SP+(SP) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements of SP Plus Corporation, including the balance sheets, statements of income, comprehensive income, stockholders' equity, and cash flows, along with detailed notes on significant accounting policies, acquisitions, leases, revenue recognition, and segment information for the periods ended September 30, 2023 and 2022 Condensed Consolidated Balance Sheets | Metric | September 30, 2023 (millions) | December 31, 2022 (millions) | Change (millions) | % Change | | :-------------------------------- | :----------------------------- | :----------------------------- | :---------------- | :------- | | Cash and cash equivalents | $38.5 | $12.4 | $26.1 | 210.5% | | Total current assets | $236.0 | $196.8 | $39.2 | 19.9% | | Total assets | $1,168.3 | $1,121.4 | $46.9 | 4.2% | | Total current liabilities | $342.7 | $343.6 | $(0.9) | (0.3%) | | Total liabilities | $916.2 | $895.7 | $20.5 | 2.3% | | Total stockholders' equity | $252.1 | $225.7 | $26.4 | 11.7% | Condensed Consolidated Statements of Income | Metric (millions) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total services revenue | $460.7 | $404.4 | $1,328.2 | $1,135.2 | | Total cost of services | $393.1 | $346.2 | $1,136.4 | $966.8 | | General and administrative expenses | $37.6 | $27.2 | $100.0 | $78.4 | | Depreciation and amortization | $9.0 | $7.2 | $26.2 | $20.5 | | Operating income | $21.0 | $23.8 | $65.6 | $69.5 | | Interest expense | $7.4 | $3.9 | $21.5 | $12.2 | | Net income attributable to SP Plus Corporation | $9.2 | $14.3 | $29.9 | $40.4 | | Basic EPS | $0.47 | $0.69 | $1.52 | $1.92 | | Diluted EPS | $0.46 | $0.68 | $1.50 | $1.90 | Condensed Consolidated Statements of Comprehensive Income | Metric (millions) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income | $10.1 | $15.1 | $32.7 | $42.7 | | Foreign currency translation loss | $(0.9) | $(0.6) | $(0.2) | $(0.7) | | Comprehensive income attributable to SP Plus Corporation | $8.3 | $13.7 | $29.7 | $40.2 | Condensed Consolidated Statements of Stockholders' Equity | Metric (millions) | Balance at Jan 1, 2023 | Net Income | Foreign Currency Translation | Issuance of Restricted Stock Units | Non-cash Stock-based Compensation | Noncontrolling Interests Buyout | Repurchases of Common Stock | Distributions to Noncontrolling Interests | Balance at Sep 30, 2023 | | :-------------------------------- | :--------------------- | :--------- | :--------------------------- | :--------------------------------- | :-------------------------------- | :------------------------------ | :-------------------------- | :---------------------------------------- | :------------------------ | | Additional Paid-In Capital | $274.2 | — | — | $(0.4) | $5.5 | $(0.7) | — | — | $281.1 | | Retained Earnings | $73.6 | $29.9 | — | — | — | — | — | — | $103.5 | | Treasury Stock | $(120.0) | — | — | — | — | — | $(10.5) | — | $(130.5) | | Total Stockholders' Equity | $225.7 | $29.9 | $(0.2) | $(0.4) | $5.5 | $(0.7) | $(10.5) | $(2.5) | $252.1 | Condensed Consolidated Statements of Cash Flows | Activity (millions) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------- | :----------------------------- | :----------------------------- | | Operating activities | $53.5 | $75.6 | | Investing activities | $(22.4) | $(18.1) | | Financing activities | $(4.5) | $(54.1) | | Effect of exchange rate changes | $(0.5) | $(0.7) | | Increase in cash and cash equivalents | $26.1 | $2.7 | | Cash and cash equivalents at end of period | $38.5 | $18.4 | Notes to Condensed Consolidated Financial Statements 1. Significant Accounting Policies and Practices This section outlines the company's core business, basis of financial statement presentation, principles of consolidation, and accounting policies for key balance sheet items like cash, accounts receivable, property and equipment, equity investments, and intangible assets. It also details the treatment of noncontrolling interests and foreign operations - The Company provides mobility solutions integrating technology with operations management, serving aviation, commercial, hospitality, and institutional clients in North America and Europe, primarily operating through contractual agreements with property owners rather than owning facilities[19][112][113] - Consolidated Variable Interest Entities (VIEs) assets were $58.1 million as of September 30, 2023, and liabilities were $45.9 million, primarily related to ROU assets and lease liabilities[22] - The allowance for doubtful accounts was $4.6 million as of September 30, 2023, an increase from $4.0 million at December 31, 2022[24] - Equity earnings from unconsolidated entities (6 partnerships/joint ventures) decreased significantly, from $2.5 million to $0.7 million for the three months ended September 30, 2023, and from $4.0 million to $2.0 million for the nine months ended September 30, 2023[29] 2. Acquisitions This note details the company's acquisition activities, including the 2023 acquisition of Roker Inc. and the 2022 acquisitions of K M P Associates Limited and DIVRT, Inc., outlining their strategic rationale, financial impact, and purchase price allocations - On July 25, 2023, the Company acquired Roker Inc., a US-based provider of integrated parking solutions, for approximately $3.1 million, enhancing frictionless technology solutions and contributing $0.1 million in service revenue and $0.1 million in losses before income taxes for the three and nine months ended September 30, 2023[41][42][43] - The 2022 acquisitions of KMP and DIVRT contributed $1.5 million and $4.7 million in services revenue and losses before income taxes of $0.9 million and $2.6 million for the three and nine months ended September 30, 2023, respectively, primarily due to amortization of acquired intangible assets[49] | Acquired Intangible Assets (millions) | Estimated Life | Fair Value (2023 Roker) | Fair Value (2022 KMP/DIVRT) | | :------------------------------------ | :------------- | :---------------------- | :-------------------------- | | Proprietary know how | 8.0 Years | $2.1 | $17.3 | | Customer relationships | 5.4 Years | $0.2 | $3.2 | | Trade names | N/A | N/A | $1.8 | | Covenant not to compete | N/A | N/A | $1.2 | | Total Identified Intangible Assets | | $2.3 | $23.5 | 3. Leases This section details the company's lease arrangements for parking facilities, office space, and equipment, distinguishing between operating and finance leases, and provides a breakdown of lease assets, liabilities, costs, and maturities | Lease Metric (millions) | September 30, 2023 | December 31, 2022 | | :---------------------- | :----------------- | :---------------- | | Operating ROU assets | $173.7 | $166.9 | | Finance leased assets | $24.1 | $24.4 | | Total leased assets | $197.8 | $191.3 | | Short-term lease liabilities | $56.4 | $60.2 | | Long-term lease liabilities | $154.9 | $158.5 | | Total lease liabilities | $234.3 | $241.9 | | Lease Cost (millions) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Operating lease cost | $42.6 | $39.1 | $122.8 | $112.5 | | Finance lease cost | $2.0 | $1.7 | $5.9 | $4.9 | | Net lease cost | $44.6 | $40.8 | $128.7 | $117.4 | - The weighted-average remaining lease term for operating leases is 5.1 years, and for finance leases is 4.1 years, both with a weighted-average discount rate of 5.4% as of September 30, 2023[57] 4. Revenue This section details the company's revenue recognition policies, categorizing revenue into management type and lease type contracts, and provides information on service concession arrangements, disaggregation of revenue, remaining performance obligations, and contract balances - The Company recognizes revenue when control of promised goods or services is transferred to customers, primarily from management type and lease type contracts[59][60] - As of September 30, 2023, the Company had $198.3 million in remaining performance obligations expected to be recognized as revenue in future periods, with $21.1 million in 2023 and $64.2 million in 2024[66][68] | Contract Balances (millions) | September 30, 2023 | December 31, 2022 | | :--------------------------- | :----------------- | :---------------- | | Accounts receivable | $189.0 | $169.9 | | Contract asset | $0.0 | $1.8 | | Contract liabilities | $(15.3) | $(17.4) | 5. Legal and Other Commitments and Contingencies This section states that the company is involved in various legal claims and litigation in the normal course of business, but believes the outcomes will not have a material adverse effect on its financial position, results of operations, or cash flows - The Company is subject to claims and litigation, including labor, employment, contracts, and personal injury, but believes the final outcome will not materially adversely affect its financial position, results of operations, or cash flows[72] 6. Other Intangible Assets, net This note provides a breakdown of the company's other intangible assets, net, including their weighted average lives, gross amounts, accumulated amortization, and net carrying values, as well as related amortization expense | Intangible Asset (millions) | Weighted Average Life (Years) | Net (Sep 30, 2023) | Net (Dec 31, 2022) | | :-------------------------- | :---------------------------- | :----------------- | :----------------- | | Management contract rights | 5.8 | $24.3 | $28.1 | | Proprietary know how | 6.5 | $18.6 | $19.0 | | Customer relationships | 7.8 | $16.7 | $18.2 | | Trade names and trademarks | 12.3 | $1.8 | $2.1 | | Covenant not to compete | 3.5 | $0.9 | $1.5 | | Total other intangible assets, net | 6.7 | $62.3 | $68.9 | | Amortization Expense (millions) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Amortization expense | $3.0 | $2.1 | $9.0 | $7.0 | 7. Goodwill This note details the changes in the carrying amount of goodwill, segmented by Commercial and Aviation, for the nine months ended September 30, 2023, including additions from acquisitions and foreign currency translation adjustments | Goodwill (millions) | Commercial | Aviation | Total | | :------------------ | :--------- | :------- | :---- | | Net book value as of Dec 31, 2022 | $387.0 | $156.2 | $543.2 | | Acquisition | $0.9 | — | $0.9 | | Foreign currency translation | — | $0.1 | $0.1 | | Net book value as of Sep 30, 2023 | $387.9 | $156.3 | $544.2 | 8. Borrowing Arrangements This note outlines the company's long-term borrowing arrangements, primarily its Senior Credit Facility, and provides details on outstanding amounts, interest rates, and compliance with debt covenants | Borrowing (millions) | September 30, 2023 | December 31, 2022 | | :------------------- | :----------------- | :---------------- | | Senior Credit Facility, net | $337.7 | $322.3 | | Other borrowings | $24.1 | $24.3 | | Deferred financing costs | $(2.0) | $(2.4) | | Total obligations | $359.8 | $344.2 | | Less: Current portion | $(14.7) | $(12.4) | | Total long-term borrowings, excluding current portion | $345.1 | $331.8 | - The Senior Credit Facility permits aggregate borrowings of $600.0 million, with a revolving credit facility of up to $400.0 million and a term loan facility of $200.0 million, maturing on April 21, 2027[76] - The weighted average interest rate on the Senior Credit Facility increased to 6.7% for the nine months ended September 30, 2023, from 4.6% in the prior year, reflecting rising interest rates[78] 9. Stock Repurchase Program This note details the company's stock repurchase programs, including authorizations by the Board of Directors in February 2023 and May 2022, and the actual repurchase activity for common stock - The Board authorized a $60.0 million stock repurchase program on February 14, 2023, under which no shares have been repurchased[80] - Under the May 2022 program, 285,700 shares were repurchased for $10.4 million during the nine months ended September 30, 2023, at an average price of $36.53 per share, with $0.2 million remaining available as of September 30, 2023[81][82] - The Company is restricted from repurchasing common stock starting October 4, 2023, as a condition of the Merger Agreement[82] 10. Stock-Based Compensation This note describes the company's stock-based compensation plans, including stock grants, restricted stock units (RSUs), and performance share units (PSUs, detailing the number of shares granted, vesting schedules, and recognized compensation expenses - The Company granted 18,660 shares of common stock to the Board during the nine months ended September 30, 2023, recognizing $0.6 million in compensation expense[85] - 126,931 restricted stock units were granted to executives during the nine months ended September 30, 2023, vesting over three years, with unrecognized RSU compensation expense of $6.9 million as of September 30, 2023, to be recognized over approximately 1.8 years[86][87] - 126,921 Performance Share Units (PSUs) were granted to executives during the nine months ended September 30, 2023, with performance targets based on operating income over a three-year period, and unrecognized PSU compensation expense of $6.7 million as of September 30, 2023, with potential additional expense of $4.1 million for 2023 PSUs if maximum targets are met[88][90] 11. Net Income per Common Share This note provides the computation of basic and diluted net income per common share, along with a reconciliation of weighted average common shares outstanding, for the three and nine months ended September 30, 2023 and 2022 | EPS Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income attributable to SP Plus Corporation (millions) | $9.2 | $14.3 | $29.9 | $40.4 | | Basic weighted average common shares outstanding | 19,649,611 | 20,744,813 | 19,660,930 | 21,054,095 | | Diluted weighted average common shares outstanding | 19,910,308 | 20,977,667 | 19,874,165 | 21,223,982 | | Basic EPS | $0.47 | $0.69 | $1.52 | $1.92 | | Diluted EPS | $0.46 | $0.68 | $1.50 | $1.90 | 12. Comprehensive Loss This note details the components of other comprehensive loss, primarily foreign currency translation adjustments, and their impact on accumulated other comprehensive loss for the nine months ended September 30, 2023 and 2022 | Component (millions) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------- | :----------------------------- | :----------------------------- | | Translation adjustments | $(0.2) | $(0.7) | | De-designation of interest rate collars | — | $0.5 | | Total other comprehensive loss, net of tax | $(0.2) | $(0.2) | - Accumulated other comprehensive loss increased from $(1.8) million at December 31, 2022, to $(2.0) million at September 30, 2023, primarily due to foreign currency translation adjustments[94] 13. Segment Information This note provides financial information disaggregated by the company's operating segments: Commercial and Aviation, along with an 'Other' segment for corporate support costs, detailing revenue, operating income, and general and administrative expenses for each segment - The Company's operating segments are Commercial (healthcare, municipalities, hotels, etc.) and Aviation (airports, airlines, baggage services), with the 'Other' segment including operational support and shared infrastructure costs[98][99] | Segment Revenue (millions) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Commercial | $146.5 | $136.8 | $438.5 | $400.9 | | Aviation | $81.9 | $70.3 | $227.5 | $187.1 | | Reimbursed management type contract revenue | $232.3 | $197.3 | $662.2 | $547.2 | | Total services revenue | $460.7 | $404.4 | $1,328.2 | $1,135.2 | | Segment Operating Income (millions) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :---------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Commercial | $35.7 | $32.4 | $103.0 | $95.7 | | Aviation | $10.6 | $9.7 | $28.8 | $26.3 | | Other | $(25.3) | $(18.3) | $(66.2) | $(52.5) | | Total operating income | $21.0 | $23.8 | $65.6 | $69.5 | 14. Subsequent Event This note discloses a significant subsequent event: the company entered into a definitive merger agreement to be acquired by Metropolis Technologies, Inc. for approximately $1.5 billion in an all-cash transaction - On October 4, 2023, SP Plus Corporation entered into a Merger Agreement to be acquired by Metropolis Technologies, Inc. for approximately $1.5 billion in an all-cash transaction[101] - Under the agreement, Metropolis will acquire all outstanding shares of SP Plus common stock for $54.00 per share, with the transaction expected to close in 2024, subject to stockholder and regulatory approvals[101] - The Company incurred $3.5 million in merger-related expenses as of September 30, 2023, and is restricted from certain activities, including common stock repurchases, starting October 4, 2023[102] 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, including an overview of recent acquisitions, business model, general business trends, and a detailed analysis of revenue, costs, and operating income by segment for the three and nine months ended September 30, 2023, compared to the prior year Overview - The Company entered into a Merger Agreement on October 4, 2023, to be acquired by Metropolis Technologies, Inc. for $54.00 per share, with the transaction expected to close in 2024[106][101] - As of September 30, 2023, $3.5 million in expenses related to the proposed merger have been incurred, with additional expenses anticipated[107] Acquisitions - Recent acquisitions include Roker Inc. (July 2023 for $3.1 million), DIVRT, Inc. (November 2022 for $17.6 million), and K M P Associates Limited (October 2022 for $13.8 million)[108][109][110] - These acquisitions strategically enhance the Company's position as a global provider of frictionless technology solutions, independent of its legacy parking management and transportation operations[111] Our Business - The Company develops and integrates technology with operations management to deliver mobility solutions for efficient movement of people, vehicles, and travel belongings, serving aviation, commercial, hospitality, and institutional clients[112] - Operations are primarily under management type contracts (88% in Commercial segment) and lease type contracts, with 159 airports served across North America and Europe[113][115] General Business Trends - The Company observes a trend where sophisticated clients recognize technology-driven mobility solutions as profit generators or service differentiators, leading to outsourcing of these services[117] - Commercial segment facilities increased to 3,364 as of September 30, 2023, from 3,130 at December 31, 2022, including 22 facilities from the Roker acquisition[118] - Airports served increased to 159 as of September 30, 2023, from 158 at December 31, 2022, with a significant increase in 2022 due to the KMP acquisition (65 airports)[119] Revenue - Management type contracts generate revenue from fixed/variable monthly fees, performance-based incentives, e-commerce technology fees, and ancillary services, excluding gross customer collections[120][121] - Lease type contracts include all gross receipts (net of local taxes), consulting fees, and e-commerce technology fees, with the Company paying fixed or percentage-based rent to property owners[120][122] - Reimbursed management type contract revenue consists of direct reimbursements from clients for operating expenses incurred under management type contracts[123] Cost of Services (Exclusive of Depreciation and Amortization) - Costs for management type contracts are generally the client's responsibility, except for 'reverse' management contracts and certain other aviation/ancillary services[124] - Lease type contract costs include contractual rents/fees paid to clients and all operating expenses for the leased facility, excluding major capital expenditures or real estate taxes[125] - Reimbursed management type contract expense represents directly reimbursed costs incurred on behalf of clients[126] General and Administrative Expenses - General and administrative expenses encompass salaries, wages, incentive compensation, stock-based compensation, payroll taxes, insurance, travel, office expenses, and acquisition-related costs[128] Depreciation and Amortization - Depreciation is calculated using a straight-line method over estimated useful lives, while finite-life intangible assets (typically from acquisitions) are amortized over their remaining estimated useful lives[129] Operating Income - Operating income is the key metric used by the Chief Operating Decision Maker (CODM) to assess performance and allocate resources to the Commercial and Aviation segments[130] Segments - The Company's operating segments are Commercial (healthcare, municipalities, hotels, etc.) and Aviation (airports, airlines, baggage services), with the 'Other' segment including operational support and shared infrastructure costs[132][133][137] Analysis of Results of Operations Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022 This section analyzes the consolidated and segment-specific financial performance for the three months ended September 30, 2023, compared to the same period in 2022, highlighting changes in revenue, costs, and operating income Consolidated Results | Metric (millions) | Sep 30, 2023 | Sep 30, 2022 | Variance | % Change | | :-------------------------------- | :----------- | :----------- | :------- | :------- | | Services revenue | $460.7 | $404.4 | $56.3 | 13.9% | | Cost of services (exclusive of D&A) | $393.1 | $346.2 | $46.9 | 13.5% | | General and administrative expenses | $37.6 | $27.2 | $10.4 | 38.2% | | Depreciation and amortization | $9.0 | $7.2 | $1.8 | 25.0% | | Operating income | $21.0 | $23.8 | $(2.8) | (11.8%) | | Interest expense | $7.4 | $3.9 | $3.5 | 89.7% | | Net income | $10.1 | $15.1 | $(5.0) | (33.1%) | - Services revenue increased by $56.3 million (13.9%), driven by increased volume in baggage delivery and other management type contracts due to travel recovery, new business, and acquisitions[136][138] - Net income decreased by $5.0 million (33.1%), primarily due to higher interest expense from rising variable interest rates and increased general and administrative expenses, partially offset by lower income tax expense[141] Commercial Segment | Commercial Segment (millions) | Sep 30, 2023 | Sep 30, 2022 | Variance | % Change | | :---------------------------- | :----------- | :----------- | :------- | :------- | | Total services revenue | $146.5 | $136.8 | $9.7 | 7.1% | | Total gross profit | $47.3 | $40.9 | $6.4 | 15.6% | | General and administrative expenses | $9.8 | $7.2 | $2.6 | 36.1% | | Operating income | $35.7 | $32.4 | $3.3 | 10.2% | - Commercial segment operating income increased by $3.3 million (10.2%), driven by higher gross profit from increased activity in volume-based management and lease type contracts due to travel recovery and new business, partially offset by higher G&A expenses and amortization from acquisitions[146][144][145] Aviation Segment | Aviation Segment (millions) | Sep 30, 2023 | Sep 30, 2022 | Variance | % Change | | :-------------------------- | :----------- | :----------- | :------- | :------- | | Total services revenue | $81.9 | $70.3 | $11.6 | 16.5% | | Total gross profit | $16.9 | $13.9 | $3.0 | 21.6% | | General and administrative expenses | $4.8 | $3.1 | $1.7 | 54.8% | | Operating income | $10.6 | $9.7 | $0.9 | 9.3% | - Aviation segment operating income increased by $0.9 million (9.3%), primarily due to increased activity in management type contracts and other aviation services from travel recovery and new business, partially offset by higher G&A expenses and amortization from the KMP acquisition[149][150] Other Segment - Operating expenses in the Other segment increased by $7.0 million (38.3%) to $25.3 million, mainly due to higher acquisition-related, restructuring, and other costs, as well as increased compensation and investments in growth initiatives[151] Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022 This section analyzes the consolidated and segment-specific financial performance for the nine months ended September 30, 2023, compared to the same period in 2022, detailing the drivers of changes in revenue, costs, and operating income Consolidated Results | Metric (millions) | Sep 30, 2023 | Sep 30, 2022 | Variance | % Change | | :-------------------------------- | :----------- | :----------- | :------- | :------- | | Services revenue | $1,328.2 | $1,135.2 | $193.0 | 17.0% | | Cost of services (exclusive of D&A) | $1,136.4 | $966.8 | $169.6 | 17.5% | | General and administrative expenses | $100.0 | $78.4 | $21.6 | 27.6% | | Depreciation and amortization | $26.2 | $20.5 | $5.7 | 27.8% | | Operating income | $65.6 | $69.5 | $(3.9) | (5.6%) | | Interest expense | $21.5 | $12.2 | $9.3 | 76.2% | | Net income | $32.7 | $42.7 | $(10.0) | (23.4%) | - Services revenue increased by $193.0 million (17.0%), primarily due to continued recovery in travel, new business, and acquisitions across both management and lease type contracts[152][153] - Net income decreased by $10.0 million (23.4%), mainly due to a significant increase in interest expense (76.2%) and higher general and administrative expenses, partially offset by lower income tax expense[155] Commercial Segment | Commercial Segment (millions) | Sep 30, 2023 | Sep 30, 2022 | Variance | % Change | | :---------------------------- | :----------- | :----------- | :------- | :------- | | Total services revenue | $438.5 | $400.9 | $37.6 | 9.4% | | Total gross profit | $135.4 | $120.5 | $14.9 | 12.4% | | General and administrative expenses | $27.3 | $21.1 | $6.2 | 29.4% | | Operating income | $103.0 | $95.7 | $7.3 | 7.6% | - Commercial segment operating income increased by $7.3 million (7.6%), driven by higher gross profit from increased activity in management and lease type contracts, partially offset by increased G&A expenses and amortization from acquisitions[160][159] Aviation Segment | Aviation Segment (millions) | Sep 30, 2023 | Sep 30, 2022 | Variance | % Change | | :-------------------------- | :----------- | :----------- | :------- | :------- | | Total services revenue | $227.5 | $187.1 | $40.4 | 21.6% | | Total gross profit | $46.1 | $38.9 | $7.2 | 18.5% | | General and administrative expenses | $12.7 | $8.7 | $4.0 | 46.0% | | Operating income | $28.8 | $26.3 | $2.5 | 9.5% | - Aviation segment operating income increased by $2.5 million (9.5%), primarily due to higher gross profit from increased activity in management type contracts and other aviation services, partially offset by higher G&A expenses and amortization from the KMP acquisition[163][162] Other Segment - Operating expenses in the Other segment increased by $13.7 million (26.1%) to $66.2 million, driven by higher compensation, stock-based compensation, and increased acquisition-related, restructuring, and other costs[164] Analysis of Financial Condition Liquidity and Capital Resources - As of September 30, 2023, the Company had $38.5 million in cash and cash equivalents and $237.7 million in borrowing availability under its Senior Credit Facility[167] - Management believes the Company will generate sufficient liquidity to meet obligations and comply with debt covenants for the next twelve months, despite macroeconomic conditions like higher inflation and rising interest rates[167] Outstanding Indebtedness - Total indebtedness increased by $15.6 million to $359.8 million as of September 30, 2023, from December 31, 2022, primarily comprising $335.7 million under the Senior Credit Facility and $24.1 million in other debt[169][175] - The weighted average interest rate on the Senior Credit Facility increased to 6.7% for the nine months ended September 30, 2023, from 4.6% in the prior year[171] Stock Repurchases - The Board authorized a $60.0 million stock repurchase program in February 2023, with no shares repurchased under it, while a May 2022 program had $0.2 million remaining as of September 30, 2023[172][173] - The Company repurchased 285,700 shares for $10.4 million at an average price of $36.53 per share during the nine months ended September 30, 2023[174] - Stock repurchases are restricted starting October 4, 2023, due to the Merger Agreement[174] Daily Cash Collections - The Company collects significant daily cash from parking locations, with lease type contract revenue deposited locally and a portion remitted to clients, while management type contract receipts may be deposited into company or client accounts[175][176] - Working capital and liquidity can fluctuate intra-month and intra-year based on contract mix and timing of cash payments, necessitating a significant cash balance and utilization of the Senior Credit Facility[177] Summary of Cash Flows | Cash Flow Activity (millions) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :---------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $53.5 | $75.6 | | Net cash used in investing activities | $(22.4) | $(18.1) | | Net cash used in financing activities | $(4.5) | $(54.1) | | Net increase in cash and cash equivalents | $26.1 | $2.7 | Operating Activities - Net cash provided by operating activities decreased to $53.5 million for the nine months ended September 30, 2023, from $75.6 million in the prior year, primarily due to a $20.5 million U.S. Federal income tax refund in 2022 and higher interest payments in 2023[179] Investing Activities - Net cash used in investing activities increased to $22.4 million for the nine months ended September 30, 2023, from $18.1 million in the prior year, mainly due to the Roker acquisition ($3.1 million), a noncontrolling interest buyout ($2.3 million), and increased property and equipment purchases[180] Financing Activities - Net cash used in financing activities decreased significantly to $4.5 million for the nine months ended September 30, 2023, from $54.1 million in the prior year, driven by increased borrowings on the Senior Credit Facility and lower common stock repurchases[181] Cash and Cash Equivalents - Cash and cash equivalents increased to $38.5 million as of September 30, 2023, from $12.4 million at December 31, 2022, reflecting the Company's ability to utilize deposited funds[182] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section states that there have been no material changes in the company's primary risk exposures or management of market risks since the last annual report - No material changes in primary risk exposures or market risk management have occurred since the Annual Report on Form 10-K for the fiscal year ended December 31, 2022[183] Item 4. Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures, concluding their effectiveness as of September 30, 2023, with an exclusion for the recently acquired Roker Inc., and confirms no significant changes in internal control over financial reporting - The Chief Executive Officer, Chief Financial Officer, and Corporate Controller concluded that disclosure controls and procedures were effective as of September 30, 2023[186] - The assessment of disclosure controls and procedures excludes Roker Inc. (acquired July 25, 2023), which constituted less than 1% of total assets and revenues[186] - No significant changes in internal control over financial reporting occurred during the quarter ended September 30, 2023[187] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section states that the company is involved in routine legal claims and litigation, including labor, contract, and personal injury matters, but anticipates no material adverse effect on its financial position, results of operations, or cash flows - The Company is subject to claims and litigation in the normal course of business, including labor, employment, contracts, and personal injury, but believes the final outcome will not have a material adverse effect on its financial position, results of operations, or cash flows[190] Item 1A. Risk Factors This section refers investors to the risk factors discussed in the company's Annual Report on Form 10-K, stating that there have been no material changes to these risks - There have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022[192] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities This section indicates that there is no applicable information regarding unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities Item 3. Defaults Upon Senior Securities This section states that there are no applicable defaults upon senior securities Item 4. Mine Safety Disclosures This section indicates that there are no applicable mine safety disclosures Item 5. Other Information This section states that there is no other information to report Item 6. Exhibits This section provides a comprehensive list of exhibits filed with the quarterly report, including amendments to corporate documents, office leases, and Section 302 and 906 certifications - The exhibits include corporate governance documents (Certificate of Amendment, Bylaws Amendment), office leases, and certifications from the Chairman/CEO, CFO, and Corporate Controller (Section 302 and 906)[198] Signatures This section contains the required signatures of the company's principal executive officer, principal financial officer, and principal accounting officer, certifying the filing of the report - The report is signed 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) on November 2, 2023[201]