracts.
22
Company’s technology solutions and amounts attributable to ancillary services such as accounting, equipment leasing, baggage services, payments received for exercising termination rights, consulting, developmental fees, gains on sales of contracts, insurance and other value-added services with respect to managed locations.services. We believe we generally can purchase required insurance at lower rates than our clients can obtain on their own because we effectively self-insure for all liability, and worker’s compensation and health care claims by maintaining a large per-claim deductible. As a result, we have generatedgenerate operating income on the insurance provided under our management type contracts by focusing on our risk management efforts and controlling losses. Management type contract revenues do not include gross customer collections, at the managed locations, as thesethose revenues belong to the property ownerclient rather than to us. Management type contracts generally provide us with a management fee regardless of the operating performance of the underlying facilities.
Reimbursed Management Type Contract Revenue
Cost of Parking Services
Our cost of parking services consists of the following:
Lease type contracts.
Management type contracts.
Reimbursed Management Type Contract Expense
Gross Profit
Gross profit equals our revenue less the cost of generating such revenue. This is the key metric we userevenue (“cost of services”) and depreciation and amortization expenses related to examine our performance because it captures the underlying economic benefit to uscost of both lease contracts and management contracts.
General and Administrative Expenses
General and administrative expenses include salaries, wages, incentive compensation, stock-based compensation, payroll taxes, insurance, travel and office related expenses for our headquarters, field offices and supervisory employees,employees. Additionally, acquisition-related expenses are included in general and board of directors.
Depreciation and Amortization
Depreciation is determined using a straight-line method over the estimated useful lives of the various asset classes, or in the case of leasehold improvements, over the initial term of the operating lease or its useful life, whichever is shorter. Intangible assets determined to have finite lives, usually acquired through the acquisition of businesses, are amortized over their remaining estimated useful life.
Operating Income
Operating income represents revenue less cost of Operations
Segments
An operating segment is defined as a component of an enterprise that engages in business activities from which it may earn revenue and incur expenses, and about which separate financial information is regularly evaluated by our chief operating decision maker (“CODM”), in deciding how to allocate resources.the CODM. Our CODM is our chief executive officer.
Our operating segments are internally reported as region one (Commercial)Commercial and region two (Airports). All prior periods presented have been restated to reflect the new internal reporting to the CODM.
23
The Other segment includes costs related to our operational support teams and costs related to common and shared infrastructure, including finance, accounting, information technology, human resources, procurement, legal and corporate Analysis of New business relates to contracts that started during the Restructuring, integration and other costs include compensation expenses related to organizational changes within our Company, integration expenses related to our recent acquisitions, and severance and other costs primarily related to workforce reductions. Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022 Consolidated results during the three months ended Three Months Ended Variance (millions) (unaudited) June 30, 2023 June 30, 2022 Amount % Services revenue $ 442.2 $ 381.0 $ 61.2 16.1 % Cost of services (exclusive of depreciation and amortization) 376.3 322.2 54.1 16.8 % General and administrative expenses 31.8 26.7 5.1 19.1 % Depreciation and amortization 8.8 6.5 2.3 35.4 % Operating income 25.3 25.6 (0.3 ) (1.2 )% Interest expense 7.3 3.5 3.8 108.6 % Income tax expense 4.8 5.9 (1.1 ) (18.6 )% Net income 13.3 16.3 (3.0 ) (18.4 )% Services revenue increased Cost of services (exclusive of depreciation and amortization) increased by $54.1 million, or 16.8%, attributable to the following: 24 General and administrative expenses increased $5.1 million, or 19.1%, primarily due to higher compensation and non-cash stock-based compensation expenses and our continued investments in business development, technology deployment and other growth initiatives, as well as higher restructuring, integration, acquisition and other costs of $1.3 million during the three months ended Depreciation and amortization expenses increased $2.3 million, or 35.4%, primarily due to Our effective tax rate was 26.5% and 26.6% during the three months ended June 30, 2023 and 2022, respectively. Net income decreased $3.0 million, or 18.4%, primarily due to higher interest expense as a result of higher variable interest rates and the factors noted above, partially offset by lower income taxes. The following tables summarize our revenues Commercial Three Months Ended Variance (millions) (unaudited) June 30, 2023 June 30, 2022 Amount % Services revenue Lease type contracts $ 72.4 $ 67.1 $ 5.3 7.9 % Management type contracts 75.2 65.8 9.4 14.3 % Total services revenue 147.6 132.9 14.7 11.1 % Gross profit Lease type contracts 13.0 13.6 (0.6 ) (4.4 )% Management type contracts 36.2 31.7 4.5 14.2 % Depreciation and amortization (2.2 ) (1.6 ) (0.6 ) (37.5 )% Total gross profit 47.0 43.7 3.3 7.6 % General and administrative expenses 9.3 7.8 1.5 19.2 % Depreciation and amortization(1) 1.6 1.2 0.4 33.3 % Operating income $ 36.1 $ 34.7 $ 1.4 4.0 % Gross Profit General and administrative expenses increased $1.5 million, or 19.2%, to $9.3 million during the three months ended June 30, 2023, compared to $7.8 million during the three months ended June 30, 2022. The 25 Operating income increased $1.4 million, or 4.0%, to $36.1 million during the three months ended June 30, 2023, compared to $34.7 million during the three months ended June 30, 2022, primarily due to the factors noted above, partially offset by $0.4 million of amortization expenses during the three months ended June 30, 2023 related to other intangible assets acquired as a result of the acquisition of DIVRT. Aviation Three Months Ended Variance (millions) (unaudited) June 30, 2023 June 30, 2022 Amount % Services revenue Lease type contracts $ 3.9 $ 3.5 $ 0.4 11.4 % Management type contracts 69.8 60.1 9.7 16.1 % Total services revenue 73.7 63.6 10.1 15.9 % Gross profit Lease type contracts 1.0 1.1 (0.1 ) (9.1 )% Management type contracts 15.7 12.4 3.3 26.6 % Depreciation and amortization (1.5 ) (1.1 ) (0.4 ) (36.4 )% Total gross profit 15.2 12.4 2.8 22.6 % General and administrative expenses 4.0 2.9 1.1 37.9 % Depreciation and amortization(1) 1.6 1.0 0.6 60.0 % Operating income $ 9.6 $ 8.5 $ 1.1 12.9 % Gross Profit General and administrative expenses increased $1.1 million, or 37.9%, to $4.0 million during the three months ended Operating income increased $1.1 million, or 12.9%, to $9.6 million during the three months ended June 30, 2023, compared to $8.5 million during the three months ended June 30, 2022, primarily due to Other Operating expenses within the Other segment increased 26 Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022 Consolidated results during the Six Months Ended Variance (millions) (unaudited) June 30, 2023 June 30, 2022 Amount % Services revenue $ 867.5 $ 730.8 $ 136.7 18.7 % Cost of services (exclusive of depreciation and amortization) 743.3 620.6 122.7 19.8 % General and administrative expenses 62.4 51.2 11.2 21.9 % Depreciation and amortization 17.2 13.3 3.9 29.3 % Operating income 44.6 45.7 (1.1 ) (2.4 )% Interest expense 14.1 8.3 5.8 69.9 % Income tax expense 8.1 10.1 (2.0 ) (19.8 )% Net income 22.6 27.6 (5.0 ) (18.1 )% Services revenue increased Cost of services (exclusive of depreciation and amortization) increased by $122.7 million, or 19.8%, attributable to the following: General and administrative expenses increased $11.2 million, or 21.9%, primarily due to higher compensation and non-cash stock-based compensation expenses and our continued investments in business development, technology deployment and growth initiatives, as well as higher restructuring, integration, acquisition and other costs of $2.6 million during the six months ended June 30, 2023 as compared to $0.5 million during the six months ended June 30, 2022. Depreciation and amortization expenses increased $3.9 million, or 29.3%, primarily due to the amortization of other intangible assets related to the recent acquisitions and our continued investment in technology and growth initiatives. 27 Our effective tax rate was 26.4% and 26.8% during the six months ended June 30, 2023 and 2022, respectively. Net income decreased $5.0 million, or 18.1%, primarily due to higher interest expense as a result of the increase in variable interest rates and the factors noted above, partially offset by lower income taxes. The following tables summarize our revenues (excluding reimbursed management type contract revenue), gross profit, general and administrative expenses, depreciation and amortization, and operating income (expense) by segment during the six months ended June 30, 2023 and 2022. Commercial Six months ended Variance (millions) (unaudited) June 30, 2023 June 30, 2022 Amount % Services revenue Lease type contracts $ 137.0 $ 126.3 $ 10.7 8.5 % Management type contracts 155.0 137.8 17.2 12.5 % Total services revenue 292.0 264.1 27.9 10.6 % Gross profit Lease type contracts 24.7 22.8 1.9 8.3 % Management type contracts 67.5 60.2 7.3 12.1 % Depreciation and amortization (4.1 ) (3.4 ) (0.7 ) (20.6 )% Total gross profit 88.1 79.6 8.5 10.7 % General and administrative expenses 17.5 13.9 3.6 25.9 % Depreciation and amortization(1) 3.3 2.4 0.9 37.5 % Operating income $ 67.3 $ 63.3 $ 4.0 6.3 % Gross Profit General and administrative expenses increased $3.6 million, or 25.9%, to $17.5 million during the six months ended June 30, 2023, compared to $13.9 million during the six months ended June 30, 2022. The increase was primarily related to higher compensation and non-cash stock-based compensation expenses, as well as our continued investments in growth initiatives and higher restructuring, integration and other Operating income increased $4.0 million, or 6.3%, to $67.3 million during the six months ended June 30, 2023, compared to $63.3 million during the six months ended June 30, 2022, primarily due to the factors noted above, partially offset by $0.8 million of amortization expenses during the six months ended June 30, 2023 related to the other intangible assets acquired as a result of the acquisition of DIVRT. 28 Aviation Six months ended Variance (millions) (unaudited) June 30, 2023 June 30, 2022 Amount % Services revenue Lease type contracts $ 7.5 $ 6.9 $ 0.6 8.7 % Management type contracts 138.1 109.9 28.2 25.7 % Total services revenue 145.6 116.8 28.8 24.7 % Gross profit Lease type contracts 2.3 2.5 (0.2 ) (8.0 )% Management type contracts 29.7 24.7 5.0 20.2 % Depreciation and amortization (2.8 ) (2.2 ) (0.6 ) (27.3 )% Total gross profit 29.2 25.0 4.2 16.8 % General and administrative expenses 7.9 5.6 2.3 41.1 % Depreciation and amortization(1) 3.1 2.8 0.3 10.7 % Operating income $ 18.2 $ 16.6 $ 1.6 9.6 % Gross Profit • General and administrative expenses increased $2.3 million, or 41.1%, to $7.9 million during the six months ended June 30, 2023, compared to $5.6 million during the six months ended June 30, 2022 primarily due to our continued investments in Operating income increased $1.6 million, or 9.6%, to $18.2 million during the six months ended June 30, 2023, compared to $16.6 million during the six months ended June 30, 2022, primarily due to the factors noted above, partially offset by $0.9 million of amortization expenses during the six months ended June 30, 2023 related to other intangibles assets acquired as a result of the acquisition of KMP. Other Operating expenses within the Other segment increased $6.7 million, or 19.6%, to $40.9 million during the six months ended June 30, 2023, compared to $34.2 million during the six months ended June 30, 2022, primarily due to higher Analysis of Financial Condition Liquidity and Capital Resources General We continually project anticipated cash requirements for our operating, investing and financing needs, as well as cash flows generated from operating activities available to 29 As of June 30, 2023, we had $24.6 million We continue to monitor the impact of Outstanding Indebtedness On As of As of The weighted average interest rate on our Senior Credit Facility was 6.5% and 3.3% during the six months ended June 30, 2023 and 2022, respectively. That rate included the letters of Stock Repurchases On February 14, 2023, our Board of Directors (our "Board") authorized us to repurchase, on the open market, shares of our outstanding common stock in an amount not to exceed $60.0 million. In May 2022, our Board authorized us to repurchase, on the open market, shares of Stock repurchase activity under the May 2022 stock repurchase program during the (millions, except for share and per share data) June 30, 2023 June 30, 2022 Total number of shares repurchased 285,700 176,500 Average price paid per share $ 36.53 $ 31.51 Total value of common stock repurchased $ 10.4 $ 5.6 No stock repurchases were made The remaining authorized repurchase amounts under the May 2022 and February 2023 stock repurchase programs as of June 30, (millions) June 30, 2023 Total authorized repurchase amount $ 120.0 Total value of shares repurchased 59.8 Total remaining authorized repurchase amount $ 60.2 Daily Cash Collections As a result of day-to-day activity at our parking locations, we collect significant amounts of cash. Lease type contract revenue is generally deposited into our local bank accounts, with a portion remitted to our clients in the form of rental payments 30 segregated bank accounts for Our liquidity also fluctuates on an intra-month and intra-year basis depending on the contract mix and timing of significant cash payments. Additionally, our ability to utilize cash deposited into our local accounts is dependent upon the availability and movement of that cash into our corporate Summary of Cash Flows Our primary sources of Six Months Ended (millions) June 30, 2023 June 30, 2022 Net cash provided by operating activities $ 21.0 $ 35.7 Net cash used in investing activities (13.5 ) (10.7 ) Net cash provided by (used in) financing activities 4.7 (26.0 ) Effect of exchange rate changes on cash and cash equivalents — (0.1 ) Net increase (decrease) in cash and cash equivalents $ 12.2 $ (1.1 ) Operating Activities Net cash provided by operating activities Investing Activities Net cash used in investing activities Financing Activities Net cash provided by financing activities was $4.7 million during the six months ended June 30, 2023, an increase of Cash and Cash Equivalents We had Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes in our primary risk exposures or management of market risks from those disclosed in our Annual Report on Form 10-K for the Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this quarterly report, we Disclosure controls and procedures are defined by Rules 13a-15(e) and 15d-15(e) of the Exchange Act as controls and other procedures that are designed to ensure that information required to be disclosed by us in reports filed with the SEC under the 31 Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed under the Exchange Act is accumulated and communicated to our management, including our Based on the Evaluation, our Chief Executive Officer, Chief Financial Officer and Corporate Controller concluded that our disclosure controls and procedures were effective as of June 30, 2023. Changes in Internal There have been no significant changes in our internal control over financial reporting that occurred during the Inherent limitations of the Effectiveness of Internal Control A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system are met. Because of the inherent limitations of any internal control system, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. PART II. OTHER INFORMATIONitems.The following is a summarydevelopment.revenues (excluding reimbursed management contract revenue), costResults of parking services (excluding reimbursed management contract expense) and gross profit by regions forOperationsthree and nine months ended September 30, 2017 and 2016:Three Months Ended September 30, 2017 Compared to Three Months September 30, 2016Segment revenue information is summarized as follows: Three Months Ended September 30, Region One Region Two Other Total Variance (millions) (unaudited) 2017 2016 2017 2016 2017 2016 2017 2016 Amount % Lease contract revenue: New locations $ 12.1 $ 2.5 $ 0.7 $ 0.2 $ — $ — $ 12.8 $ 2.7 $ 10.1 374.1 % Contract expirations 7.1 13.0 — 1.2 — — 7.1 14.2 (7.1 ) (50.0 )% Same locations 87.0 87.4 31.3 29.8 — — 118.3 117.2 1.1 0.9 % Conversions 2.7 2.0 — — — — 2.7 2.0 0.7 35.0 % Total lease contract revenue $ 108.9 $ 104.9 $ 32.0 $ 31.2 $ — $ — $ 140.9 $ 136.1 $ 4.8 3.5 % Management contract revenue: New locations $ 8.6 $ 5.5 $ 4.3 $ 2.0 $ — $ — $ 12.9 $ 7.5 $ 5.4 72.0 % Contract expirations 3.9 6.2 1.0 4.5 — — 4.9 10.7 (5.8 ) (54.2 )% Same locations 49.8 49.3 16.9 14.1 2.0 2.4 68.7 65.8 2.9 4.4 % Conversions 0.2 0.1 — — — — 0.2 0.1 0.1 100.0 % Total management contract revenue $ 62.5 $ 61.1 $ 22.2 $ 20.6 $ 2.0 $ 2.4 $ 86.7 $ 84.1 $ 2.6 3.1 % Revenue associated with same locations represents locations that have been operating for at least one year and operating for the entire period in the comparative period being presented. Revenue associated with contract expirations relatescurrent period. Contract terminations relate to contracts that have expired however,or terminated early during the current period but where we were operating the facilitybusiness in the comparative period presented.Parking services revenue— Conversions relate to contracts that were converted from lease contracts. Lease contract revenue increased $4.8 million, or 3.5%,type contracts to $140.9 million formanagement type contracts after the prior year period.SeptemberJune 30, 2017, compared to $136.1 million for2023 and 2022, respectively, included the three months ended September 30, 2016. The increase in lease contract revenue resulted primarily from increases of $10.1 million from new locations, $1.1 million from same locations and $0.7 million from locations that converted from management contracts during the periods presented, partially offset by a $7.1 million decrease in revenue from contract expirations. Same locationfollowing notable items:$1.1by $61.2 million, or 0.9%16.1%, primarily dueattributable to net increases in short term parkingthe following:rental revenue and monthly parking revenue.From a reporting segment perspective,for lease contract revenuetype contracts increased primarily due to new locations in regions one and two, same locations in region two and conversions in region one, partially offset by decreases in contract expirations in regions one and two and same locations in region one. The other region amounts in same location represent revenue not specifically identifiable to a region.Parking services revenue—management contracts. Management contract revenue increased $2.6$5.7 million, or 3.1%, to $86.7 million for the three months ended September 30, 2017, compared to $84.1 million for the three months ended September 30, 2016. The increase in management contract revenue resulted primarily from increases of $5.4 million from new locations, $2.9 million from same locations and $0.1 million from locations that converted from lease contracts during the periods presented, partially offset by a $5.8 million decrease in revenue from contract expirations. Same location revenue increased $2.9 million, or 4.4%, primarily due to change in contract terms for certain management contracts, whereby the contract terms converted from a management contract to a "reverse" management contract, which typically has higher management fees from the facility owner but requires us to pay certain operating costs associated with the facilities operation.From a reporting segment perspective, management contract revenue increased primarily due to new locations in regions one and two, same locations in regions one and two and conversions in region one, partially offset by decreases in contract terminations in regions one and two and same locations in other. The other region amounts in same location represent revenue not specifically identifiable to a region.Reimbursed management contract revenue. Reimbursed management contract revenue decreased $11.9 million, or 6.7%, to $165.1 million for the three months ended September 30, 2017, compared to $177.0 million for the three months ended September 30, 2016.Segment cost of parking services information is summarized as follows: Three Months Ended September 30, Region One Region Two Other Total Variance (millions) (unaudited) 2017 2016 2017 2016 2017 2016 2017 2016 Amount % Cost of parking services lease contracts: New locations $ 11.6 $ 2.4 $ 0.6 $ 0.2 $ — $ — $ 12.2 $ 2.6 $ 9.6 369.2 % Contract expirations 6.0 11.7 — 1.1 — — 6.0 12.8 (6.8 ) (53.1 )% Same locations 80.8 80.1 29.8 28.4 (0.5 ) — 110.1 108.5 1.6 1.5 % Conversions 2.7 1.9 — — — — 2.7 1.9 0.8 42.1 % Total cost of parking services lease contracts $ 101.1 $ 96.1 $ 30.4 $ 29.7 $ (0.5 ) $ — $ 131.0 $ 125.8 $ 5.2 4.1 % Cost of parking services management contracts: New locations $ 4.3 $ 3.3 $ 4.3 $ 2.0 $ — $ — $ 8.6 $ 5.3 $ 3.3 62.3 % Contract expirations 2.8 3.7 0.9 3.6 — — 3.7 7.3 (3.6 ) (49.3 )% Same locations 30.1 29.7 10.8 8.8 (2.5 ) (0.6 ) 38.4 37.9 0.5 1.3 % Conversions — — — — — — — — — — % Total cost of parking services management contracts $ 37.2 $ 36.7 $ 16.0 $ 14.4 $ (2.5 ) $ (0.6 ) $ 50.7 $ 50.5 $ 0.2 0.4 % Cost of parking services associated with same locations represents locations that have been operating for at least one year and operating for the entire period in the comparative period being present. Cost of parking services associated with contract expirations relates to contacts that have expired, however, we were operating the facility in the comparative period presented.Cost of parking services—lease contracts. Cost of parking services for lease contracts increased $5.2 million, or 4.1%, to $131.0 million for the three months ended September 30, 2017, compared to $125.8 million for the three months ended September 30, 2016. The increase in cost of parking services for lease contracts resulted primarily from increases of $9.6 million from new locations, $1.6 million from same locations and $0.8 million from locations that converted from management contracts during the periods presented, partially offset by a decrease of $6.8 million from contract expirations. Same location costs increased $1.6 million, or 1.5%8.1%, primarily due to an increase in rent expensetransient and monthly parking revenue as a result of higher revenues for same locationsthe continued recovery in travel and overall net operating costs,fewer restrictions on mobility, as well as new business, partially offset by unallocated insurance reserve adjustments/coststerminations and other unallocated corporate items.From a reporting segment perspective,lower cost concessions related to service concession arrangements of parking services for lease contracts increased primarily from new locations in regions one and two, same locations in regions one and two and conversions in region one, partially offset by decreases in contract expirations in regions one and two and same locations in other. The other region amounts in same location represent costs not specifically identifiable to a region.Cost of parking services—management contracts. Cost of parking services for management contracts increased $0.2$2.7 million or 0.4%, to $50.7 million forduring the three months ended SeptemberJune 30, 2017,2023 as compared to $50.5$2.9 million forduring the three months ended SeptemberJune 30, 2016. The increase in cost of parking services2022.resulted primarily from increases of $3.3 million from new locations and $0.5 million from same locations, partially offset by a decrease of $3.6 million from contract expirations. Same location costs increased $0.5$19.1 million, or 1.3%15.2%, primarily due to an increase in costs duevolume related to changeour baggage delivery businesses and volume-based management type contracts as a result of the continued recovery in contract terms for certain management contracts, whereby the contract terms convertedtravel and fewer restrictions on mobility, as well as increased volume related to other aviation services, new business and revenue from a management contract to a "reverse" management contract, which typically have higher operating costs associated with the facilities operation but allow us to have a higher management fee from the facility owner and overall net operating costs,acquisitions of $1.1 million, partially offset by unallocated insurance reserve adjustments/costs and other unallocated corporate items.terminations.From a reporting segment perspective, cost of parking services for management contracts increased primarily from increases in new locations in regions one and two and same locations in regions one and two, partially offset by decreases in contract expirations in regions one and two and same locations in other. The other region amounts in same location represent costs not specifically identifiable to a region.expense. Reimbursed management contract expense decreased $11.9revenue was $220.9 million or 6.7%, to $165.1and $184.5 million forduring the three months ended SeptemberJune 30, 2017, compared2023 and 2022, respectively. The increase in reimbursed management type contract revenue was primarily due to $177.0the continued recovery in travel and fewer restrictions on mobility, new business and revenue from acquisitions of $0.5 million, partially offset by terminations.SeptemberJune 30, 2016.Segment gross profit/gross profit percentage information is summarized2023 as follows: Three Months Ended September 30, Region One Region Two Other Total Variance (millions) (unaudited) 2017 2016 2017 2016 2017 2016 2017 2016 Amount % Gross profit lease contracts: New locations $ 0.5 $ 0.1 $ 0.1 $ — $ — $ — $ 0.6 $ 0.1 $ 0.5 500.0 % Contract expirations 1.1 1.3 — 0.1 — — 1.1 1.4 (0.3 ) (21.4 )% Same locations 6.2 7.3 1.5 1.4 0.5 — 8.2 8.7 (0.5 ) (5.7 )% Conversions — 0.1 — — — — — 0.1 (0.1 ) — % Total gross profit lease contracts $ 7.8 $ 8.8 $ 1.6 $ 1.5 $ 0.5 $ — $ 9.9 $ 10.3 $ (0.4 ) (3.9 )% (Percentages) Gross profit percentage lease contracts: New locations 4.1 % 4.0 % 14.3 % — % — % — % 4.7 % 3.7 % Contract expirations 15.5 % 10.0 % — % 8.3 % — % — % 15.5 % 9.9 % Same locations 7.1 % 8.4 % 4.8 % 4.7 % — % — % 6.9 % 7.4 % Conversions — % 5.0 % — % — % — % — % — % 5.0 % Total gross profit percentage 7.2 % 8.4 % 5.0 % 4.8 % — % — % 7.0 % 7.6 % Gross profit management contracts: New locations $ 4.3 $ 2.2 $ — $ — $ — $ — $ 4.3 $ 2.2 $ 2.1 95.5 % Contract expirations 1.1 2.5 0.1 0.9 — — 1.2 3.4 (2.2 ) — % Same locations 19.7 19.6 6.1 5.3 4.5 3.0 30.3 27.9 2.4 8.6 % Conversions 0.2 0.1 — — — — 0.2 0.1 0.1 100.0 % Total gross profit management contracts $ 25.3 $ 24.4 $ 6.2 $ 6.2 $ 4.5 $ 3.0 $ 36.0 $ 33.6 $ 2.4 7.1 % (Percentages) Gross profit percentage management contracts: New locations 50.0 % 40.0 % — % — % — % — % 33.3 % 29.3 % Contract expirations 28.2 % 40.3 % 10.0 % 20.0 % — % — % 24.5 % 31.8 % Same locations 39.6 % 39.8 % 36.1 % 37.6 % 225.0 % 125.0 % 44.1 % 42.4 % Conversions 100.0 % 100.0 % — % — % — % — % 100.0 % 100.0 % Total gross profit percentage 40.5 % 39.9 % 27.9 % 30.1 % 225.0 % 125.0 % 41.5 % 40.0 % Gross profit associated with same locations represents locations that have been operating for at least one year and operating for the entire period in the comparative period being present. Gross profit associated with contract expirations relatescompared to contracts that have expired, however, we were operating the facility in the comparative period presented.Gross profit—lease contracts. Gross profit for lease contracts decreased $0.4$1.5 million or 3.9%, to $9.9 million forduring the three months ended SeptemberJune 30, 2017, compared2022, partially offset by terminations.$10.3higher operating costs as a result of the continued recovery in travel and fewer restrictions onfor three months ended September 30, 2016. Gross profit percentage for lease contracts decreased to 7.0% forand $184.5 million during the three months ended SeptemberJune 30, 2017, compared2023 and 2022, respectively. The increase in reimbursed management type contract cost of services was primarily due to 7.6% forthe continued recovery in travel and fewer restrictions on mobility, new business and acquisitions of $0.5 million, partially offset by terminations.SeptemberJune 30, 2016. Gross profit for lease contracts decreased2023 as a result of decreases in gross profit for same locations, contract expirations, and locations that converted from management contractscompared to $0.3 million during the periods presented, partially offset by increase in gross profit for new locations. Gross profit for same locations decreasedthree months ended June 30, 2022.net decreasesthe amortization of other intangible assets related to the recent acquisitions and our continued investment in renttechnology and growth initiatives.for same locations(excluding reimbursed management type contract revenue), gross profit, general and overall netadministrative expenses, depreciation and amortization, and operating costs,income (expense) by segment during the three months ended June 30, 2023 and 2022.short term parking revenue, rental revenue,transient and monthly parking revenue and unallocated insurance reserve adjustments/costs and other unallocated corporate items.From a reporting segment perspective, gross profit for lease contracts decreased primarily due to decreases in contract expirations in regions one and two, same locations in region one and conversions in region one, partially offset by increases in new locations in regions one and two and same locations in region two and other.Gross profit—management contracts. Gross profit for management contracts increased $2.4 million, or 7.1%, to $36.0 million for the three months ended September 30, 2017, compared to $33.6 million for the three months ended September 30, 2016. Gross profit percentage for management contracts increased to 41.5% for three months ended September 30, 2017, compared to 40.0% for three months ended September 30, 2016. Gross profit for management contracts increased as a result of an increasethe continued recovery in gross profit fortravel and fewer restrictions on mobility and new locations, same locations and locations that converted from lease contracts during the periods presented, partiallybusiness.offset by a decrease in gross profit for contract expirations.Management type contracts. Gross profit for same locations increased primarily due to higher operating profits and unallocated insurance reserve adjustments/costs and other unallocated corporate items.From a reporting segment perspective, gross profit for management contracts increased primarily from new locations in region one, same locations in regions one and two and other and conversions in region one, partially offset by decreases from contract expirations in regions one and two.Although we have significant operations in the areas impacted by Hurricanes Harvey, Irma and Maria, our business and financial results were not significantly impacted. Our results were impacted by an estimated $0.7 million reduction in gross profit, primarily related to lease contracts, for the three months ended September 30, 2017.General and administrative expenses. General and administrative expenses decreased $0.7$4.5 million, or 3.4%14.2%, to $19.6$36.2 million for the three months ended September 30, 2017, compared to $20.3 million for the three months ended September 30, 2016. The decrease in general and administrative expenses was primarily due to a decrease in performance-based compensation costs, a decrease in compensation and benefit costs related to prior year cost reduction initiatives, merger and integration costs (primarily related to severance and relocation costs in the prior year comparable period) and overall better expense control, partially offset by investments related to supporting our various initiatives, which include implementing a vertical market strategy and re-aligning the organization.Depreciation and amortization. Depreciation and amortization decreased $2.9 million, or 37.2%, to $4.9 million for the three months ended September 30, 2017, compared to $7.8 million for the three months ended September 30, 2016. This decrease was primarily a result of accelerated depreciation of software during the three months ended SeptemberJune 30, 2016 and2023, compared to $31.7 million during the three months ended SeptemberJune 30, 2017 did not include2022. Gross profit increased primarily due to an increase in volume-based management type contracts as a result of the continued recovery in travel and fewer restrictions on mobility and new business, partially offset by terminations.of certain intangible assets as they were fully amortized during the fourth quarter of 2016.Interest expense. Interest expense decreased $0.5 million,expenses increased by $0.6, or 18.5%37.5%, to $2.2 million forduring the three months ended SeptemberJune 30, 2017,2023, compared to $2.7$1.6 million forduring the three months ended SeptemberJune 30, 2016.2022.decrease in interest expenseincrease was primarily related to reductionshigher compensation and non-cash stock-based compensation expenses, as well as our continued investments in amounts outstanding under our Restated Credit Facility,growth initiatives and higher restructuring, integration and other costs of $0.8 million during the three months ended June 30, 2023 as compared to $0.6 million during the three months ended June 30, 2022.average borrowing rates.transient revenue as a result of the continued recovery in travel and fewer restrictions on mobility.Interest income. Interest income was $0.2Management type contracts. Gross profit increased $3.3 million, and $0.1or 26.6%, to $15.7 million forduring the three months ended SeptemberJune 30, 2017 and 2016, respectively.Equity in losses from investment in unconsolidated entity. Equity in losses from investment in unconsolidated entity was $0.12023, compared to $12.4 million and $0.4 million forduring the three months ended SeptemberJune 30, 20172022. Gross profit increased primarily due to an increase in volume-based management type contracts as a result of the continued recovery in travel and 2016, respectively.Income tax expense. Income tax expensefewer restrictions on mobility, increased $2.2activity related to other aviation services, acquisitions and new business.or 43.1%, to $7.3 million forduring the three months ended SeptemberJune 30, 2017,2023, compared to $5.1$1.1 million forduring the three months ended SeptemberJune 30, 2016. Our effective tax rate was 37.7% for2022.SeptemberJune 30, 2017,2023, compared to 39.8% for$2.9 million during the three months ended SeptemberJune 30, 2016. The effective tax rate for2022 primarily due to higher restructuring, integration and other costs of $0.4 million during the three months ended SeptemberJune 30, 2017 was lower2023 as compared to a benefit of $0.5 million during the three months ended June 30, 2022, and our continued investments in growth initiatives.additional federal employer income tax credits recognized ($0.3 million) and the adoption of ASU 2016-09 and the related excess tax benefits now recognized as a reduction of income tax expense ($0.1 million). See Note 1. Significant Accounting Policies and Practices of the Condensed Consolidated Financial Statements for further discussion of the impact of ASU 2016-09.Nine Months Ended September 30, 2017 Compared to Nine Months September 30, 2016Segment revenue information is summarized as follows: Nine Months Ended September 30, Region One Region Two Other Total Variance (millions) (unaudited) 2017 2016 2017 2016 2017 2016 2017 2016 Amount % Lease contract revenue: New locations $ 27.4 $ 3.8 $ 2.2 $ 0.2 $ — $ — $ 29.6 $ 4.0 $ 25.6 640.0 % Contract expirations 10.2 33.6 — 3.7 — — 10.2 37.3 (27.1 ) (72.7 )% Same locations 281.2 272.8 94.4 89.8 — — 375.6 362.6 13.0 3.6 % Conversions 7.2 6.4 — — — — 7.2 6.4 0.8 12.5 % Total lease contract revenue $ 326.0 $ 316.6 $ 96.6 $ 93.7 $ — $ — $ 422.6 $ 410.3 $ 12.3 3.0 % Management contract revenue: New locations $ 28.3 $ 9.8 $ 10.9 $ 4.6 $ — $ — $ 39.2 $ 14.4 $ 24.8 172.2 % Contract expirations 6.3 20.1 2.4 20.4 — — 8.7 40.5 (31.8 ) (78.5 )% Same locations 155.1 155.3 53.1 44.1 6.3 7.4 214.5 206.8 7.7 3.7 % Conversions 0.4 0.3 — — — — 0.4 0.3 0.1 33.3 % Total management contract revenue $ 190.1 $ 185.5 $ 66.4 $ 69.1 $ 6.3 $ 7.4 $ 262.8 $ 262.0 $ 0.8 0.3 % Revenue associated with same locations represents locations that have been operating for at least one year and operating for the entire period in the comparative period being presented. Revenue associated with contract expirations relates to contracts that have expired, however, we were operating the facility in the comparative period presented.Parking services revenue—lease contracts. Lease contract revenue increased $12.3 million, or 3.0%, to $422.6 million for the nine months ended September 30, 2017, compared to $410.3 million for the nine months ended September 30, 2016. The increase in lease contract revenue resulted primarily from increases of $25.6 million from new locations, $13.0 million from same locations and $0.8 million from locations that converted from management contracts during the periods presented,factors noted above, partially offset by $0.5 million of amortization expenses during the three months ended June 30, 2023 related to other intangibles assets acquired as a decreaseresult of $27.1 million from contract expirations. Same location revenuethe acquisition of KMP.$13.0$2.8 million, or 3.6%15.9%, to $20.4 million during the three months ended June 30, 2023, compared to $17.6 million during the three months ended June 30, 2022, primarily due to earningshigher compensation and non-cash stock-based compensation expenses and our continued investments in business development and technology deployment and other growth initiatives, as well as higher integration, acquisition, restructuring and other costs of $8.5$0.5 million for our proportionate shareduring the three months ended June 30, 2023 as compared to $0.2 million during the three months ended June 30, 2022.net gain of an equity method investees' sale of assetssix months ended June 30, 2023 and net increases in monthly parking revenue, rental revenue and short term revenue.From a reporting segment perspective, lease contract2022 included the following notable items:primarily due to new locations in regions one and two, same locations in regions one and two and conversions in region one, partially offset by decreases from contract expirations in regions one and two. The other region amounts in same location represent revenue not specifically identifiable to a region.Parking services revenue—management contracts. Management contract revenue increased $0.8$136.7 million, or $0.3%18.7%, attributable to $262.8 millionthe following:the nine months ended September 30, 2017, compared to $262.0 million for the nine months ended September 30, 2016. The increase in management contract revenue resulted primarily from increases of $24.8 from new locations, $7.7 million from same locations and $0.1 million from locations that converted from lease type contracts during the periods presented, partially offset by a decrease of $31.8 from contract expirations. Same location revenue increased $7.7$11.3 million, or 3.7%, primarily due to change in contract terms for certain management contracts, whereby the contract terms converted from a management contract to a "reverse" management contract, which typically has higher management fees from the facility owner but require us to pay certain operating costs associated with the facilities operation.From a reporting segment perspective, management contract revenue increased primarily due to new locations in regions one and two, same locations in region two and conversions in region one, partially offset by decreases in contract expirations in regions one and two and same locations in region one and other. The other region amounts in same location represent revenues not specifically identifiable to a region.Reimbursed management contract revenue. Reimbursed management contract revenue increased $10.9 million, or 2.2%, to $512.7 million for the nine months ended September 30, 2017, compared to $501.8 million for the nine months ended September 30, 2016.Segment cost of parking services information is summarized as follows: Nine Months Ended September 30, Region One Region Two Other Total Variance (millions) (unaudited) 2017 2016 2017 2016 2017 2016 2017 2016 Amount % Cost of parking services lease contracts: New locations $ 25.8 $ 3.6 $ 1.9 $ 0.2 $ — $ — $ 27.7 $ 3.8 $ 23.9 628.9 % Contract expirations 9.2 31.8 — 3.5 — — 9.2 35.3 (26.1 ) (73.9 )% Same locations 255.0 249.9 89.8 86.0 (1.8 ) (0.6 ) 343.0 335.3 7.7 2.3 % Conversions 7.1 6.0 — — — — 7.1 6.0 1.1 18.3 % Total cost of parking services lease contracts $ 297.1 $ 291.3 $ 91.7 $ 89.7 $ (1.8 ) $ (0.6 ) $ 387.0 $ 380.4 $ 6.6 1.7 % Cost of parking services management contracts: New locations $ 15.9 $ 5.9 $ 10.6 $ 4.5 $ — $ — $ 26.5 $ 10.4 $ 16.1 154.8 % Contract expirations 4.6 13.0 2.0 19.2 — — 6.6 32.2 (25.6 ) (79.5 )% Same locations 94.8 95.8 34.3 27.4 (7.8 ) (3.3 ) 121.3 119.9 1.4 1.2 % Conversions 0.1 0.1 — — — — 0.1 0.1 — — % Total cost of parking services management contracts $ 115.4 $ 114.8 $ 46.9 $ 51.1 $ (7.8 ) $ (3.3 ) $ 154.5 $ 162.6 $ (8.1 ) (5.0 )% Cost of parking services associated with same locations represents locations that have been operating for at least one year and operating for the entire period in the comparative period being present. Cost of parking services associated with contract expirations relates to contacts that have expired, however, we were operating the facility in the comparative period presented.Cost of parking services—lease contracts. Cost of parking services for lease contracts increased $6.6 million, or 1.7%, to $387.0 million for the nine months ended September 30, 2017, compared to $380.4 million for the nine months ended September 30, 2016. The increase in cost of parking services for lease contracts resulted primarily from increases of $23.9 million from new locations, $7.7 million from same locations and $1.1 million from locations that converted from management contracts during the periods presented, partially offset by a decrease of $26.1 million from contract expirations. Same location costs increased $7.7 million, or 2.3%8.5%, primarily due to an increase in rent expensetransient and monthly parking revenue as a result of higher revenues for same locationsthe continued recovery in travel and overall net operating costs,fewer restrictions on mobility and new business, partially offset by unallocated insurance reserve adjustments/coststerminations and other unallocated corporate items.lower cost concessions related to service concession arrangements of $5.6 million during the six months ended June 30, 2023 as compared to $6.1 million during the six months ended June 30, 2022.From a reporting segment perspective, cost of parking servicesServices revenue for leasemanagement type contracts increased primarily due to increases from new locations in regions one and two, same locations in regions one and two, and conversions in region one, offset by decreases in contract expirations in regions one and two and same locations in other. The other region amounts in same location represent costs not specifically identifiable to a region.Cost of parking services—management contracts. Cost of parking services for management contracts decreased $8.1$45.4 million, or 5.0%, to $154.5 million for the nine months ended September 30, 2017, compared to $162.6 million for the nine months ended September 30, 2016. The decrease in cost of parking services for management contracts resulted primarily from decreases of $25.6 million from contract expirations, partially offset by increases of $16.1 million from new locations and $1.4 million from same locations. Same location costs increased $1.4 million, or 1.2%18.3%, primarily due to an increase in costs duevolume related to change in contract terms for certainour baggage delivery businesses and volume-based management type contracts whereby the contract terms converted from a management contract to a "reverse" management contract, which typically have higher operating costs associated with the facilities operation but allow us to have a higher management fee from the facility owner and overall net operating costs, partially offset by unallocated insurance reserve adjustments/costs and other unallocated corporate items.From a reporting segment perspective, cost of parking services for management contracts decreased primarily from contract expirations in regions one and two, same locations in region one and other, partially offset by increases from new locations in regions one and two and same locations in region two. The other region amounts in same location represent costs not specifically identifiable to a region.Reimbursed management contract expense. Reimbursed management contract expense increased $10.9 million, or 2.2%, to $512.7 million for the nine months ended September 30, 2017, compared to $501.8 million for the nine months ended September 30, 2016.Segment gross profit/gross profit percentage information is summarized as follows: Nine Months Ended September 30, Region One Region Two Other Total Variance (millions) (unaudited) 2017 2016 2017 2016 2017 2016 2017 2016 Amount % Gross profit lease contracts: New locations $ 1.6 $ 0.2 $ 0.3 $ — $ — $ — $ 1.9 $ 0.2 $ 1.7 850.0 % Contract expirations 1.0 1.8 — 0.2 — — 1.0 2.0 (1.0 ) (50.0 )% Same locations 26.2 22.9 4.6 3.8 1.8 0.6 32.6 27.3 5.3 19.4 % Conversions 0.1 0.4 — — — — 0.1 0.4 (0.3 ) (75.0 )% Total gross profit lease contracts $ 28.9 $ 25.3 $ 4.9 $ 4.0 $ 1.8 $ 0.6 $ 35.6 $ 29.9 $ 5.7 19.1 % (Percentages) Gross profit percentage lease contracts: New locations 5.8 % 5.3 % 13.6 % — % — % — % 6.4 % 5.0 % Contract expirations 9.8 % 5.4 % — % 5.4 % — % — % 9.8 % 5.4 % Same locations 9.3 % 8.4 % 4.9 % 4.2 % — % — % 8.7 % 7.5 % Conversions 1.4 % 6.3 % — % — % — % — % 1.4 % 6.3 % Total gross profit percentage 8.9 % 8.0 % 5.1 % 4.3 % — % — % 8.4 % 7.3 % Gross profit management contracts: New locations $ 12.4 $ 3.9 $ 0.3 $ 0.1 $ — $ — $ 12.7 $ 4.0 $ 8.7 217.5 % Contract expirations 1.7 7.1 0.4 1.2 — — 2.1 8.3 (6.2 ) (74.7 )% Same locations 60.3 59.5 18.8 16.7 14.1 10.7 93.2 86.9 6.3 7.2 % Conversions 0.3 0.2 — — — — 0.3 0.2 0.1 50.0 % Total gross profit management contracts $ 74.7 $ 70.7 $ 19.5 $ 18.0 $ 14.1 $ 10.7 $ 108.3 $ 99.4 $ 8.9 9.0 % (Percentages) Gross profit percentage management contracts: New locations 43.8 % 39.8 % 2.8 % 2.2 % — % — % 32.4 % 27.8 % Contract expirations 27.0 % 35.3 % 16.7 % 5.9 % — % — % 24.1 % 20.5 % Same locations 38.9 % 38.3 % 35.4 % 37.9 % 223.8 % 144.6 % 43.4 % 42.0 % Conversions 75.0 % 66.7 % — % — % — % — % 75.0 % 66.7 % Total gross profit percentage 39.3 % 38.1 % 29.4 % 26.0 % 223.8 % 144.6 % 41.2 % 37.9 % Gross profit associated with same locations represents locations that have been operating for at least one year and operating for the entire period in the comparative period being presented. Gross profit associated with contract expirations relates to contracts that have expired, however, we were operating the facility in the comparative period presented.Gross profit—lease contracts. Gross profit for lease contracts increased $5.7 million, or 19.1%, to $35.6 million for the nine months ended September 30, 2017, compared to $29.9 million for nine months ended September 30, 2016. Gross profit percentage for lease contracts increased to 8.4% for the nine months ended September 30, 2017, compared to 7.3% for the nine months ended September 30, 2016. Gross profit for lease contracts increased as a result of increasesthe continued recovery in gross profit fortravel and fewer restrictions on mobility, as well as increased volume related to other aviation services, new locationsbusiness and same locations,revenue from acquisitions of $2.1 million, partially offset by terminations.expirationsrevenue was $429.9 million and locations that converted$349.9 million during the six months ended June 30, 2023 and 2022, respectively. The increase in reimbursed management type contract revenue was primarily due to the continued recovery in travel and fewer restrictions on mobility, new business and revenue from acquisitions of $1.1 million, partially offset by terminations.periods presented.six months ended June 30, 2023 and 2022, respectively. The increase in reimbursed management type contract cost of services was primarily due to the continued recovery in travel and fewer restrictions on mobility, new business and acquisitions of $1.1 million, partially offset by terminations.for same locationsincreased $1.9 million, or 8.3%, to $24.7 million during the six months ended June 30, 2023, compared to $22.8 million during the six months ended June 30, 2022. Gross profit increased primarily due to earnings of $8.5 million for our proportionate share of the net gain of an equity method investees' sale of assets and a net increases in transient and monthly parking revenue rental revenueas a result of the continued recovery in travel and short term parking revenuefewer restrictions on mobility and decreased costs relatingnew business, partially offset by lower cost concessions related to certain unallocated insurance reserve adjustments/costsservice concession arrangements and rent concessions of $3.7 million and $2.5 million, respectively, during the six months ended June 30, 2023 compared to $3.8 million and $3.7 million, respectively, during the six months ended June 30, 2022, as well as terminations.unallocated corporate items,costs of $0.8 million during the six months ended June 30, 2023 as compared to $0.7 million during the six months ended June 30, 2022.rent expensetransient revenue as a result of higher revenues for same locationsthe continued recovery in travel and overall net operating costs.fewer restrictions on mobility.From a reporting segment perspective, grossManagement type contracts. Gross profit for lease contractsincreased $5.0 million, or 20.2%, to $29.7 million during the six months ended June 30, 2023, compared to $24.7 million during the six months ended June 30, 2022. Gross profit increased primarily due to increasesnew business, as well as an increase in new locations in regions one and two, same locations in regions one and two and other, partially offset by decreases in contract expirations in regions one and two and conversions in region one.Gross profit—volume-based management contracts. Gross profit for managementtype contracts increased $8.9 million, or 9.0%, to $108.3 million for the nine months ended September 30, 2017, compared to $99.4 million for the nine months ended September 30, 2016. Grossprofit percentage for management contracts increased to 41.2% for nine months ended September 30, 2017, compared to 37.9% for the nine months ended September 30, 2016. Gross profit for management contracts increased as a result of increasesthe continued recovery in gross profit for new locations, same locationstravel and locations that converted from lease contracts during the periods presented,fewer restrictions on mobility, increased activity related to other aviation services and acquisitions, partially offset by decreasesterminations.contract expirations. Gross profit for same locationsgrowth initiatives, as well as higher restructuring, integration and other costs of $0.6 million during the six months ended June 30, 2023 as compared to a benefit of $0.4 million during the six months ended June 30, 2022.operating profitscompensation and unallocated insurance reserve adjustments/costsnon-cash stock-based compensation expenses and our continued investments in business development, technology deployment and growth initiatives, as well as higher integration, acquisition, restructuring and other unallocated corporate items.From a reporting segment perspective, gross profit for management contracts increased primarily from new locations in region one and two, same locations in regions one and two and other and conversions in region one, partially offset by decreases in contract expirations in regions one and two.Although we have significant operations incosts of $1.2 million during the areas impacted by Hurricanes Harvey, Irma and Maria, our business and financial results were not significantly impacted. Our results were impacted by an estimated $0.7 million reduction in gross profit, primarily related to lease contracts, for the ninesix months ended SeptemberJune 30, 2017.General and administrative expenses. General and administrative expenses decreased $3.72023 as compared to $0.2 million or 5.5%, to $63.3 million for the nineduring six months ended SeptemberJune 30, 2017, compared2022.$67.0meet those needs. Our operating needs can include, among other items, commitments for cost of services, operating leases, payroll, insurance claims, interest and legal settlements. Our investing and financing spending can include payments for acquired businesses or assets, joint ventures, capital expenditures, distributions to noncontrolling interests, stock repurchases and payments on our outstanding indebtedness.for the nine months ended September 30, 2016. The decrease in generalof cash and administrative expenses was due primarily to a decrease in compensationcash equivalents and benefit costs related to cost reduction initiatives, merger and integration costs (net$215.9 million of compensation and benefit costs for restructuring, merger and integration initiatives, primarily related to severance and relocation costs) and overall better expense control, partially offset by an increase in costs associated with an underwritten public offering of common stock by selling stockholders, which was a required expense of the Company pursuant to the Central Merger documentation, investments related to supporting our various initiatives, which include implementing a vertical market strategy and re-aligning the organization and an increase in performance-based compensation costs. Additionally, the nine months ended September 30, 2016 included costs related to the settlement of litigation with a former indirect controlling shareholder of the Company for $1.5 million, net of insurance recoveries.Depreciation and amortization. Depreciation and amortization decreased $10.5 million, or 39.2%, to $16.3 million for the nine months ended September 30, 2017, compared to $26.8 million for the nine months ended September 30, 2016. This decrease was primarily a result of accelerated depreciation of software during the nine months ended September 30, 2016, and the nine months ended September 30, 2017 did not include amortization of certain intangible assets as they were fully amortized during the fourth quarter of 2016.Interest expense. Interest expense decreased $1.0 million, or 12.3%, to $7.1 million for the nine months ended September 30, 2017, compared to $8.1 million for the nine months ended September 30, 2016. The decrease in interest expense was primarily related to reductions in amounts outstandingborrowing availability under our RestatedSenior Credit Facility partially offset by an increase(as defined in average borrowing rates.Interest income. Interest income was $0.5 million and $0.4 million forNote 8. Borrowing Arrangements within the nine months ended September 30, 2017 and 2016, respectively.Gain on sale of business. During the nine months ended September 30, 2017, we recognized $0.1 million of gain on sale of a portion of our security business primarily operating in the Southern California market. The Company received $0.6 million for the final earn out consideration from the buyer during the second quarter of 2017, which resulted in the Company recognizing an additional gain on sale of business of $0.1 million, as the Company's historical estimate for the fair value of earn-out consideration receivable was $0.5 million.Equity in losses from investment in unconsolidated entity. Equity in losses from investment in unconsolidated entity was $0.5 million and $1.2 million for the nine months ended September 30, 2017 and 2016, respectively.Income tax expense. Income tax expense increased $10.4 million, or 95.4%,notes to $21.3 million for the nine months ended September 30, 2017, compared to $10.9 million for the nine months ended September 30, 2016. Our effective tax rate was 37.2% for the nine months ended September 30, 2017, compared to 41.0% for the nine months ended September 30, 2016. The effective tax rate for the nine months ended September 30, 2017 was lower than the nine months ended September 30, 2016 primarily due to additional 2017 year-to-date federal employer income tax credits recognized ($0.5 million) and the adoption of ASU 2016-09 and the related excess tax benefits now recognized as a reduction of income tax expense ($0.7 million). See Note 1. Significant Accounting Policies and Practices of the Condensed Consolidated Financial StatementsStatements). The full impact of macroeconomic conditions, including higher inflation and rising interest rates, on our business and the businesses of our customers and clients is unknown. We believe we will be able to generate sufficient liquidity to satisfy our obligations and remain in compliance with our existing debt covenants for further discussion ofthe next twelve months.ASU 2016-09.Liquiditythe recent regional bank failures. Currently, we do not believe that our banking partners are exposed to any significant credit risk, and Capital ResourcesSeptemberJune 30, 2017,2023, we had total indebtedness of approximately $173.4$365.7 million, a decreasean increase of $21.7$21.5 million from December 31, 2016.2022. The $173.4$365.7 million in total indebtedness as of SeptemberJune 30, 2017 includes:▪$172.0•Restated Credit Facility, net of original discount on borrowings of $0.9 million and deferred financing costs of $1.2 million; and▪$1.4 million of other debt obligations, which includes capital lease obligations, obligations on seller notes and other indebtedness.FacilityFacility; andOn October 2, 2012, we entered into a credit agreement (“Credit Agreement”) with Bank$23.9 million of America, N.A. ("Bankother debt including finance lease obligations.America"), as administrative agent, Wells Fargo Bank, N.A. ("Wells Fargo Bank") and JPMorgan Chase Bank, N.A., as co-syndication agents, U.S. Bank National Association, First Hawaiian Bank and General Electric Capital Corporation, as co-documentation agents, Merrill Lynch, Pierce, Fenner & Smith Inc., Wells Fargo Securities, LLC and J.P. Morgan Securities LLC, as joint lead arrangers and joint book managers, and the lenders party thereto.Pursuant to the terms, and subject to the conditions, of the Credit Agreement, the lenders made available to the Company a secured Senior Credit Facility (the “Senior Credit Facility”) that permitted aggregate borrowings of $450.0 million consisting of (i) a revolving credit facility of up to $200.0 million at any time outstanding, which included a letter of credit facility that was limited to $100.0 million at any time outstanding, and (ii) a term loan facility of $250.0 million. The Senior Credit Facility was due to originally mature on October 2, 2017.Amended and Restated Credit FacilityOn February 20, 2015 (“Restatement Date”),June 30, 2023, we entered into an Amended and Restated Credit Agreement (the "Restated Credit Agreement") with Bank of America, N.A. (“Bank of America”), as administrative agent, an issuing lender and swing-line lender; Wells Fargo Bank, N.A., as an issuing lender and syndication agent; U.S. Bank National Association, First Hawaiian Bank and BMO Harris Bank N.A., as co-documentation agents; Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC, as joint lead arrangers and joint book managers; and the lenders party thereto (the “Lenders”). The Restated Credit Agreement reflects modifications to, and an extension of, the Senior Credit Facility.Pursuant to the terms, and subject to the conditions of the Restated Credit Agreement, the Lenders have made available to the Company a senior secured credit facility (the “Restated Credit Facility”) that permits aggregate borrowings of $400.0 million consisting of (i) a revolving credit facility of up to $200.0 million at any time outstanding, which includes a $100.0 million sublimit for letters of credit and a $20.0 million sublimit for swing-line loans, and (ii) a term loan facility of $200.0 million (reduced from $250.0 million under the Senior Credit Facility). The Company may request increases of the revolving credit facility in an aggregate additional principal amount of $100.0 million. The Restated Credit Facility matures on February 20, 2020.The entire amount of the term loan portion of the Restated Credit Facility had been drawn by the Company as of the Restatement Date (including approximately $10.4 million drawn on such date) and is subject to scheduled quarterly amortization of principal as follows: (i) $15.0 million in the first year, (ii) $15.0 million in the second year, (iii) $20.0 million in the third year, (iv) $20.0 million in the fourth year, (v) $20.0 million in the fifth year and (vi) $110.0 million in the sixth year. The Company also had outstanding borrowings of $147.3 million (including $53.4 million in letters of credit) under the revolving credit facility as of the Restatement Date.Borrowings under the Restated Credit Facility bear interest, at the Company’s option, (i) at a rate per annum based on the Company’s consolidated total debt to EBITDA ratio for the 12-month period ending as of the last day of the immediately preceding fiscal quarter, determined in accordance with the pricing levels set forth in the Restated Credit Agreement (the “Applicable Margin”), plus LIBOR or (ii) the Applicable Margin plus the highest of (x) the federal funds rate plus 0.5%, (y) the Bank of America prime rate and (z) a daily rate equal to LIBOR plus 1.0% (the highest of (x), (y) and (z), the “Base Rate”), except that all swing-line loans will bear interest at the Base Rate plus the Applicable Margin.Under the terms of the Restated Credit Agreement, we are required to maintain a maximum consolidated total debt to EBITDA ratio of not greater than 4.0 to 1.0 as of the end of any fiscal quarter ending during the period from the Restatement Date through September 30, 2015, (ii) 3.75 to 1.0 as of the end of any fiscal quarter ending during the period from October 1, 2015 through September 30, 2016, and (iii) 3.5 to 1.0 as of the end of any fiscal quarter ending thereafter. In addition, the Company is required to maintain a minimum consolidated fixed charge coverage ratio of not less than 1:25:1.0.Events of default under the Restated Credit Agreement include failure to pay principal or interest when due, failure to comply with the financial and operational covenants, the occurrence of any cross default event, non-compliance with the other loan documents, the occurrence of a change of control event, and bankruptcy and other insolvency events. If an event of default occurs and is continuing, the Lenders holding a majority of the commitments and outstanding term loan under the Restated Credit Agreement have the right, among others, to (i) terminate the commitments under the Restated Credit Agreement, (ii) accelerate and requirethe Company to repay all the outstanding amounts owed under the Restated Credit Agreement and (iii) require the Company to cash collateralize any outstanding letters of credit.Each wholly owned domestic subsidiary of the Company (subject to certain exceptions set forth in the Restated Credit Agreement) has guaranteed all existing and future indebtedness and liabilities of the other guarantors and the Company arising under the Restated Credit Agreement. The Company's obligations under the Restated Credit Agreement and such domestic subsidiaries’ guaranty obligations are secured by substantially all of their respective assets.We were in compliance with allour debt covenants as of September 30, 2017.SeptemberJune 30, 2017,2023, we had $129.4 million of borrowing availability under the Restated Credit Agreement, of which we could have borrowed $129.4 million on September 30, 2017 and remained in compliance with the above described covenants as of such date. The additional borrowing availability under the Restated Credit Agreement is limited only as of the Company’s fiscal quarter-end by the covenant restrictions described above. As of September 30, 2017, we had $51.6$39.1 million of letters of credit outstanding under the RestatedSenior Credit Facility with aggregateand borrowings against the RestatedSenior Credit Facility aggregated to $345.0 million.$174.1 million (excluding original discountcredit for both years and interest rate collars during the six months ended June 30, 2023 and 2022. The weighted average interest rate on all outstanding borrowings, not including letters of $0.9 millioncredit, was 7.0% and deferred financing costs of $1.2 million).Share3.4% during the six months ended June 30, 2023 and 2022, respectively.In May 2016,upour outstanding common stock in an amount not to $30.0exceed $60.0 million in aggregate. Purchases of our common stock may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or by other means in accordance with Rules 10b-18During the three and 10b5-1 under the Securities Exchange Act of 1934 ("Exchange Act"). The share repurchase program does not obligate us to repurchase any particular amount of common stock, and has no fixed termination date.Under this program, wesix months ended June 30, 2023, 285,700 shares were repurchased 305,183 shares of common stock through September 30, 2017 at an average price of $24.43$36.53 per share resulting in $7.5under this program. As of June 30, 2023, $0.2 million in program-to-date repurchases. No shares were repurchasedremained available for repurchase under this program.ninesix months ended SeptemberJune 30, 2017.Commitments2023 and ContingenciesCentral MergerWe have contractual provisions under certain lease contracts to complete structural or other improvements to leased properties and incur repair costs, including improvements and repairs arising2022 was as a result of ordinary wear and tear, and evaluate the nature of those costs when incurred and either capitalizes the costs as leasehold improvements, as applicable, or recognizes the costs as repair expenses within Cost of parking services—Lease contracts within the Condensed Consolidated Statements of Income.Certain lease contracts acquired in the Central Merger include provisions allocating to us responsibility for the cost of certain structural and other repairs required to befollows: to the leased property, including improvement and repair costs arising as a result of ordinary wear and tear. We recorded nil and $0.1 million in costs during the three months ended SeptemberJune 30, 2017 and 2016, respectively, and $0.1 million and $0.4 million during2023 or the ninethree months ended SeptemberMarch 31, 2022.2017 and 2016, respectively, (net of expected recoveries of the total cost recognized by the Company through the applicable indemnity discussed further in Note 3. Central Merger and Restructuring, Merger and IntegrationCosts of our Condensed Consolidated Financial Statements) in Cost of parking services—Lease contracts within the Condensed Consolidated Statements of Income for structural and other repair costs related to certain lease contracts acquired in the Central Merger, whereby we have expensed repair costs for certain leases and engaged third-party general contractors to complete certain structural and other repair projects, and other indemnity related costs. Based on information available at this time, the Company believes that it has completed and incurred all additional costs for certain structural and other repair costs for certain lease contracts acquired in the Central Merger ("Structural and Repair Costs"). Additionally and as further described in Note 3. Central Merger and Restructuring, Merger and Integration Costs, the Company settled all outstanding matters between the former Central stockholders and the Company.Holten SettlementIn March 2010, John V. Holten, a former indirect controlling shareholder of the Company, filed a lawsuit against us in the United States District Court, District of Connecticut. Mr. Holten was terminated as the chairman in October 2009. The lawsuit alleged breach of his employment agreement and claimed that the agreement entitled Holten to payments worth more than $3.8 million. We filed an answer and counterclaim to Mr. Holten's lawsuit in 2010.In March 2016, we settled all claims in connections with the original lawsuits ("Holten Settlement"). Per the settlement, we paid Mr. Holten $3.4 million of which $1.9 million was recovered by us through our directors and officers liability insurance policies. We recognized an expense, net of insurance recoveries, related to the Holten settlement of $1.5 million for the nine months ended September 30, 2016.Interest Rate SwapsOn October 25, 2012, we entered into Interest Rate Swap transactions (collectively, the “Interest Rate Swaps”) with each of JPMorgan Chase Bank, N.A., Bank of America, N.A. and PNC Bank, N.A. in an initial aggregate Notional Amount of $150.0 million (the “Notional Amount”). The Interest Rate Swaps had a termination date of September 30, 2017. The Interest Rate Swaps effectively fixed the interest rate on an amount of variable interest rate borrowings under our credit agreements, originally equal to the Notional Amount at 0.7525% per annum plus the applicable margin rate for LIBOR loans under our credit agreements determined based upon our consolidated total debt to EBITDA ratio. The Notional Amount was subject to scheduled quarterly amortization that coincides with quarterly prepayments of principal under our credit agreements. These Interest Rate Swaps are classified as cash flow hedges, and we calculated the effectiveness of the hedge on a monthly basis. The ineffective portion of the cash flow hedge was recognized in earnings as an increase of interest expense. As of September 30, 2017, no ineffectiveness of the hedge has been recognized in interest expense. The Interest Rate Swaps expired on September 30, 2017. The fair value of the Interest Rate Swaps at December 31, 2016 was an asset of $0.1 million, and is included in the line item "Other assets, net" within the Condensed Consolidated Balance Sheets.We do not enter into derivative instruments for any purpose other than for cash flow hedging purposes.Deficiency PaymentsPursuant to our obligations with respect to the parking garage operations at Bradley International Airport, we are required to make certain deficiency payments for the benefit of the State of Connecticut and for holders of special facility revenue bonds. The deficiency payments represent contingent interest bearing advances to the trustee to cover operating cash flow requirements. As of September 30, 2017, we had made $8.2 million of cumulative deficiency repayments from the trustee, net of payments. Deficiency payments made are recorded as increases to cost parking services and the reimbursements are recorded as reductions to cost of parking services. We believe these advances to be fully recoverable and will recognize the principal, interest and premium payments related to these deficiency payments when they are received. We do not directly guarantee the payment of any principal or interest on any debt obligations of the State of Connecticut or the trustee.The total deficiency repayments (net of payments made), interest and premium received and recorded for the three and nine months ended September 30, 2017 and 20162023 were as follows: Three Months Ended Nine Months Ended (millions) (unaudited) September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016 Deficiency repayments $ 0.5 $ — $ 1.7 $ 1.2 Interest $ — $ 0.2 $ 0.2 $ 0.3 Premium $ — $ — $ 0.2 $ 0.2 according tobased on the terms of the leases. Under management type contracts, clients may require us to deposit the daily receipts into one of our local bank accounts, with the cash in excess of our operating expenses and management fees remitted to the clients at negotiated intervals. Other clients may require us to deposit the daily receipts into client designated bank accounts and the clients then reimburse us for operating expenses and pay our management fee subsequent to month-end ormonth-end. In addition, our clients may requirethe receipts and disbursements at locations.disbursements. Our working capital and liquidity may be adversely affected if a significant number of our clients require us to deposit all parking revenues into their respective accounts.account.accounts. For all these reasons, from time to time, we carry a significant cash balance, while also utilizing our RestatedSenior Credit Facility. Nine Months Ended (millions) (unaudited) September 30, 2017 September 30, 2016 Net cash provided by operating activities $ 21.4 $ 30.6 Net cash provided by (used in) investing activities $ 4.4 $ (9.9 ) Net cash used in financing activities $ (24.9 ) $ (20.0 ) Operating Activitiesfundsliquidity are cash flows from operating activities and changes in operating assetsavailability under our Senior Credit Facility. Our cash flows during the six months ended June 30, 2023 and liabilities.totaled $21.4was $21.0 million forduring the ninesix months ended SeptemberJune 30, 2017. Cash provided by operating activities for2023 as compared to $35.7 million during the first ninesix months of 2017 included $46.0 million from operations; partially offset by changes in operating assets and liabilities that resulted in a use of $24.6 million.ended June 30, 2022. The net increase in operating assets and liabilities was a result of (i) an increase in notes and accounts receivable of $4.6 million due to timing of collections; (ii) a net decrease in prepaid and other assets of $1.6 million mainly due to prepaid payroll and annual software maintenance; (iii) a $14.1 million decrease in accounts payable due to timing of payments to our clients as described under "Daily Cash Collections"; and (iv) a $7.5 million net decrease in accrued liabilities primarily related to timing of payments including payment of our 2016 performance-based compensation accrual as well as a reduction in customer deposits and the reduction of insurance reserves.Net cash provided by operating activities totaled $30.6primarily resulted from the receipt of the $20.5 million for nineU.S. Federal income tax refund during the six months ended SeptemberJune 30, 2016. Cash provided by operating activities for2022 and higher interest payments during the first ninesix months ended June 30, 2023 of 2016 included $47.9$13.6 million from operations;as compared to $7.8 million during the six months ended June 30, 2022, partially offset by changes in operating assets and liabilities that resulted in a use of $17.3 million. The net increase in operating assets and liabilities resulted primarily from (i) an increase in notes and accounts receivable of $15.6 million due to timing of collections; (ii) a net increase in prepaid and other assets of $4.1 million due to prepaid operating expenses and an increase in our deferred tax asset; (iii) a $0.4 million net increase in accrued liabilities primarily related to timing of payments; and (iv) a $2.0 million increase in accounts payable due to timing of payments to our clients as described under "Daily Cash Collections".Net cash provided by investing activities totaled $4.4 million for the nine months ended September 30, 2017. Cash provided by investing activities for the nine months ended September 30, 2017 included (i) $8.4 million in proceeds received from the sale of an equity method investee's sale of assets; (ii) $0.9 million of proceeds from the sale of assets and contract terminations; and (iii) $0.6 million of proceeds received and relating to the final earn-out payment from buyer for the security business sold in 2015; offset by (iv) $4.9 million for capital investments needed to secure and/or extend lease facilities and investments in information system enhancements and infrastructure and (v) $0.6 million for cost of contract purchases.totaled $9.9was $13.5 million induring the ninesix months ended SeptemberJune 30, 2016. Cash2023, an increase of $2.8 million from $10.7 million during the six months ended June 30, 2022. The increase in net cash used in investing activities forprimarily resulted from the nineincrease in purchases of property and equipment, primarily related to our investments in internal-use software, of $11.3 million during the six months ended SeptemberJune 30, 2016 included (i) $10.82023 as compared to $9.1 million for capital investments needed to secure and/or extend lease facilities and investments in information system enhancements and infrastructure; and (ii) $2.0during the six months ended June 30, 2022, as well as the noncontrolling interest buyout of $2.2 million for costduring the six months ended June 30, 2023.contract purchases; offset by (iii) $2.9$30.7 million of proceeds from the sale of assets and contract terminations.Financing ActivitiesNetnet cash used in financing activities totaled $24.9of $26.0 million induring the ninesix months ended SeptemberJune 30, 2017. Cash used in financing activities for2022. During the ninesix months ended SeptemberJune 30, 2017 included (i) $15.0 million for payments2023, we had increased borrowings on the RestatedSenior Credit Facility term loan; (ii) net payments of $7.2 million onas compared to the Restated Credit Facility revolver; (iii) $2.4 million of distributions to noncontrolling interest; (iv) $0.2 million for payments on other long-term debt obligations; and (v) $0.1 million on payments for debt issuance costs.Net cash used in financing activities totaled $20.0 million in the ninesix months ended SeptemberJune 30, 2016. Cash used in financing2022 due to lower net cash provided by operating activities, forpartially offset by higher common stock repurchases of $11.1 million under our May 2022 stock repurchase program during the ninesix months ended SeptemberJune 30, 2016 included (i) net payments on2023 as compared to $4.9 million during the Restated Credit Facility revolver of $0.5 million; (ii) $2.6 million of distributions to noncontrolling interest; (iii) $11.2 million for payments on the Restated Credit Facility term loan; (iv) $0.2 million for payments on other long-term borrowings; (v) $0.1 million on payments for debt issuance costs; and (vi) $5.4 million on the repurchase of common stock.cashCash and cash equivalents of $23.4$24.6 million and $22.2$12.4 million at Septemberas of June 30, 20172023 and December 31, 2016,2022, respectively. Cash andThe cash equivalents that are restricted asbalances reflect our ability to withdrawal or use under the terms of certain contractual agreements were $0.4 million and $0.3 million as of September 30, 2017 and December 31, 2016, respectively, and are included within Cash and cash equivalents within the Condensed Consolidated Balance Sheets.year-endedfiscal year ended December 31, 2016.conductedcarried out an evaluation, under the supervision and with the participation of our management, including the chief executive officer, chief financial officerour Chief Executive Officer, Chief Financial Officer and corporate controller,Corporate Controller, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15(the "Evaluation") at a reasonable assurance level as of the Securities Exchange Actlast day of 1934, as amended ("Exchange Act"). Based upon that evaluation, our chief executive officer, chief financial officer and corporate controller concluded that our disclosure controls and procedures were effective as of September 30, 2017. the period covered by this Form 10-Q.principal executive officer, principal financial officerChief Executive Officer, Chief Financial Officer and principal accounting officer,Corporate Controller, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.ControlsControl Over Financial Reportinglast fiscal quarter ended June 30, 2023, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.Limitations
Item 1. Legal Proceedings
We are subject to claims and litigation in the normal course of our business. Thebusiness, including those related to labor and employment, contracts, personal injury and other related matters, some of which allege substantial monetary damages and claims. Some of these actions may be brought as class actions on behalf of a class or purported class of employees. While the outcomes of current claims and legal proceedings and claims brought against us and other loss contingencies are subject to significant uncertainty. uncertainty, we believe the final outcome will not have a material adverse effect on our financial position, results of operations or cash flows.
We accrue a charge against income when our management determineswe determine that it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. In addition,When a loss is probable, we accruerecord an accrual based on the reasonably estimable loss or range of loss. When no point of loss is more likely than another, we record the lowest amount in the estimated range of loss and, if material, disclose the estimated range. We do not record liabilities for the authoritative judgments or assertions made against us by government agencies at the timereasonably possible loss contingencies, but do disclose a range of their rendering regardless of our intent to appeal. In addition,reasonably possible losses if they are material and we are able to estimate such a range. If we cannot provide a range of reasonably possible losses, we explain the factors that prevent us from time-to-time party to litigation, administrative proceedings and union grievances that arise in the normal course of business, and occasionally pay non-material amounts to resolve claims or alleged violations of regulatory requirements. There are no "normal course" matters that separately or in the aggregate, would, in the opinion of management, havedetermining such a material adverse effect on our operations, financial condition or cash flow.
Item 1A. Risk Factors
Investors should carefully consider the discussion of risk factors and the other information described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.
33
Item 2. Unregistered Sales of Equity and Use of Proceeds
Not applicable.
Item 3. Defaults Uponupon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
34
Item 6. Exhibits
Index to Exhibits
|
|
|
|
|
| Incorporated by Reference | ||
Exhibit Number |
| Description |
| Form |
| Exhibit |
| Filing Date/Period End Date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.1 |
|
| 8-K |
| 3.1 |
| May 16, 2023 | |
|
|
|
|
|
|
|
|
|
3.2 |
| Amendment to Fourth Amended and Restated Bylaws of the Company dated May 11, 2023 |
| 8-K |
| 3.2 |
| May 16, 2023 |
|
|
|
|
|
|
|
|
|
31.1* |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
31.2* |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
31.3* |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
32** |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
101.INS* |
| Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.SCH* |
| Inline XBRL Taxonomy Extension Schema |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.CAL* |
| Inline XBRL Taxonomy Extension Calculation Linkbase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.DEF* |
| Inline XBRL Taxonomy Extension Definition Linkbase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.LAB* |
| Inline XBRL Taxonomy Extension Label Linkbase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.PRE*
104**
|
| Inline XBRL Taxonomy Extension Presentation Linkbase
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
Filed herewith**
Furnished herewithPursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SP PLUS CORPORATION | ||
Date: August 3, 2023 | By: | /s/ G MARC BAUMANN |
G Marc Baumann | ||
Chairman and Chief Executive Officer | ||
(Principal Executive Officer) | ||
Date: August 3, 2023 | By: | |
/s/ KRISTOPHER H. ROY | ||
Kristopher H. Roy | ||
Chief Financial Officer | ||
(Principal Financial Officer) | ||
Date: August 3, 2023 | By: | /s/ GARY T. ROBERTS |
Gary T. Roberts | ||
Senior Vice President, Corporate Controller | ||
and Assistant Treasurer | ||
(Principal Accounting Officer and Duly Authorized Officer) | ||
36