SP+(SP) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides a comprehensive overview of the company's financial performance, condition, and related disclosures for the reporting period Item 1. Financial Statements This section presents the company's unaudited condensed consolidated financial statements, including the balance sheets, statements of income, comprehensive income, stockholders' equity, and cash flows, along with detailed notes explaining significant accounting policies, recent acquisitions, lease obligations, revenue recognition, legal contingencies, intangible assets, goodwill, borrowing arrangements, stock repurchase programs, stock-based compensation, earnings per share, comprehensive income components, and segment information Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheets (millions): | Item | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $1,146.3 | $1,121.4 | | Total Liabilities | $904.9 | $895.7 | | Total Stockholders' Equity | $241.4 | $225.7 | | Cash and cash equivalents | $24.6 | $12.4 | | Accounts receivable, net | $179.0 | $167.7 | Condensed Consolidated Statements of Income This section outlines the company's revenues, expenses, and net income over specific periods, reflecting operational profitability Condensed Consolidated Statements of Income (millions, except per share data): | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total services revenue | $442.2 | $381.0 | $867.5 | $730.8 | | Operating income | $25.3 | $25.6 | $44.6 | $45.7 | | Interest expense | $7.3 | $3.5 | $14.1 | $8.3 | | Net income attributable to SP Plus Corporation | $12.3 | $15.4 | $20.7 | $26.1 | | Diluted Net income per common share | $0.62 | $0.72 | $1.04 | $1.22 | - Net income attributable to SP Plus Corporation decreased by 20.1% for the three months ended June 30, 2023, and by 20.7% for the six months ended June 30, 2023, compared to the prior year periods[9] - Interest expense significantly increased by 108.6% for the three months and 69.9% for the six months ended June 30, 2023, compared to the prior year periods[9] Condensed Consolidated Statements of Comprehensive Income This section reports net income and other comprehensive income items, providing a complete view of changes in equity from non-owner sources Condensed Consolidated Statements of Comprehensive Income (millions): | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net income | $13.3 | $16.3 | $22.6 | $27.6 | | Foreign currency translation gain (loss) | $0.5 | $(0.2) | $0.7 | $(0.1) | | Comprehensive income attributable to SP Plus Corporation | $12.8 | $15.3 | $21.4 | $26.5 | - Comprehensive income attributable to SP Plus Corporation decreased by 16.4% for the three months and 19.2% for the six months ended June 30, 2023, compared to the prior year periods[11] Condensed Consolidated Statements of Stockholders' Equity This section details changes in the company's equity accounts, including net income, stock repurchases, and stock-based compensation Changes in Stockholders' Equity (millions, except share data): | Item | Balance at January 1, 2023 | Net Income (6 months) | Repurchases of Common Stock (6 months) | Non-cash Stock-Based Compensation (6 months) | Balance at June 30, 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Stockholders' Equity | $225.7 | $20.7 | $(10.5) | $4.8 | $241.4 | - Total stockholders' equity increased by $15.7 million from January 1, 2023, to June 30, 2023, primarily driven by net income and non-cash stock-based compensation, partially offset by common stock repurchases[13] Condensed Consolidated Statements of Cash Flows This section summarizes cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows (millions): | Activity | Six Months Ended June 30, 2023 | Six Months Ended 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) | | Net increase (decrease) in cash and cash equivalents | $12.2 | $(1.1) | | Cash and cash equivalents at end of period | $24.6 | $14.6 | - Net cash provided by operating activities decreased by 41.2% for the six months ended June 30, 2023, compared to the prior year[14] - Financing activities shifted from a net cash outflow of $26.0 million in 2022 to a net inflow of $4.7 million in 2023[14] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements 1. Significant Accounting Policies and Practices This section describes the key accounting principles and methods used in preparing the financial statements - The Company develops and integrates technology with operations management to deliver mobility solutions, primarily through contractual agreements with property owners/managers rather than owning facilities[16][103] - Financial statements are prepared in accordance with U.S. GAAP for interim financial information, consolidating wholly-owned subsidiaries and Variable Interest Entities (VIEs) where the Company is the primary beneficiary[17][19] - Goodwill is evaluated for impairment annually on October 1 or more often if circumstances change, at the reporting unit level (Commercial and Aviation segments)[32] 2. Acquisitions This section details recent business acquisitions, including their financial impact and strategic rationale - In October 2022, the Company acquired K M P Associates Limited (KMP), a UK-based software and technology provider, for approximately $13.8 million, included in the Aviation segment[38][100] - In November 2022, the Company acquired certain assets of DIVRT, Inc., a developer of frictionless parking technology, for approximately $17.6 million, with potential contingent consideration up to $7.0 million, included in the Commercial segment[39][101] Acquisitions Contribution (Six Months Ended June 30, 2023, millions): | Item | Amount | | :--- | :--- | | Services revenue | $3.2 | | Losses before income taxes | $1.7 | | (primarily due to amortization of acquired other intangible assets) | | 3. Leases This section provides information on the company's lease arrangements, including leased assets, liabilities, and associated costs Lease Components (millions): | Item | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total leased assets | $194.4 | $191.3 | | Total lease liabilities | $236.4 | $241.9 | Net Lease Cost (millions): | Period | June 30, 2023 | June 30, 2022 | | :--- | :--- | :--- | | Three Months Ended | $45.3 | $40.4 | | Six Months Ended | $84.1 | $76.6 | - Weighted-average remaining lease term for operating leases is 5.2 years with a weighted-average discount rate of 5.4% as of June 30, 2023[50] 4. Revenue This section explains the company's revenue recognition policies and provides a breakdown of remaining performance obligations - Revenue is recognized when control of promised goods or services is transferred to customers[52][53] - Lease-type contracts include gross receipts and fees, with the Company paying fixed/percentage rent[54] - Management-type contracts consist of management fees, with gross customer collections belonging to property owners[55] Remaining Performance Obligations (millions) as of June 30, 2023: | Year | Amount | | :--- | :--- | | 2023 | $40.5 | | 2024 | $58.8 | | 2025 | $37.2 | | 2026 | $28.6 | | 2027 | $17.1 | | 2028 and thereafter | $17.0 | | Total | $199.2 | 5. Legal and Other Commitments and Contingencies This section discloses ongoing legal matters, claims, and other potential liabilities that could affect the company's financial position - The Company is subject to claims and litigation in the normal course of business, including labor, contracts, and personal injury matters[64][182] - Management believes the final outcome of current claims and legal proceedings will not have a material adverse effect on its financial position, results of operations, or cash flows[64][182] - Accruals are recorded when a loss is probable and reasonably estimable, based on the lowest amount in the estimated range of loss if no point is more likely[183] 6. Other Intangible Assets, net This section details the company's intangible assets, such as contract rights and customer relationships, and their amortization Other Intangible Assets, Net (millions): | Item | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Other intangible assets, net | $63.5 | $68.9 | | - Management contract rights | $25.6 | $28.1 | | - Proprietary know how | $17.6 | $19.0 | | - Customer relationships | $17.1 | $18.2 | Amortization Expense (millions): | Period | June 30, 2023 | June 30, 2022 | | :--- | :--- | :--- | | Three Months Ended | $3.0 | $2.1 | | Six Months Ended | $6.0 | $4.9 | 7. Goodwill This section provides information on the company's goodwill, including its carrying amount and any impairment considerations Goodwill Carrying Amount (millions): | Segment | December 31, 2022 | June 30, 2023 | | :--- | :--- | :--- | | Commercial | $387.0 | $387.1 | | Aviation | $156.2 | $156.5 | | Total | $543.2 | $543.6 | - Goodwill increased slightly by $0.4 million from December 31, 2022, to June 30, 2023, primarily due to foreign currency translation[66] - The Aviation segment's goodwill includes $59.5 million in accumulated impairment losses[66] 8. Borrowing Arrangements This section outlines the company's debt structure, including senior credit facilities, other borrowings, and associated interest rates Long-Term Borrowings (millions): | Item | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Senior Credit Facility, net | $343.9 | $322.3 | | Other borrowings | $23.9 | $24.3 | | Total obligations | $365.7 | $344.2 | | Total long-term borrowings, excluding current portion | $352.2 | $331.8 | - The Senior Credit Facility permits aggregate borrowings of $600.0 million, with $345.0 million outstanding and $39.1 million in letters of credit as of June 30, 2023[69][70] - The weighted average interest rate on the Senior Credit Facility increased to 6.5% for the six months ended June 30, 2023, from 3.3% in the prior year[71] 9. Stock Repurchase Program This section describes the company's stock repurchase activities and the remaining authorization under its programs - The Board authorized a new $60.0 million stock repurchase program on February 14, 2023, under which no shares have been repurchased as of June 30, 2023[74] Stock Repurchase Activity (May 2022 Program, Six Months Ended June 30): | Item | 2023 | 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 million | $5.6 million | - As of June 30, 2023, $60.2 million remained authorized for repurchase under the combined May 2022 and February 2023 programs[77] 10. Stock-Based Compensation This section details the company's stock-based compensation plans, including grants, expense recognition, and unrecognized costs - The Company granted 18,660 shares of common stock and 126,931 restricted stock units (RSUs) during the six months ended June 30, 2023[78][79] Stock-Based Compensation Expense (millions): | Item | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Stock grants | $0.6 | $0.6 | | Restricted stock units | $1.4 | $2.5 | | Performance Share Units (PSUs) | $1.2 | $2.3 | | Total (approx.) | $3.2 | $5.4 | - As of June 30, 2023, there was $8.2 million of unrecognized RSU expense (weighted average remaining period: ~2.0 years) and $7.8 million of unrecognized PSU expense (weighted average remaining period: ~1.9 years)[80][82] 11. Net Income per Common Share This section presents the basic and diluted net income per common share, reflecting profitability on a per-share basis Net Income per Common Share: | Item | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Basic | $0.63 | $0.73 | $1.05 | $1.23 | | Diluted | $0.62 | $0.72 | $1.04 | $1.22 | - Diluted net income per common share decreased by 13.9% for the three months and 14.7% for the six months ended June 30, 2023, compared to the prior year periods[85] - Weighted average diluted common shares outstanding for the six months ended June 30, 2023, were 19,853,900, down from 21,347,442 in the prior year[85] 12. Comprehensive Income (Loss) This section reports components of other comprehensive income or loss, such as foreign currency translation adjustments Other Comprehensive Income (Loss) (millions): | Item | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Translation adjustments | $0.7 | $(0.1) | | De-designation of interest rate collars | — | $0.5 | | Other comprehensive income (loss) | $0.7 | $0.4 | - Accumulated other comprehensive loss improved from $(1.8) million at December 31, 2022, to $(1.1) million at June 30, 2023, primarily due to positive foreign currency translation adjustments[86] 13. Segment Information This section provides financial data for the company's operating segments, Commercial and Aviation, to assess their performance - The Company operates in two reportable segments: Commercial and Aviation, with an 'Other' segment for operational support and shared infrastructure costs[91][92] - The Chief Operating Decision Maker (CODM) assesses segment performance primarily using operating income[90] Services Revenue by Segment (millions): | Segment | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Commercial | $147.6 | $132.9 | $292.0 | $264.1 | | 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 | 14. Subsequent Event This section discloses significant events that occurred after the reporting period but before the financial statements were issued - On July 25, 2023, the Company acquired certain assets of Roker Inc., a US-based provider of fully-integrated parking solutions, for approximately $3.1 million[95] - The acquisition was funded using borrowings under the Senior Credit Facility and cash on hand[95] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for the three and six months ended June 30, 2023. It covers an overview of the business, recent acquisitions, general business trends, detailed analysis of revenue, costs, and operating income by segment, and an assessment of liquidity and capital resources, including debt, stock repurchases, and cash flows Important Information Regarding Forward-Looking Statements This section provides cautionary statements regarding forward-looking information, highlighting inherent risks and uncertainties - This report contains forward-looking statements, identified by words like 'expect,' 'estimate,' 'intend,' etc., based on current expectations and projections[98] - Readers are cautioned that actual results may differ materially due to uncertainties and factors discussed in the company's Form 10-K and other SEC filings[98][99] - The company undertakes no obligation to update or revise any forward-looking statements, except as required by federal securities laws[99] Overview This section provides a high-level summary of the company's business model, recent strategic acquisitions, and general market trends Acquisitions This section details recent strategic acquisitions aimed at enhancing the company's technology solutions and market presence - The company acquired KMP (Oct 2022) and DIVRT (Nov 2022) to enhance its frictionless technology solutions, and Roker Inc. (July 2023) as a subsequent event[100][101][102] - KMP, a UK-based software provider, was acquired for approximately $13.8 million, and DIVRT, a developer of frictionless parking capabilities, for approximately $17.6 million with potential contingent consideration[100][101] Our Business This section describes the company's core business model, service offerings, and operational arrangements with clients - The company delivers mobility solutions by integrating technology with operations management, serving aviation, commercial, hospitality, and institutional clients in North America and Europe[103] - Operations are primarily under two types of arrangements: management-type contracts (fixed/variable fees, client responsible for most expenses) and lease-type contracts (company pays rent, collects revenue, responsible for most operating expenses)[104][105] - Operating income is the primary focus for evaluating financial condition and operating performance, as revenue reporting differs significantly between contract types[106] General Business Trends This section discusses prevailing market trends and client behaviors influencing the company's service demand and operational strategies - Clients increasingly recognize technology-driven mobility solutions as profit generators and service differentiators, leading to outsourcing of these services[107] - The Commercial segment maintained a high client retention rate of approximately 94% for the twelve-month period ended June 30, 2023 (vs 91% in 2022)[107] Commercial Segment Facilities This section provides a quantitative overview of the number of leased and managed facilities within the Commercial segment Commercial Segment Facilities: | Type | June 30, 2023 | December 31, 2022 | 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 | - Total Commercial segment facilities increased by 126 from December 31, 2022, to June 30, 2023, primarily driven by growth in managed facilities[108] Aviation Segment - Airports Served This section details the number of airports served by the Aviation segment, broken down by geographical region Aviation Segment - Airports Served: | Region | June 30, 2023 | December 31, 2022 | June 30, 2022 | | :--- | :--- | :--- | :--- | | North America | 102 | 100 | 90 | | Europe | 58 | 58 | — | | Total Airports | 160 | 158 | 90 | - The number of airports served in the Aviation segment increased to 160 as of June 30, 2023, a significant rise from 90 airports at June 30, 2022, largely due to the KMP acquisition adding 65 unique airports in Europe[109] Revenue This section defines the various components of revenue recognized under different contract types and their recognition criteria - Revenue from lease-type contracts includes gross receipts (net of local taxes), consulting fees, e-commerce technology fees, and customer convenience fees[110] - Management-type contract revenue consists of management fees (fixed, variable, performance-based), e-commerce technology fees, monthly subscription fees, and ancillary services, but excludes gross customer collections[111][112] - Reimbursed management-type contract revenue represents direct reimbursement from clients for operating expenses incurred[113] Cost of Services (Exclusive of Depreciation and Amortization) This section explains the composition of costs directly associated with providing services under different contract arrangements - Cost of services for lease-type contracts includes contractual rents/fees paid to clients and all operating expenses for the leased facility[114] - For management-type contracts, expenses are generally the client's responsibility, but certain costs under 'reverse' management contracts and for other aviation/ancillary services are included in cost of services[115] - Reimbursed management-type contract expense consists of directly reimbursed costs incurred on behalf of a client[116] Gross Profit This section defines gross profit as revenue less the direct costs of services and related depreciation and amortization - Gross profit is calculated as revenue less the cost of generating such revenue (cost of services) and depreciation and amortization expenses related to cost of services activities[117] General and Administrative Expenses This section outlines the various corporate overhead expenses, including compensation, office costs, and acquisition-related charges - General and administrative expenses include salaries, wages, incentive compensation, stock-based compensation, payroll taxes, insurance, travel, office expenses, and acquisition-related expenses[118] Depreciation and Amortization This section describes the accounting policies for depreciating tangible assets and amortizing intangible assets over their useful lives - Depreciation is determined using a straight-line method over estimated useful lives of assets, or the lease term for leasehold improvements[119] - Intangible assets with finite lives, typically acquired through business acquisitions, are amortized over their remaining estimated useful lives[119] Operating Income This section defines operating income as a key metric for assessing the profitability of the company's core business operations - Operating income represents revenue less cost of services, general and administrative expenses, and depreciation and amortization[120] - It is the key metric used by the Chief Operating Decision Maker (CODM) for making decisions, assessing performance, and allocating resources to the Commercial and Aviation operating segments[120] Segments This section identifies the company's reportable operating segments and the types of services offered within each - The Company's operating segments are Commercial and Aviation, with an 'Other' segment for operational support teams and common infrastructure costs[121][122][123] - Commercial segment services include healthcare, municipalities, hotels, commercial real estate, and ancillary mobility solutions[122] - Aviation segment services include airports, airlines, baggage handling, and ground transportation[123] Analysis of Results of Operations This section provides a detailed comparative analysis of the company's financial performance for the current and prior reporting periods Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022 This section compares the company's consolidated and segment-specific financial results for the three-month periods ended June 30 Consolidated Results This section presents a consolidated overview of the company's financial performance, highlighting key revenue, expense, and income variances Consolidated Financial Highlights (Three Months Ended June 30, millions): | Item | 2023 | 2022 | Variance Amount | Variance % | | :--- | :--- | :--- | :--- | :--- | | Services revenue | $442.2 | $381.0 | $61.2 | 16.1% | | Cost of services (exclusive of D&A) | $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% | | Net income | $13.3 | $16.3 | $(3.0) | (18.4)% | - Services revenue increased due to continued recovery in travel, new business, and acquisitions ($1.1 million from management type contracts, $0.5 million from reimbursed management type contracts)[127] - Net income decreased primarily due to higher interest expense and increased general and administrative expenses, which included higher compensation, stock-based compensation, and restructuring/integration costs[128][129][130] Commercial Segment This section analyzes the financial performance of the Commercial segment, focusing on revenue, gross profit, and operating income Commercial Segment Highlights (Three Months Ended June 30, millions): | Item | 2023 | 2022 | Variance Amount | Variance % | | :--- | :--- | :--- | :--- | :--- | | Total services revenue | $147.6 | $132.9 | $14.7 | 11.1% | | Gross profit (Lease type contracts) | $13.0 | $13.6 | $(0.6) | (4.4)% | | Gross profit (Management type contracts) | $36.2 | $31.7 | $4.5 | 14.2% | | Operating income | $36.1 | $34.7 | $1.4 | 4.0% | - Lease type gross profit decreased due to a sublease reserve and lower rent concessions ($1.2 million in 2023 vs $1.5 million in 2022), partially offset by increased transient and monthly parking revenue[133] - Operating income increased by 4.0% despite higher general and administrative expenses and $0.4 million in amortization from the DIVRT acquisition[133][134] Aviation Segment This section analyzes the financial performance of the Aviation segment, focusing on revenue, gross profit, and operating income Aviation Segment Highlights (Three Months Ended June 30, millions): | Item | 2023 | 2022 | Variance Amount | Variance % | | :--- | :--- | :--- | :--- | :--- | | Total services revenue | $73.7 | $63.6 | $10.1 | 15.9% | | Gross profit (Lease type contracts) | $1.0 | $1.1 | $(0.1) | (9.1)% | | Gross profit (Management type contracts) | $15.7 | $12.4 | $3.3 | 26.6% | | Operating income | $9.6 | $8.5 | $1.1 | 12.9% | - Management type gross profit increased due to higher volume-based contracts, increased activity in other aviation services, acquisitions, and new business[139] - Operating income increased by 12.9% despite higher general and administrative expenses and $0.5 million in amortization from the KMP acquisition[136][137] Other Segment This section discusses the operating expenses and financial impact of the 'Other' segment, which includes corporate support functions - Operating expenses in the Other segment increased by $2.8 million (15.9%) to $20.4 million, driven by higher compensation, stock-based compensation, and investments in growth initiatives[138] - Increased integration, acquisition, restructuring, and other costs also contributed to the rise in expenses[138] Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022 This section compares the company's consolidated and segment-specific financial results for the six-month periods ended June 30 Consolidated Results This section presents a consolidated overview of the company's financial performance, highlighting key revenue, expense, and income variances Consolidated Financial Highlights (Six Months Ended June 30, millions): | Item | 2023 | 2022 | Variance Amount | Variance % | | :--- | :--- | :--- | :--- | :--- | | Services revenue | $867.5 | $730.8 | $136.7 | 18.7% | | Cost of services (exclusive of D&A) | $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% | | Net income | $22.6 | $27.6 | $(5.0) | (18.1)% | - Services revenue increased due to continued recovery in travel, new business, and acquisitions ($2.1 million from management type contracts, $1.1 million from reimbursed management type contracts)[143] - Net income decreased primarily due to significantly higher interest expense (up 69.9%) and increased general and administrative expenses (up 21.9%), which included higher compensation, stock-based compensation, and restructuring/integration costs[141][142][144] Commercial Segment This section analyzes the financial performance of the Commercial segment, focusing on revenue, gross profit, and operating income Commercial Segment Highlights (Six Months Ended June 30, millions): | Item | 2023 | 2022 | Variance Amount | Variance % | | :--- | :--- | :--- | :--- | :--- | | Total services revenue | $292.0 | $264.1 | $27.9 | 10.6% | | Gross profit (Lease type contracts) | $24.7 | $22.8 | $1.9 | 8.3% | | Gross profit (Management type contracts) | $67.5 | $60.2 | $7.3 | 12.1% | | Operating income | $67.3 | $63.3 | $4.0 | 6.3% | - Lease type gross profit increased despite lower cost concessions related to service concession arrangements and rent concessions ($2.5 million in 2023 vs $3.7 million in 2022)[150] - Operating income increased by 6.3% despite higher general and administrative expenses and $0.8 million in amortization from the DIVRT acquisition[148][149] Aviation Segment This section analyzes the financial performance of the Aviation segment, focusing on revenue, gross profit, and operating income Aviation Segment Highlights (Six Months Ended June 30, millions): | Item | 2023 | 2022 | Variance Amount | Variance % | | :--- | :--- | :--- | :--- | :--- | | Total services revenue | $145.6 | $116.8 | $28.8 | 24.7% | | Gross profit (Lease type contracts) | $2.3 | $2.5 | $(0.2) | (8.0)% | | Gross profit (Management type contracts) | $29.7 | $24.7 | $5.0 | 20.2% | | Operating income | $18.2 | $16.6 | $1.6 | 9.6% | - Management type gross profit increased due to new business, increased volume-based contracts, other aviation services, and acquisitions[156] - Operating income increased by 9.6% despite higher general and administrative expenses and $0.9 million in amortization from the KMP acquisition[153][154] Other Segment This section discusses the operating expenses and financial impact of the 'Other' segment, which includes corporate support functions - Operating expenses in the Other segment increased by $6.7 million (19.6%) to $40.9 million, driven by higher compensation, stock-based compensation, and investments in growth initiatives[155] - Increased integration, acquisition, restructuring, and other costs also contributed to the rise in expenses[155] Analysis of Financial Condition This section assesses the company's financial health, including liquidity, capital resources, indebtedness, and cash flow dynamics Liquidity and Capital Resources This section evaluates the company's ability to meet short-term and long-term obligations, including cash position and borrowing capacity - As of June 30, 2023, the Company had $24.6 million in cash and cash equivalents and $215.9 million of borrowing availability under its Senior Credit Facility[157] - Management believes the Company will generate sufficient liquidity to satisfy obligations and remain in compliance with debt covenants for the next twelve months, despite macroeconomic conditions[157] - The Company does not believe its banking partners are exposed to significant credit risk and has sufficient assets and liquidity to cover future obligations[158] Outstanding Indebtedness This section details the company's total debt, including senior credit facilities and other borrowings, and compliance with covenants - Total indebtedness increased by $21.5 million to $365.7 million as of June 30, 2023, comprising $341.8 million under the Senior Credit Facility and $23.9 million in other debt (including finance lease obligations)[159][166] - The weighted average interest rate on the Senior Credit Facility was 6.5% for the six months ended June 30, 2023, up from 3.3% in the prior year[161] - The Company was in compliance with its debt covenants under the Amended Credit Agreement as of June 30, 2023[159] Stock Repurchases This section describes the company's stock repurchase activities and the remaining authorization under its programs - The Board authorized a new $60.0 million stock repurchase program in February 2023, with no repurchases made under it as of June 30, 2023[162] Stock Repurchase Activity (May 2022 Program, Six Months Ended June 30): | Item | 2023 | 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 million | $5.6 million | - As of June 30, 2023, $60.2 million remained authorized for repurchase under the combined May 2022 and February 2023 programs[165] Daily Cash Collections This section explains the company's cash collection processes and the factors influencing intra-month and intra-year liquidity fluctuations - The Company collects significant daily cash from parking locations, with handling varying by contract type (lease vs management)[166] - Liquidity fluctuates intra-month and intra-year based on contract mix and timing of significant cash payments, often requiring the use of the Senior Credit Facility despite carrying significant cash balances[167][168] Summary of Cash Flows This section provides a high-level summary of cash flows from operating, investing, and financing activities Summary of Cash Flows (Six Months Ended June 30, millions): | Activity | 2023 | 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) | | Net increase (decrease) in cash and cash equivalents | $12.2 | $(1.1) | Operating Activities This section analyzes cash flows generated from or used in the company's primary business operations - Net cash provided by operating activities decreased to $21.0 million for the six months ended June 30, 2023, from $35.7 million in the prior year[170] - The decrease was primarily due to a $20.5 million U.S. Federal income tax refund received in 2022 and higher interest payments in 2023 ($13.6 million vs $7.8 million), partially offset by improved working capital[170] Investing Activities This section details cash flows related to the acquisition and disposal of long-term assets and investments - Net cash used in investing activities increased to $13.5 million for the six months ended June 30, 2023, from $10.7 million in the prior year[171] - This increase was mainly driven by higher purchases of property and equipment, primarily internal-use software ($11.3 million vs $9.1 million), and a $2.2 million noncontrolling interest buyout[171] Financing Activities This section explains cash flows associated with debt, equity, and dividend transactions - Net cash provided by financing activities was $4.7 million for the six months ended June 30, 2023, a significant increase from net cash used of $26.0 million in the prior year[172] - This shift was primarily due to increased borrowings on the Senior Credit Facility, which offset higher common stock repurchases ($11.1 million vs $4.9 million)[172] Cash and Cash Equivalents This section reports the total amount of cash and highly liquid investments held by the company at the end of the period - Cash and cash equivalents increased to $24.6 million as of June 30, 2023, from $12.4 million at December 31, 2022[173] Item 3. Quantitative and Qualitative Disclosures about Market Risk There have been no material changes in the company's primary risk exposures or management of market risks from those disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022 - No material changes in primary risk exposures or market risk management since the 2022 Annual Report on Form 10-K[174] Item 4. Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures, confirming their effectiveness as of June 30, 2023. It also states that there have been no significant changes in internal control over financial reporting during the quarter and acknowledges the inherent limitations of any control system Evaluation of Disclosure Controls and Procedures - Management, including the CEO, CFO, and Corporate Controller, concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, at a reasonable assurance level[175][178] - Disclosure controls are designed to ensure timely recording, processing, summarizing, and reporting of information required in SEC filings[176][177] Changes in Internal Control Over Financial Reporting - There have been no significant changes in the company's internal control over financial reporting during the quarter ended June 30, 2023, that materially affected or are reasonably likely to materially affect these controls[179] Inherent limitations of the Effectiveness of Internal Control - A control system, regardless of its design, can provide only reasonable, not absolute, assurance that its objectives are met[180] - Due to inherent limitations, no evaluation of controls can provide absolute assurance that all control issues have been detected[180] PART II. OTHER INFORMATION This section contains additional information not covered in the financial statements, including legal proceedings and risk factors Item 1. Legal Proceedings The company is involved in routine claims and litigation, including labor, contract, and personal injury matters, some potentially class actions. While outcomes are uncertain, management believes these will not materially impact financial position, results, or cash flows. Accruals are made for probable and estimable losses, with disclosures for material reasonably possible losses - The Company is subject to claims and litigation in the normal course of business, including those related to labor and employment, contracts, and personal injury[182] - Management believes the final outcome of these proceedings will not have a material adverse effect on the Company's financial position, results of operations, or cash flows[182] - Accruals are made when a loss is probable and reasonably estimable, recording the lowest amount in the estimated range of loss if no point is more likely[183] Item 1A. Risk Factors Investors should carefully consider the risk factors discussed in the company's Annual Report on Form 10-K for December 31, 2022, and subsequent SEC filings. There have been no material changes to these risk factors since the last 10-K, but new risks can emerge and their impact is unpredictable - Investors should carefully consider risk factors discussed in the Annual Report on Form 10-K for December 31, 2022, and subsequent SEC filings[184] - There have been no material changes to the risk factors set forth in the 2022 Form 10-K[184] - New risks could emerge at any time, and their extent and impact on financial performance cannot be predicted[184] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable to the company for the reporting period - Not applicable[186] Item 3. Defaults Upon Senior Securities This item is not applicable to the company for the reporting period - Not applicable[187] Item 4. Mine Safety Disclosures This item is not applicable to the company for the reporting period - Not applicable[188] Item 5. Other Information This item is not applicable to the company for the reporting period - Not applicable[189] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to corporate documents, Section 302 and 906 certifications, and Inline XBRL documents - Exhibits include Certificate of Amendment to the Second Amended and Restated Certificate of Incorporation and Amendment to Fourth Amended and Restated Bylaws[191] - Section 302 Certifications from the Chairman and CEO, CFO, and Corporate Controller are filed herewith[191] - Certification pursuant to 18 USC Section 1350 (Section 906 of Sarbanes-Oxley Act) and Inline XBRL documents are furnished/filed herewith[191] Signatures This section contains the official signatures of the company's principal executive and financial officers, certifying the accuracy of the report - The report was signed on August 3, 2023, by G Marc Baumann (Chairman and Chief Executive Officer), Kristopher H. Roy (Chief Financial Officer), and Gary T. Roberts (Senior Vice President, Corporate Controller and Assistant Treasurer)[194]