SP PLUS CORPORATION The following discussion of 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 endedDecember 31, 2020 .
Important Information Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q is being filed bySP Plus Corporation ("we", "us" or "our") with theSecurities and Exchange Commission ("SEC") and contains forward-looking statements, including statements regarding the anticipated further impact of the COVID-19 pandemic ("COVID-19") on our operations and financial condition. These statements are typically accompanied by the words "expect," "estimate," "intend", "will," "predict," "project," "may," "should," "could," "believe," "would," "might," "anticipate," or 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's 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's control. These forward-looking statements are not guarantees of future performance and there can be no assurance that our expectations, beliefs and projections will be realized. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Our actual results, performance and achievements could be materially different from those expressed in, or implied by, our forward-looking statements. Important factors which could cause or contribute to our actual results, performance or achievements being different from those expressed in, or implied by, our forward-looking statements include, but are not limited to, those discussed in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 and other documents we file with theSEC , which should be read in conjunction with the forward-looking statements in this report. Forward-looking statements speak only as of the date they are made, and except as expressly required by the federal securities laws, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, changed circumstances, future events or for any other reason. Overview Our Business Primarily through our technology-driven mobility solutions, we facilitate the efficient movement of people, vehicles and personal belongings with the goal of enhancing the consumer experience while improving bottom line results for our clients. We provide technology-driven mobility solutions, professional parking management, ground transportation, remote baggage check-in and handling, facility maintenance, security, and event logistics to aviation, commercial, hospitality, healthcare and government clients acrossNorth America . We typically enter into contractual relationships with property owners or managers as opposed to owning facilities.
We primarily operate under two types of arrangements: management type contracts and lease type contracts.
• Under a management type contract, we typically receive a fixed and/or
variable monthly fee for providing our services, and we may also receive an
incentive fee based on the achievement of certain performance objectives. We
also receive fees for ancillary services. We believe that we can generally
purchase required insurance for the facility and facility operations at
lower rates than our clients can obtain on their own because we are
effectively self-insured for all liability, workers' compensation and health
care claims by maintaining a large per-claim deductible. As a result, we
generate operating income on the insurance provided under management typecontracts by focusing on risk management efforts and controlling losses.
Typically, all of the underlying revenue and expenses under a standard
management type contract flow through to our client rather than to us.
However, some management type contracts, which are referred to as "reverse"
management type contracts, usually provide for larger management fees and
require us to pay various costs.
• Under a lease type contract, we generally pay our clients either a fixed
annual rent, a percentage of gross customer collections, or a combination of
both. Under a lease type contract, we collect all revenue and are
responsible for most operating expenses, but typically are not responsible
for major maintenance, capital expenditures or real estate taxes. Margins
for lease type contracts vary significantly, not only due to operating
performance, but also due to variability of parking rates in different
cities and varying space utilization by parking facility type and location.
As ofSeptember 30, 2021 , in our Commercial segment, we operated approximately 86% of our locations under management type contracts and 14% under lease type contracts. In evaluating our financial condition and operating performance, one of our primary areas of focus is on our gross profit. Revenue from lease type contracts includes all gross customer collections derived from our leased locations (net of local 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 lease type contracts may cause significant fluctuations in reported revenue and cost of services, those changes will not artificially affect our gross profit. Therefore, gross profit is one of our primary areas of focus. 26
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General Business Trends
We believe that sophisticated clients (which also include property owners) recognize the potential for technology-driven mobility solutions, parking services, parking management, ground transportation services, baggage handling services and other ancillary services to be a profit generator and/or a service differentiator to their customers. By outsourcing these services, they are able to capture additional profit and improve customer experiences by leveraging the unique operational skills and controls that an experienced services company can offer. Our ability to consistently deliver a uniformly high level of services to our clients, including the use of various technological enhancements, allows us to maximize the profit and/or customer experience to our clients and improves our ability to win contracts and retain existing clients. Our focus on customer service and satisfaction is a key driver of our high retention rate, which was approximately 91% and 89% for the twelve-month periods endedSeptember 30, 2021 and 2020, respectively, for our Commercial segment facilities.
Impact of COVID-19
COVID-19 has impacted, and may continue to impact, our operations and results. The ultimate impact of COVID-19 on future operations is hard to predict, as new guidance is continually being communicated by theU.S. Department of State ,Centers for Disease Control and Prevention and local governments. New guidance has and may include heightened government regulations, including vaccine mandates, and travel advisories, which could impact our clients' operations. In addition, certain industries have been impacted by workforce disruptions as a result of COVID-19. Currently, our operations have not experienced material disruptions as a result of employees who are unable or unwilling to work because of illness or fear of contracting COVID-19, or for other reasons. However, we have recently seen an increase in wages, as well as higher than normal open positions at our Company. If this continues, our ability to grow and expand our business could be negatively impacted.
Commercial Segment Facilities
In order to mitigate some of the effects from COVID-19, we converted many of our
lease locations to management locations during the past year. In addition, we
were able to exit many less profitable contracts, which were for both lease and
management locations. The following table reflects our Commercial facilities (by
contractual type) operated on the dates indicated:
September 30, 2021 December 31, 2020 September 30, 2020
Leased facilities 420 445 466
Managed facilities 2,575 2,539 2,596
Total Commercial segment facilities 2,995 2,984 3,062
Revenue
We recognize revenue from our contracts and certain 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. Consists of all revenue received at lease type locations, including gross receipts (net of local taxes), consulting and real estate development fees, gains on sales of contracts and payments for exercising termination rights. As discussed in Note 4. Revenue in the notes to the Condensed Consolidated Financial Statements, revenue from lease type contracts includes a reduction for certain expenses (primarily rent expense) related to service concession arrangements. Management type contracts. Consists of management fees, including fixed, variable and/or performance-based fees, 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. 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 generated 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 those facilities, as those revenues belong to the client rather than to us. Management type contracts generally provide us with a management fee regardless of the operating performance of the underlying management type contract.
Reimbursed Management Type Contract Revenue. Consists of the direct reimbursement from the client for operating expenses incurred under a management type contract, which are reflected in our revenue.
Cost of Services
Our cost of services consists of the following:
Lease type contracts. Consists of contractual rents or fees paid to the client
and all operating expenses incurred in connection with operating the leased
facility. Contractual rents or fees paid to the client are generally based on
either a fixed contractual amount, a percentage of gross revenue or a
combination thereof. Generally, under a lease type arrangement, we are not
responsible for major capital expenditures or real estate taxes.
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Management type contracts. Cost of services under a management type contract is generally the responsibility of the client. As a result, these costs are not included in our results of operations. However, our reverse management type contracts, which typically provide for larger management fees, do require us to pay for certain costs and those costs are included in our results of operations. Reimbursed Management Type Contract Expense. Consists of directly reimbursed costs incurred on behalf of a client under a management type contract, which are reflected in our cost of services.
Gross Profit
Gross profit equals our revenue less the cost of generating such revenue ("cost
of services"). This is the key metric we use to examine our performance because
it captures the underlying economic benefit to us of both lease and management
type contracts.
General and Administrative Expenses
General and administrative expenses include salaries, wages, payroll taxes, insurance, travel and office related expenses for our headquarters, field offices and supervisory employees.
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.
Goodwill represents the excess of purchase price paid over the fair value of net assets acquired. In accordance with theFinancial Accounting Standards Board's ("FASB") authoritative accounting guidance on goodwill, we evaluate goodwill for impairment on an annual basis, or more often if events or circumstances change that could cause goodwill to become impaired. We have elected to assess the impairment of goodwill annually onOctober 1 or at an interim date if there is an event or change in circumstances indicating the carrying value may not be recoverable. The goodwill impairment test is performed at the reporting unit level; our reporting units represent our operating segments, consisting of Commercial and Aviation. Factors that could trigger an impairment review include significant under-performance relative to expected historical or projected future operating results, significant changes in the use of acquired assets or our business strategy, or significant negative industry or economic trends. We may perform a qualitative, rather than quantitative, assessment, to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount. The determination of fair value of a reporting unit utilizes cash flow projections that assume certain future revenue and cost levels, comparable marketplace data, assumed discount rates based upon current market conditions and other valuation factors, all of which involve the use of significant judgment and estimates. We also assess critical areas that may impact our business including economic conditions, market related exposures, competition, changes in service offerings and changes in key personnel. Due to the impacts of COVID-19 on our operations, revenues for certain markets in which we operate decreased significantly during 2020 as compared to expectations as of theOctober 1, 2019 annual impairment test. In addition, certain Aviation contracts were terminated duringAugust 2020 . The termination of these contracts and the ongoing impacts of COVID-19 on our expected future operating cash flows triggered us to complete a quantitative goodwill impairment analysis for the Aviation reporting unit as ofAugust 31, 2020 . Based on the quantitative analysis, we determined that estimated carrying values exceeded implied fair value for the Aviation reporting unit and goodwill was impaired. As a result, we recorded impairment charges during the three months and nine months endedSeptember 30, 2020 . See Note 7.Goodwill in the notes to the Condensed Consolidated Financial Statements for further discussion.
Other Intangibles Assets, net
Other intangible assets represent assets with finite lives that are amortized on a straight-line basis over their estimated useful lives. We evaluate the remaining useful life of 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 our intangible assets are complex and subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors, such as changes in our business strategy and forecasts. Although management believes the historical assumptions and estimates are reasonable and appropriate, different assumptions and estimates could materially impact reported financial results. As a result of the impact of COVID-19 on our expected future operating cash flows, we determined certain impairment testing triggers had occurred related to our Proprietary know how intangible assets within the Aviation segment as ofJune 30, 2020 . Accordingly, we analyzed undiscounted cash flows for these intangible assets as ofJune 30, 2020 . Based on the undiscounted cash flow analysis, we determined that estimated net carrying values exceeded undiscounted future cash flows 28
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for certain Proprietary know how intangible assets and therefore, as of
Additionally, as a result of the termination of certain contracts within the Aviation reporting unit duringAugust 2020 and the ongoing impact of COVID-19 on our expected future operating cash flows, we determined certain impairment testing triggers had occurred related to our customer relationships and trade names and trademarks intangible assets. Accordingly, we analyzed undiscounted cash flows for these intangible assets as ofAugust 31, 2020 . Based on the undiscounted cash flow analysis, we determined that estimated net carrying values exceeded undiscounted future cash flows for certain customer relationships and trade names and trademarks intangible assets and therefore as ofAugust 31, 2020 , certain customer relationships and trade names and trademarks intangible assets were impaired.
The impairments were recorded during the three and nine months ended
For both goodwill and intangible assets, future events may indicate differences from our judgments and estimates which could, in turn, result in impairment charges. Future events that may result in impairment charges include extended unfavorable economic impacts of COVID-19, increases in interest rates, which would impact discount rates, or other factors which could decrease revenues and profitability at existing locations and changes in the cost structure of existing facilities, such as increasing labor and benefit costs.
Long-Lived Assets
We evaluate long-lived assets, primarily including right-of-use ("ROU") assets,
leasehold improvements, equipment and construction in progress for impairment
whenever events or circumstances indicate that the carrying value of an asset or
asset group may not be recoverable. We group 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 or forecast that demonstrates continuing losses
associated with the use of an asset or long-lived asset group. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
the asset to future undiscounted cash flows expected to be generated by the
asset or asset group. If an 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.
During the three and nine months ended
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 and could result in additional impairment charges. Future events that may result in impairment charges include extended unfavorable economic impacts of COVID-19, or other factors which could decrease revenues and profitability at existing locations and changes in the cost structure of existing facilities, such as increasing labor and benefit costs.
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. Our
CODM is our chief executive officer.
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The operating segments are reported to our CODM as Commercial and Aviation.
• Commercial encompasses our services in healthcare facilities,
municipalities, including meter revenue collection and enforcement services,
government facilities, hotels, commercial real estate, residential
communities, retail, colleges and universities, as well as ancillary
services such as shuttle and ground transportation services, valet services,
taxi and livery dispatch services and event planning, including shuttle and
transportation services.
• Aviation encompasses our services in aviation (e.g., airports, airline and
certain hospitality clients with baggage and parking services), as well as
ancillary services, which includes shuttle and ground transportation
services, valet services, baggage handling, baggage repair and replacement,
remote air check-in services, wheelchair assist services and other services.
• "Other" consists of ancillary revenue and certain unallocated items, such as
and including certain insurance reserve adjustments and other corporate
items.
Analysis of Results of Operations
As a result of COVID-19, we have executed on a strategy to successfully convert certain lease type contracts to management type contracts or terminate certain lease type contracts, which should provide a higher gross profit over the contract term. In addition, for those locations that have remained leases, we have worked with landlords to either receive rent concessions or change lease terms to be more favorable to us. Expired business relates to contracts that have expired during the current period but we were operating the business in the comparative period presented. Conversions relate to contracts that were converted from lease type contracts to management type contracts after the prior year period.
Three Months Ended
Consolidated results for the three months ended
Three Months Ended Variance
(millions) (unaudited) September 30, 2021 September 30, 2020 Amount %
Services revenue (1) $ 161.6 $ 118.2 $ 43.4 36.7 %
Cost of services (2) 115.6 76.2 39.4 51.7 %
Gross profit 46.0 42.0 4.0 9.5 %
General and administrative
expenses 21.1 18.4 2.7 14.7 %
Depreciation and amortization 6.0 8.2 (2.2 ) (26.8 )%
Impairment of goodwill and
intangible assets - 131.6 (131.6 ) (100.0 )%
Operating income (loss) 18.9 (116.2 ) 135.1 116.3 %
Income tax expense (benefit) 1.6 (33.5 ) 35.1 104.8 %
(1) Excludes Reimbursed management type contract revenue of
respectively.
(2) Includes lease impairment of
months ended
management type contract expense of
three months ended September 30, 2021 and 2020, respectively.
Services revenue increased by
• Services revenue for lease type contracts increased
primarily due to an increase in transient revenue as a result of improving
business conditions as compared to the third quarter of 2020, which was
significantly impacted by COVID-19, partially offset by lower cost
concessions of $2.6 million related to service concessions, as well as
conversions and expired business.
• Services revenue for management type contracts increased
27.9%, primarily due to an increase in volume based management type
contracts as a result of improving business conditions as compared to the
third quarter of 2020, which was significantly impacted by COVID-19, as well
as revenue from new business and conversions, partially offset by
million of termination fees received related to certain terminated Aviation
contracts during the three months ended
business.
Gross profit increased by
• Gross profit for lease type contracts increased
gross profit percentage increased to 19.6% for the three months ended
an increase in transient revenue as noted above, a decrease in overall net
operating costs and conversions, partially offset by lower cost concessions
of $6.1 million related to rent concessions and $2.6 million related to
service concessions.
• Gross profit for management type contracts decreased
and gross profit percentage for management type contracts decreased to 37.1%
for the three months ended
three months ended
contracts decreased primarily due to
received related to certain terminated Aviation contracts during the three
months
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ended
management type contracts as noted above, new business and conversions.
• We recognized
operating lease ROU assets in the Commercial segment during the three months
ended
General and administrative expenses increased$2.7 million , or 14.7%, for the three months endedSeptember 30, 2021 , as compared to the three months endedSeptember 30, 2020 , primarily due to higher performance based compensation, partially offset by lower restructuring and other costs and cost reduction initiatives. We recognized$131.6 million of impairment charges related to certain finite lived intangible assets and goodwill during the three months endedSeptember 30, 2020 in the Aviation segment. Our effective tax rate was 11.6% and 27.5% for the three months endedSeptember 30, 2021 and 2020, respectively. The decrease in the effective tax rate is due to the finalization of our 2020 federal income tax return during the three months endedSeptember 30, 2021 , which resulted in a$2.0 million additional benefit related to the ability to carryback our 2020 federal Net Operating Loss ("NOL") to previous tax years that had a higher tax rate. The following tables summarize our revenues (excluding reimbursed management type contract revenue) and gross profit by segment for the three months endedSeptember 30, 2021 and 2020.
Commercial segment: Services Revenue
Three Months Ended Variance
(millions) (unaudited) September 30, 2021 September 30, 2020 Amount %
Lease type contracts $ 56.7 $ 37.4 $ 19.3 51.6 %
Management type contracts 57.4 46.5 10.9 23.4 %
Total Commercial Revenue $ 114.1 $ 83.9 $ 30.2 36.0 %
Lease type contracts. Revenue increased $19.3 million , or 51.6%, to $56.7
million for the three months ended September 30, 2021 , compared to $37.4 million
for the three months ended September 30, 2020 , primarily due to an increase in
transient revenue as a result of improving business conditions as compared to
the third quarter of 2020, which was significantly impacted by COVID-19, and
revenue from new business, partially offset by conversions and expired business.
Management type contracts. Revenue increased $10.9 million , or 23.4%, to $57.4
million for the three months ended September 30, 2021 , compared to $46.5 million
for the three months ended September 30, 2020 , primarily due to an increase in
volume based management type contracts as a result of improving business
conditions as compared to the third quarter of 2020, which was significantly
impacted by COVID-19, as well as revenue from conversions and new business,
partially offset by expired business.
Commercial segment: Gross Profit
Three Months Ended Variance
(millions) (unaudited) September 30, 2021 September 30, 2020 Amount %
Lease type contracts $ 9.5 $ 3.3 $ 6.2 187.9 %
Management type contracts 24.4 20.8 3.6 17.3 %
Lease impairment (3.5 ) (0.3 ) (3.2 ) (1066.7 )%
Total Commercial Gross Profit $ 30.4 $ 23.8 $ 6.6 27.7 %
Lease type contracts. Gross profit increased $6.2 million , or 187.9%, to $9.5
million for the three months ended September 30, 2021 , compared to $3.3 million
for the three months ended September 30, 2020 . Gross profit percentage increased
to 16.8% for the three months ended September 30, 2021 , compared to 8.8% for the
three months ended September 30, 2020 . Gross profit increased primarily due to
increases in transient revenue as noted above, decreases in net operating costs
and conversions, partially offset by lower cost concessions of $6.1 million
related to rent concessions.
Management type contracts. Gross profit increased $3.6 million , or 17.3%, to
$24.4 million for the three months ended September 30, 2021 , compared to $20.8
million for the three months ended September 30, 2020 . Gross profit increased
primarily due to an increase in volume based management contracts as discussed
above, conversions and new businesses, partially offset by expired business.
Gross profit percentage decreased to 42.5% for the three months ended
September 30, 2021 , compared to 44.7% for the three months ended September 30,
2020 , primarily due to increased revenue from reverse management contracts,
which have a lower gross profit percentage as compared to traditional management
contracts.
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Aviation segment: Services Revenue
Three Months Ended Variance
(millions) (unaudited) September 30, 2021 September 30, 2020 Amount %
Lease type contracts $ 2.8 $ 1.0 $ 1.8 180.0 %
Management type contracts 42.5 31.6 10.9 34.5 %
Total Aviation Revenue $ 45.3 $ 32.6 $ 12.7 39.0 %
Lease type contracts. Revenue increased $1.8 million , or 180.0%, to $2.8 million
for the three months ended September 30, 2021 , compared to $1.0 million for the
three months ended September 30, 2020 , primarily due to an increase in transient
revenue as a result of improving business conditions as compared to the third
quarter of 2020, which was significantly impacted by COVID-19, partially offset
by lower cost concessions of $2.5 million related to service concessions and
conversions.
Management type contracts. Revenue increased $10.9 million , or 34.5%, to $42.5
million for the three months ended September 30, 2021 , compared to $31.6 million
for the three months ended September 30, 2020 , primarily due to an increase in
volume based management type contracts as a result of improving business
conditions as compared to the third quarter of 2020, which was significantly
impacted by COVID-19, revenue from conversions and new business, partially
offset by the $5.6 million of termination fees received during the three months
ended September 30, 2020 related to certain terminated contracts.
Aviation segment: Gross Profit
Three Months Ended Variance
(millions) (unaudited) September 30, 2021 September 30, 2020 Amount %
Lease type contracts $ 1.1 $ 0.3 $ 0.8 266.7 %
Management type contracts 8.9 13.7 (4.8 ) (35.0 )%
Total Aviation Gross Profit $ 10.0 $ 14.0 $ (4.0 ) (28.6 )%
Lease type contracts. Gross profit increased $0.8 million , or 266.7%, to $1.1
million for the three months ended September 30, 2021 , compared to $0.3 million
for the three months ended September 30, 2020 . Gross profit percentage increased
to 39.3% for the three months ended September 30, 2021 , compared to 30.0% for
the three months ended September 30, 2020 . Gross profit increased primarily due
to an increase in transient revenue as noted above, conversions and a decrease
in overall net operating costs, partially offset by lower cost concessions of
$2.5 million related to service concessions.
Management type contracts. Gross profit decreased $4.8 million , or 35.0%, to
$8.9 million for the three months ended September 30, 2021 , compared to $13.7
million for the three months ended September 30, 2020 . Gross profit percentage
decreased to 20.9% for the three months ended September 30, 2021 , compared to
43.4% for the three months ended September 30, 2020 . Gross profit decreased
primarily due to the $5.6 million of termination fees received during the three
months ended September 30, 2020 related to certain terminated contracts,
partially offset by an increase in volume based management type contracts as
noted above and conversions.
"Other" segment
"Other" consists of ancillary revenue and costs and certain unallocated items, such as and including certain insurance reserve adjustments and other corporate items. Total service revenue in "Other" increased by$0.5 million , or 29.4%, to$2.2 million for the three months endedSeptember 30, 2021 , compared to$1.7 million for the three months endedSeptember 30, 2020 . Gross profit for "Other" increased$1.4 million , or 33.3%, to$5.6 million for the three months endedSeptember 30, 2021 , compared to$4.2 million for the three months endedSeptember 30, 2020 .
Nine Months Ended
Consolidated results for the nine months ended
Nine Months Ended Variance
(millions) (unaudited) September 30, 2021 September 30, 2020 Amount %
Services revenue (1) $ 431.5 $ 430.0 $ 1.5 0.3 %
Cost of services (2) 300.7 431.6 (130.9 ) (30.3 )%
Gross profit 130.8 (1.6 ) 132.4 N/M
General and administrative
expenses 64.1 61.9 2.2 3.6 %
Depreciation and amortization 18.5 23.6 (5.1 ) (21.6 )%
Impairment of goodwill and
intangible assets - 135.3 (135.3 ) (100.0 )%
Operating income (loss) 48.2 (222.4 ) 270.6 121.7 %
Income tax expense (benefit) 6.5 (63.7 ) 70.2 110.2 %
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(1) Excludes Reimbursed management type contract revenue of
respectively.
(2) Includes Lease impairment of
months ended
management type contract expense of
nine months ended September 30, 2021 and 2020, respectively.
Services revenue increased by
• Services revenue for lease type contracts increased
primarily due to an increase in transient revenue as a result of improving
business conditions as compared to the nine months ended
which was significantly impacted by COVID-19, partially offset by
conversions and lower cost concessions of
concessions.
• Services revenue for management type contracts decreased
0.5%, primarily due to the
the nine months ended
Aviation contracts, partially offset by an increase in volume based
management type contracts as a result of improving business conditions as
compared to the nine months ended 2020, which was significantly impacted by
COVID-19 and revenue from conversions and new business.
Gross profit increased by
• Gross profit for lease type contracts increased
and gross profit percentage increased to 19.9% for the nine months ended
primarily due to a decrease in overall net operating costs, conversions and
an increase in transient revenue as noted above, partially offset by lower
cost concessions of $3.9 million related to rent concessions and $3.3
million related to service concessions.
• Gross profit for management type contracts increased
while gross profit percentage for management type contracts increased to
37.3% for the nine months ended September 30, 2021 , compared to 35.8% for
the nine months ended September 30, 2020 . Gross profit for management typecontracts increased primarily due to a decrease in overall net operating
costs, an increase in volume based management contracts as noted above and
conversions, partially offset by the
received during the nine months ended
terminated Aviation contracts.
• We recognized
to operating lease ROU assets during the nine months ended September 30,
2021 and 2020, respectively.
General and administrative expenses increased
We recognized$135.3 million of impairment charges related to certain finite lived intangible assets and goodwill during the nine months endedSeptember 30, 2020 in the Aviation segment. Our effective tax rate was 20.1% and 26.8% for the nine months endedSeptember 30, 2021 and 2020, respectively. The decrease in the effective tax rate is due to the finalization of our 2020 federal income tax return during the nine months endedSeptember 30, 2021 , which resulted in a$2.0 million additional benefit related to the ability to carryback our 2020 federal NOL to previous tax years that had a higher tax rate. The following tables summarize our revenues (excluding reimbursed management type contract revenue) and gross profit by segment for the nine months endedSeptember 30, 2021 and 2020.
Commercial segment: Services Revenue
Nine Months Ended Variance
(millions) (unaudited) September 30, 2021 September 30, 2020 Amount %
Lease type contracts $ 146.7 $ 142.5 $ 4.2 2.9 %
Management type contracts 166.1 162.7 3.4 2.1 %
Total Commercial Revenue $ 312.8 $ 305.2 $ 7.6 2.5 %
Lease type contracts. Revenue increased $4.2 million , or 2.9%, to $146.7 million
for the nine months ended September 30, 2021 , compared to $142.5 million for the
nine months ended September 30, 2020 , primarily due to higher cost concessions
of $12.1 million related to service concessions and an increase in transient
revenue as a result of improving business conditions as compared to the nine
months ended September 30, 2020 , which was significantly impacted by COVID-19,
partially offset by conversions and expired business.
Management type contracts. Revenue increased $3.4 million , or 2.1%, to $166.1
million for the nine months ended September 30, 2021 , compared to $162.7 million
for the nine months ended September 30, 2020 , primarily due to an increase in
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volume based management type contracts as a result of improving business conditions as compared to the nine months endedSeptember 30, 2020 , which was significantly impacted by COVID-19, and conversions, partially offset by expired business.
Commercial segment: Gross Profit
Nine Months Ended Variance
(millions) (unaudited) September 30, 2021 September 30, 2020 Amount %
Lease type contracts $ 25.2 $ (11.4 ) $ 36.6 321.1 %
Management type contracts 67.1 58.5 8.6 14.7 %
Lease impairment (3.5 ) (94.5 ) 91.0 (96.3 )%
Total Commercial Gross Profit $ 88.8 $ (47.4 ) $ 136.2 287.3 %
Lease type contracts. Gross profit increased $36.6 million , or 321.1%, to $25.2
million for the nine months ended September 30, 2021 , compared to a loss of
$11.4 million for the nine months ended September 30, 2020 . Gross profit
percentage increased to 17.2% for the nine months ended September 30, 2021 ,
compared to negative 8.0% for the nine months ended September 30, 2020 . Gross
profit increased primarily due higher cost concessions of $12.1 million related
to service concessions and increases in transient revenue as noted above, as
well as decreases in variable rent and overall net operating costs and
conversions, partially offset by lower cost concessions related to rent
concessions of $3.9 million .
Management type contracts. Gross profit increased $8.6 million , or 14.7%, to
$67.1 million for the nine months ended September 30, 2021 , compared to $58.5
million for the nine months ended September 30, 2020 . Gross profit percentage
increased to 40.4% for the nine months ended September 30, 2021 , compared to
36.0% for the nine months ended September 30, 2020 . Gross profit increased
primarily due to a decrease in overall net operating costs, an increase in
volume based management type contracts as noted above and conversions, partially
offset by expired business.
Aviation segment: Services Revenue
Nine Months Ended Variance
(millions) (unaudited) September 30, 2021 September 30, 2020 Amount %
Lease type contracts $ 6.2 $ 7.5 $ (1.3 ) (17.3 )%
Management type contracts 106.6 111.4 (4.8 ) (4.3 )%
Total Aviation Revenue $ 112.8 $ 118.9 $ (6.1 ) (5.1 )%
Lease type contracts. Revenue decreased $1.3 million , or 17.3%, to $6.2 million
for the nine months ended September 30, 2021 , compared to $7.5 million for the
nine months ended September 30, 2020 , primarily due to lower cost concessions of
$15.4 million related to service concessions and conversions, partially offset
by an increase in transient revenue as a result of improving business conditions
as compared to the nine months ended September 30, 2020 , which was significantly
impacted by COVID-19.
Management type contracts. Revenue decreased $4.8 million , or 4.3%, to $106.6
million for the nine months ended September 30, 2021 , compared to $111.4 million
for the nine months ended September 30, 2020 , primarily due to the $5.6 million
of termination fees received during the nine months ended September 30, 2020
related to certain terminated contracts, partially offset by an increase in
volume based management type contracts as a result of improving business
conditions as compared to the nine months ended September 30, 2020 , which was
significantly impacted by COVID-19, and conversions.
Aviation segment: Gross Profit
Nine Months Ended Variance
(millions) (unaudited) September 30, 2021 September 30, 2020 Amount %
Lease type contracts $ 2.4 $ 0.3 $ 2.1 700.0 %
Management type contracts 24.7 30.0 (5.3 ) (17.7 )%
Lease impairment (0.1 ) - (0.1 ) (100.0 )%
Total Aviation Gross Profit $ 27.0 $ 30.3 $ (3.3 ) (10.9 )%
Lease type contracts. Gross profit increased $2.1 million , or 700.0%, to $2.4
million for the nine months ended September 30, 2021 , compared to gross profit
of $0.3 million for the nine months ended September 30, 2020 . Gross profit
percentage increased to 38.7% for the nine months ended September 30, 2021 ,
compared to 4.0% for the nine months ended September 30, 2020 . Gross profit
increased primarily due to conversions, a decrease in compensation, benefits and
overall net operating costs and an increase in transient revenue as noted above,
partially offset by lower cost concessions of $15.4 million related to service
concessions.
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Management type contracts. Gross profit decreased$5.3 million , or 17.7%, to$24.7 million for the nine months endedSeptember 30, 2021 , compared to$30.0 million for the nine months endedSeptember 30, 2020 . Gross profit percentage decreased to 23.2% for the nine months endedSeptember 30, 2021 , compared to 26.9% for the nine months endedSeptember 30, 2020 . Gross profit decreased primarily due to the$5.6 million of termination fees received during the nine months endedSeptember 30, 2020 related to certain terminated contracts, partially offset by a decrease in compensation, benefits and overall net operating costs and an increase in volume based management type contracts as noted above. "Other" segment "Other" consists of ancillary revenue and costs and certain unallocated items, such as and including certain insurance reserve adjustments and other corporate items. Total service revenue in "Other" was$5.9 million for the nine months endedSeptember 30, 2021 and 2020. Gross profit for "Other" decreased$0.5 million , or 3.2%, to$15.0 million for the nine months endedSeptember 30, 2021 , compared to$15.5 million for the nine months endedSeptember 30, 2020 .
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 meet these 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, joint ventures, capital expenditures, cost of contracts, distributions to noncontrolling interests, share repurchases and payments on our outstanding indebtedness. As ofSeptember 30, 2021 , we had$17.9 million of cash and cash equivalents and$145.3 million of borrowing availability under our Senior Credit Facility (as defined below). COVID-19 and the resulting global disruptions have negatively affected the global economy as well as our business and the businesses of our customers and clients. The full impact of COVID-19 on our business and the businesses of our customers and clients is unknown and highly unpredictable and could continue beyond the containment of COVID-19. In order to lessen the impacts from COVID-19, we have taken actions to improve our liquidity, including, without limitation, reducing operating expenses and capital expenditures, suspending repurchases of our common stock and maximizing the NOL on our 2020 tax return in order to carry back the loss to previous years that had a higher tax rate. Based on these actions and our expectations regarding the impact of COVID-19, we believe we will be able to generate sufficient liquidity to satisfy our obligations and remain in compliance with our existing debt covenants for the next twelve months.
Outstanding Indebtedness
On
•
•
Senior Secured Credit Facility ("Senior Credit Facility")
OnFebruary 16, 2021 (the "Fourth Amendment Effective Date"), we entered into a fourth amendment (the "Fourth Amendment") to our credit agreement (as amended prior to the Fourth Amendment Effective Date (as defined below), the "Credit Agreement"). Prior to the Fourth Amendment Effective Date and pursuant to the third amendment (the "Third Amendment") to the Credit Agreement, which was entered into onMay 6, 2020 , the Senior Credit Facility permitted aggregate borrowings of$595.0 million consisting of (i) a revolving credit facility of up to$370.0 million at any time outstanding, which includes a letter of credit facility that is limited to$100.0 million at any time outstanding, and (ii) a term loan facility of$225.0 million (the entire principal amount of which we drew onNovember 30, 2018 ). Pursuant to the Credit Agreement as amended by the Fourth Amendment (the "Amended Credit Agreement"), the aggregate commitments under the revolving credit facility decreased by$45.0 million to$325.0 million . Borrowings under the Senior Credit Facility bear interest, at our option, at a rate per annum based on our 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 (i) the applicable pricing levels set forth in the Credit Agreement (the "Applicable Margin") for London Interbank Offered Rate ("LIBOR") loans, subject to a "floor" on LIBOR of 1.00%, or a comparable or successor rate to LIBOR approved byBank of America , plus the applicable LIBOR rate, or (ii) the Applicable Margin for base rate loans plus the highest of (x) the federal funds rate plus 0.5%, (y) theBank of America prime rate and (z) a daily rate equal to the applicable LIBOR rate plus 1.0%, except that the Fourth Amendment provided that, for the period fromMay 6, 2020 until the date on which we deliver a compliance certificate for the fiscal quarter endingJune 30, 2022 , (i) the interest rate applicable to both the term loan and revolving credit facilities was fixed at LIBOR plus 2.75% per annum and (ii) the per annum rate applicable to unused revolving credit facility commitments was fixed at 0.375% (the "Fixed Margin Rates"). 35
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Also pursuant to the Fourth Amendment, (a) we were subject to a Minimum Liquidity test (as described in the Amended Credit Agreement) that required us to have liquidity of at least$40.0 million at each ofMarch 31, 2021 andJune 30, 2021 , and (b) we are subject to a requirement that, at any time cash on hand exceeds$40.0 million for a period of three consecutive business days, we must repay revolving loans in an amount equal to such excess. Certain other negative and financial covenants were amended, which included restrictions on certain Investments, Permitted Acquisitions, Restricted Payments and Prepayments of Subordinated Debt (each as defined in the Amended Credit Agreement), through the delivery of the compliance certificate for the fiscal quarters endingMarch 31, 2022 orJune 30, 2022 , as applicable. Under the terms of the Fourth Amendment, the maximum consolidated debt to EBITDA ratio was waived for each of the quarters endingMarch 31, 2021 andJune 30, 2021 . Starting with the quarter endedSeptember 30, 2021 , we are required to maintain a maximum consolidated total debt to EBITDA ratio (as calculated in accordance with the Fourth Amendment) of not greater than 5.25:1.0 (with certain step-downs described in the Amended Credit Agreement). As ofSeptember 30, 2021 , we were required to maintain a minimum consolidated fixed coverage ratio of not less than 2.6:1:0 (with certain step-ups described in the Amended Credit Agreement).
During the nine months ended
Under the terms of the Amended Credit Agreement, term loans under the Senior Credit Facility are subject to scheduled quarterly payments of principal in installments equal to 1.875% of the initial aggregate principal amount of such term loan.
Events of default under the Amended 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 other loan documents, the occurrence of a change of control event, and bankruptcy and other insolvency events.
Each of our wholly owned domestic subsidiaries (subject to certain exceptions set forth in the Amended Credit Agreement) has guaranteed all existing and future indebtedness and liabilities of the other guarantors and the Company arising under the Credit Agreement. Our obligations under the Credit Agreement and such domestic subsidiaries' guaranty obligations are secured by substantially all of their respective assets. The Senior Credit Facility matures onNovember 30, 2023 . The proceeds from the Senior Credit Facility may be used to finance working capital, capital expenditures and acquisitions, as well as for other general corporate purposes. The Amended Credit Agreement did not change the guarantors, collateral, maturity date or permitted uses of proceeds, except as otherwise described above. As ofSeptember 30, 2021 , we had$47.7 million letters of credit outstanding under the Senior Credit Facility and borrowings against the Senior Credit Facility were$323.2 million (excluding debt discount of$0.6 million and deferred financing costs of$1.7 million ). As ofSeptember 30, 2021 , we were in compliance with the covenants under the Amended Credit Agreement, and we had$145.3 million of borrowing availability under the Senior Credit Facility.
Stock Repurchases
On
InJuly 2019 , our Board of Directors (the "Board") authorized us to repurchase, on the open market, shares of our outstanding common stock in an amount not to exceed$50.0 million in aggregate. Under this program, we have repurchased 393,975 shares of common stock at an average price of$38.78 during the nine months endedSeptember 30, 2020 . InMarch 2020 , the Board authorized a new program to repurchase, on the open market, shares of our outstanding common stock in an amount not to exceed$50.0 million in aggregate. We have yet to repurchase shares under this program.
Since commencement, under all three programs, we have repurchased 2,034,742
shares of common stock through
(millions) September 30, 2021
Total authorized repurchase amount $ 100.0
Total value of shares repurchased 40.6
Total remaining authorized repurchase amount $ 59.4
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 according to 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. In addition, our clients may require
segregated bank accounts for the receipts and disbursements at locations. 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.
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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 accounts. For all of these reasons, from time to time, we carry a significant cash balance, while also utilizing our Senior Credit Facility.
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