SP Plus Corporation [SP] Conference call transcript for 2022 q1
2022-05-06 22:22:04
Fiscal: 2022 q1
Operator: Good afternoon, and welcome to the SP Plus Corporation First Quarter 2022 Earnings Conference Call. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Mr. Kris Roy, Chief Financial Officer. Sir, please go ahead.
Kris Roy: Thank you, Jamie, and good afternoon, everyone. As Jamie just said, I'm Kris Roy, Chief Financial Officer of SP Plus. Welcome to our conference call following the release of our first quarter 2022 earnings. During the call today, management will make remarks that may be considered forward-looking statements, including statements as to the impact of COVID-19, outlook and expectations for 2022 and statements regarding the company's strategies, plans, intentions, future operations and expected financial performance. Actual results, performance and achievements could differ materially from those expressed or implied due to a variety of risks, uncertainties or other factors, including those described in the company's earnings release issued earlier this afternoon, which is incorporated by reference for purposes of this call and available on the SP Plus website and Risk Factors in the company's annual report on Form 10-K and quarterly reports on Form 10-Q and other filings with the SEC. In addition, management will discuss non-GAAP financial information during the call. Management believes the presentation of non-GAAP results provides investors with useful supplemental information concerning the company's ongoing operations and is an appropriate way to evaluate the company's performance. Non-GAAP measures are provided for informational purposes only. A full reconciliation of non-GAAP financial measures to comparable GAAP financial measures were presented in the tables accompanying the earnings release. To the extent other non-GAAP financial measures are discussed on the call, reconciliations to comparable GAAP measures will be posted under the Regulation G tab in the Investor Relations section of the SP Plus website. Please note, this call is being broadcast live over the Internet and is being recorded. A replay will be available on the SP Plus website shortly after the end of the call and will be available for 30 days from today. I will now turn the call over to Marc Baumann, our Chairman and Chief Executive Officer.
Marc Baumann: Thank you, Kris, and good afternoon, everybody. I'm very pleased with our execution in the first quarter, building on our market position across key verticals and service offerings amid the continued improvement in business conditions. This strong start to the year, together with our current visibility and business development pipeline, supports our expectation that our profitability for the full year will approach or exceed pre-pandemic levels. We see this as a significant accomplishment given that certain of our markets such as office and retail, have only partially recovered from the impact of the pandemic, which we believe provides SP Plus with additional growth opportunities in future periods. The 28% year-over-year increase in first quarter adjusted gross profit benefited from the significant contract wins we achieved over the last year. And the operating leverage inherent in our post-pandemic business model drove even greater year-on-year increases in adjusted operating income and adjusted EBITDA of 46% and 45% respectively. We view these metrics as representing an inflection point for SP Plus, demonstrating the competitive advantages of our scale and industry-leading technology, which are driving improved same-location performance, strong new business activity and the expansion of the addressable market for our services. Looking at our Commercial segment, we experienced same location gross profit growth in nearly every vertical compared to Q1 of last year as business conditions continue to improve and we were also successful in adding new business that more than offset normal turnover. Our Sphere technology offerings continue to be an important differentiator for SP Plus in winning new contracts as clients are very receptive to innovative ways to increase the profitability of their locations, while also improving the consumer experience through touch-free interactions and prepaid reservations. We continue to grow our commercial segment location count, adding 70 locations on a net basis over the last 12 months. We had a very active quarter of new business, including our new contract with the city of Rochester, Minnesota, where we were selected for our ability to bring technology-based solutions to the city's parking operations, which covers over 4,300 parking spaces at 11 locations and also includes on-street meter collection and special event management services. In addition, we're very pleased to have renewed our contract with the National Football League to continue to provide parking, transportation and mobility services for future expense extending through 2027, including the Super Bowl, NFL Draft, NFL Kickoff and NFL Pro Bowl events. SP Plus has provided parking and transportation services to the NFL since 1999 through its SP Plus Gameday division, which manages events and large venue operations alongside local teams and partners. We're excited that sporting, entertainment and social events are largely back from the pandemic. Turning to the Aviation segment. We saw strong year-on-year growth, thanks to the new contracts SP Plus has been awarded over the last two years, and these services are reopening at airports now that domestic travel is on the upswing. This is another area where our Sphere technology offerings continue to drive growing interest from clients as it allows airports to collect additional revenue without significant infrastructure and operational costs. In the first quarter, SP Plus renewed its contract with Salt Lake City Airport, where we provide a full suite of mobility services, including parking management, shuttles for employees and the public, ground transportation management and hardstand shuttling to and from the aircraft when gates are not available. We're also seeing continued interest in our curbside concierge offering, where we recently checked in our 1 millionth bag under this program. We expect a second large airline to begin a pilot program shortly and we're engaged in conversation with a number of other potential airline partners. The appeal of this service is that it helps airports and airlines to improve the overall traveler experience, while reducing congestion and the cost is borne by the passenger. This morning, we issued a press release that announced our strategic partnership with System Property. As part of the agreement, we took over operations at 25 parking properties previously managed by the Motor Parks division of System Property. SP Plus will also be the provider of choice for mobility solutions to System Property as it actively expands its real estate portfolio. We see this as an excellent growth opportunity and look forward to deploying our Sphere technology platform to optimize the consumer experience at system properties owned and managed properties. As you can see, the first quarter was both successful from an execution standpoint and busy from a business development perspective for SP Plus. 2022 is off to a strong start and I'm pleased to report that positive business trends have continued as we've moved into the second quarter. Now I'll turn the call over to Kris for a financial review. Kris?
Kris Roy: Thank you, Mark. As Mark discussed, we had a strong start to 2022 that lays the foundation for the remainder of the year. As always, I will provide additional color around our adjusted results for the first quarter of 2022 that underscores our confidence in our full year guidance. In the first quarter, adjusted gross profit, which excludes depreciation, amortization and restructuring and other costs, increased 28% year-over-year to $51.4 million as we are seeing the benefit of contract wins in the past 12 months and also an improving business environment that Mark spoke about earlier. Just a reminder that the year ago number included a $4.8 million benefit related to certain cost concessions, which did not reoccur. With that in mind, the year-over-year growth was even more impressive. First quarter 2022 adjusted G&A expense, which includes restructuring and other costs, amounted to $24.4 million. While this was a 20% year-over-year increase, it is related to our continued investment in the business to support future growth and includes higher overall compensation costs, including performance-based compensation. I am pleased to say that adjusted G&A in the first quarter of 2022 was still approximately 7% below the comparable period of 2019 due to a more streamlined cost structure that allows us to operate as a leaner organization and better leverage our gross profit. Excluding amortization of acquired intangible assets, restructuring and other costs, first quarter 2022 adjusted earnings per share was $0.60, which is more than double last year's adjusted earnings per share of $0.27 on a comparable basis. As we move to our cash flow, first of all, I am pleased to say that we received the $20 million federal tax refund we spoke about on our last call. As a result, first quarter cash flow from operations was $26.4 million and free cash flow totaled $23.8 million. Even without the tax refund, both metrics were substantially above last year's first quarter levels, where both cash from operations and free cash flow were negative. This quarter's performance was also impressive, given our historic trends, where the March quarter is often negative. As for the balance sheet, we recently amended and upsized our senior credit facility to $600 million, while removing a number of constraints and providing increased flexibility to pursue growth opportunities and to focus more broadly on capital allocation priorities. We are pleased with the support we received from our long-standing lender group. Based on our current results and visibility, we are pleased to affirm our full year 2022 guidance. Adjusted gross profit is expected to range from $200 million to $220 million, which at the midpoint represents year-on-year growth of 13% over 2021. We expect adjusted EBITDA to range from $110 million to $120 million, which at the midpoint represents 21% year-over-year growth. Our outlook for free cash flow is between $70 million and $80 million, which is a 79% increase at the midpoint compared to the 2021 full year number. With that, I'll turn the call back over to Mark.
Marc Baumann: Thank you, Kris. As you heard from Kris, SP Plus now has a strengthened financial position, together with increased borrowing capability. As business conditions continue to improve, we're in a position to consider additional growth avenues and value creation. This could include organic investment with strong ROIs and potential acquisitions that would expand our addressable market, as well as the deployment of capital allocation strategies that create additional value for shareholders. In summary, SP Plus is rebounding from the pandemic as a stronger company and an even more formidable competitor. Our commitment to delivering the highest levels of service has kept our retention rates high and our new business pipeline robust. We look forward to continued growth as we move through 2022. Jamie, we're now ready for questions.
Operator: Our first question today comes from Daniel Moore from CJS Securities.
Daniel Moore: Sorry about that. Let's start with bags over the -- the bags business, travel rebounding sharply, cruise lines starting to book up again. Talk about the level of conversations and what that's been like with your customer base over the last, say four to eight weeks. Are you seeing accelerated interest in turning the service back on? Just kind of any color as to the tenor of those conversations?
Marc Baumann: Sure. That's a great question, Dan. And I think we're reading a lot about particularly domestic travel and the constraint on domestic travel is really airline capacity rather than consumer demand. And I've made some trips to myself recently and been amazed at the amount of congestion that you see in airports. And because of that congestion, the airline clients that we serve and our airport clients that we serve are both very, very concerned about alleviating that congestion. And so I think for us, the conversations have accelerated. Our proprietary remote check-in capability, which we can offer as a sponsored model that's paid for by an airport, an airline or a cruise line is available and operating. But we've also, as we indicated in our prepared remarks, have expanded the, what we're calling curbside concierge, which is a traveler pay model. And we're now, as we said, processed over 1 million bags with one airline just over the past year and are now getting a lot of interest from other airlines because they're seeing what's happening with their passengers trying to get through the terminals.
Daniel Moore: Very helpful. Maybe shift to system property agreements. Can you provide a little bit more detail of that strategic partnership? How does that differ from a typical management contract? And is that a template for other opportunities going forward?
Marc Baumann: Yes. Well, I mean at one level, we're going to be taking over operations that they were formerly handling themselves. But I think most businesses are starting to look at their core strengths. And that's a perfect example of one of those situations. They are real estate experts. They are property owners and managers and they did some managing of parking. They also had some third parties providing parking management services. And as they look at the requirements to be successful as an operator, which is primarily around technology, they really noticed our Sphere platform and said, we aren't going to be able to duplicate that ourselves. We're not prepared to make the investments that you've made to create that kind of an offering. And so they came to us and said, look, is there a way for you to take over these operations, bring your cutting-edge technology. But more importantly, as we focus our business on looking at additional real estate acquisitions and growth, we'd like you to be our partner of choice as we go forward because they recognize very well that a partner who can optimize the revenue and the customer experience in parking operations is going to create value for that real estate. So I think that's really what's behind that particular arrangement. But I think what's exciting for us is that I do see it as a template for other situations because there's lots and lots of people out there that, for many years, have both owned real estate and operated parking management services. And so, I think they're going to increasingly see that their core strength is in real estate and that our core strength is in bringing technology to parking management operations. And that by working with us, they have an opportunity to drive their bottom lines and drive their growth.
Daniel Moore: Very helpful. Last for me is just how would you describe Q1 results relative to your internal expectations? Clearly outpaced some of the Street's estimates, including ours. Just wondering how we're pacing relative to your initial expectations embedded when you gave your original guidance a couple of months ago?
Kris Roy: Hi, Dan, this is Kris. I'd say it was -- certainly, it was a strong quarter for us, probably a little stronger than we originally expected kind of coming into the year. I think the recovery, as Mark mentioned, kind of just passenger volumes that you're seeing and people movement certainly happened probably a little earlier than we thought. Certainly, spring break typically kicks that off. And I think as we saw spring break kind of get into full swing, I just think we saw a lot of people movement and a lot of activity out there. So it's really encouraging first quarter.
Daniel Moore: All right. I'll jump back with any follow-ups.
Operator: And our next question comes from Kevin Steinke from Barrington Research.
Kevin Steinke: The question was asked about bags and the trends there. And I think you mentioned some of your aviation clients starting to bring some of the services back to you or outsourcing those services again to you that maybe they have been sourced for a while in the pandemic. I mean, can you just talk about the trend there? How much room there is to recapture or restart some of those services for your aviation clients that were temporarily put on hold?
Marc Baumann: Sure. I think if you go back to the Q4 call, I talked about the aviation recovery being something that we didn't expect to be fully realized until 2023, 2024. And that's really on the back of decision-making that aviation clients make to bring back our services. I think what's happened since we made those statements is that the demand for the services has accelerated. There's definitely more travel than I think anybody expected. And the issue that's going to, I think, is looming, and we're hearing it and what the airlines are saying is that they don't have the capacity to meet the demand. And so therefore, they're going to be controlling their capacity, especially for the rest of this year as they look to bring on pilots and other staff that they need to train and get ready to operate their businesses. So, I don't think airline capacity in 2022 overall is going to be above pre-pandemic levels. And that means that our level of services to them aren't going to be above pre-pandemic levels either. But I think the good news is that we're now in a, let's call it, a more cost-conscious world than we were pre-pandemic in aviation. And so whether it's airports, whether it's airlines or other potential clients in cruise lines and resorts, they're all saying, how can I deliver a really strong consumer experience? How can I alleviate friction and have a low-touch experience for people and not endure a lot of cost. And I think the fact that we were able to test out our curbside concierge product during the pandemic and see that there's consumer acceptance for paying out of pocket for convenience and alleviation of friction has really encouraged a lot of our airport and airline clients to see that as a model going forward. And I can't emphasize enough the great success we've had with one airline. We've done a lot of research around how the consumer is reacting to the paying for these services and they are fine with it because they're getting something that they can value. So I think other airlines are seeing it now. And definitely, airports and airlines are both seeing the alleviation of congestion is almost their top priority right now.
Kevin Steinke: Right. Yes. Great. That's helpful. And any -- just maybe an update on the pace of transaction volumes or traction of volumes that you're seeing on -- through the parking.com app and your ability to generate transactional fees through that? Just start with that.
Marc Baumann: That sounds fine. We were just talking about that before the call started. And Kris and I didn't bring the exact data with us to the call. But I think we can say that we continue to set new records on an ongoing basis. It's growing rapidly. We have -- we're pushing the penetration of the gateless solution out through every location. I know we have more than 600 gateless locations running our gateless solution and adding more all the time. Our gated solution, which was a little bit more technically complex and didn't start at the same time, is now out there. And I think we've got certainly more than a 100 locations on that platform. But the transaction volumes are growing rapidly. I was just talking to one of our executives today about his markets and he was just saying to me in Chicago, we've gone from like 2% transactions going through parking.com to 11% in Chicago in just the last eight months. So, there's definite -- and there's opportunity for that number to go even higher. So, I think as a company, where for a long time, we were seeing our digital transaction volumes kind of hovering in that sort of 5%, I think we've got markets and we've got client locations now where we're up at 30%, 40% of transactions are going through our parking.com mobile app. And I think there's a long, long way to go of continued growth in that space.
Kevin Steinke: Right. Great. You mentioned your financial flexibility or your ability to invest in the business going forward. Obviously, organic sounds like is still a priority. You also mentioned potential acquisitions. Can you just give us some updated thoughts on what might be of interest on the acquisition front?
Marc Baumann: Sure. I think we are clearly making sure that our business has all the capital that it needs to grow organically as fast as possible. And the bar that we have set internally is that if our clients value it in the technology space, we can provide a solution. So we are full foot on the gas pedal, as we've been through the pandemic, to accelerate our technology development and to roll out new technology capabilities. If we can partner with somebody or even potentially acquire somebody that can help us accelerate our technological transformation, that's something that we're going to be looking at and we are looking at. But I think also now that businesses have stabilized and for the most part have a little bit of a more predictable and visible financial performance, we can turn our attention back to some of the areas that we have historically looked at, whether it's smaller or regional parking companies. We provide a lot of ancillary services around shuttle bus operations and the like that have grown nicely organically. And so we'll just cast our view out there and look at the businesses that are out there in the space and always asking ourselves the same question, can we -- can an acquisition help us bring something of value to a client base that we understand well and can help us accelerate our growth as a company on a sustained basis. We're not interested in just being a larger version of ourselves. We're interested in being a more rapidly growing version of ourselves. As you see, as we grow, we throw off significant amounts of free cash flow, and we're going to want to use some of that to further accelerate the growth of the business.
Kevin Steinke: Okay. Congratulations on the first quarter results.
Operator: Our next question comes from Marc Riddick from Sidoti & Company.
Marc Riddick: I was wondering a few things. Maybe we could start with the competitive landscape, certainly, quite a bit of the success as far as gaining new accounts and new orders as well as the announcement made today have been things that have been set in place for quite some time. I was wondering if you could talk a little bit about -- certainly, you've talked about the benefits of technology and leading to new order flow. But I was wondering if you could talk a little bit about maybe the overall competitive dynamic, maybe what you're seeing there? And if there are other things that you would point to that might lead to some of the market share gains that you've seen?
Marc Baumann: Sure. Well, I think when you look at the competitive landscape, you have 2 types of companies out there. And one are people that have historically been parking operators, such as ourselves, and either are or are not in the process of transforming themselves into technology-driven businesses. And so some of our legacy competitors in that space, there are some that have done very little with technology, and we're getting a lot of receptivity from their clients around bringing our Sphere technology platform to those clients because they just haven't kept up. And then we have some other large legacy competitors who are focusing on things away from parking and maybe are -- whether it's last-mile delivery or other things of that nature, those are alternatives to focus on. But some of their clients are saying to us, are they really interested in optimizing the performance of a facility any longer. And then you turn your attention over to some pure technology competitors that are out there, and many of them have a one-size-fits-all mindset. So they've developed a technology solution, whatever it might be, and they go around trying to convince people that, that one solution meets the clients' needs. And there are some clients where that will be a solution that does meet their needs. But the type of clients that we are going after generally have complex requirements. And they are looking for a combination of a technology solution that is customized and oriented toward what they need, but also very strong fundamental operating expertise. It's not just about buying a tech platform and putting it in place. You need people who have expertise in using that tech platform to get optimal results. So I think as we look to the future, we see ourselves as being the leading player in trying to meet client needs, providing a combination of both cutting-edge technology, but at the same time, the proverbial boots on the ground and the management expertise to manage that technology to get results that our clients are looking for. And over and over again, when we announce new wins, the clients are telling us over and over, that's what they're looking for. Your technology and digital solutions, but also your extensive operating expertise in using those solutions to drive the results that we're looking for.
Marc Riddick: Great. And then switching gears to the bigger picture question on -- you talked about the flow of people, flow of traffic, conversations around travel. So wondering if you could talk a little bit about maybe what you're seeing as far as the level of folks returning to the office. I think in our last -- on the last call or maybe -- I think it was maybe on the last call that you talked about some of the profitability matrix of those who are engaged in a hybrid approach as opposed to the traditional work in the office every day and maybe just touch on the progress that you've seen so far this year and how that's looking.
Marc Baumann: Yes. Well, I think the trends are continuing on the return to office. I know there was a little setback with -- in some cities and in some places with the variance that were running around earlier in the year. But most places, I think, have not continued to push back, they've resumed the office states . We obviously have continued all of our offices operating throughout the pandemic because we have thousands of employees out there delivering services every day. But most companies are looking at a hybrid model, 2 days a week, 3 days a week. I think that's what people that work in offices are looking for as well to be -- those are the kind of jobs that people want to have now. And if you were to say everybody's got to be in 5 days, some of their workforce is going to be looking for other alternatives. So I think we've kind of settled in, in our economy with people wanting that and if the company is feeling comfortable that a hybrid model works. And so what does that mean for us? Ultimately, our contract base is predominantly management contracts. We've talked about this numerous times, and that contract base means that we are trying to deliver solutions for our clients. And those solutions involve optimizing the profitability for the client. They involve bringing technology to drive costs out to make the clients' operation superefficient. It makes the facility -- we want to make the facilities appealing to the traveling public because they don't have a lot of friction and they can employ touchless or no-touch solutions with the parking.com mobile app. So all of these are the things that we are bringing in exchange for being paid a management fee. And so our profitability is not directly tied in many, many cases to the actual utilization of the facilities. So while it would be great to see more people back in the office, to a certain extent, our business model is around providing solutions for clients. One thing I have pointed out before, monthly parking is discounted parking. And if somebody is coming in 3 days a week, they might be paying as much for parking, in revenue terms, as somebody would have paid for monthly parking. So the revenue shortfall, even for the clients, isn't as great as you might think if the hybrid model is the permanent way of business.
Marc Riddick: That's very helpful. And then the last one for me for now is I was wondering if you could talk a bit about future growth opportunities as far as, are you beginning to see or think about some of the opportunities to expand into other markets or potential for attractive acquisitions in the future? And if so, how that might play into the new business model and how that could move forward together.
Marc Baumann: Sure. Well, one of the things that we are looking at is how do we grow the market. We, obviously, try to take things away from competitors. We've talked about that, and we've talked about our new provider-of-choice arrangement with System Property. But one of the things we found is that our technology solutions can be brought to clients where there is no need for a traditional operation. And so we're increasingly adding clients where we aren't necessarily providing boots on the ground. If the situation requires boots on the ground, we're going to provide it. But there are definitely situations, and many of these are situations where the clients had not been charging for parking or had not been collecting revenue very efficiently in the past. So we definitely see that as a way for us to expand our addressable market with the technology platform that we're developing now. I think beyond that, we're in most of the major geographies in North America, and so we're clearly trying to expand our market share, take business from competitors, get clients to outsource. And we definitely see some of the traditional municipal and institutional spaces as places where we can grow and get people to realize that if you do something internally, you're not going to have the tech platform ready to go with the expertise to use it that somebody like SP Plus has. So I think that's another opportunity for us to continue our organic growth as well.
Operator: And our next question comes from Tim Mulrooney from William Blair.
Tim Mulrooney: So on the System Property development deal, how much of that real estate -- how much of their real estate portfolio do those 25 parking locations represent? Is that their entire portfolio? I'm just curious on the runway here that could be captured through additional properties.
Marc Baumann: Yes. No, it's only about 9 properties of theirs, and the rest were other people that they were providing parking management services. So at some level, they were a small competitor of ours in -- primarily in Southern California. But they do have a number of other properties and hope to continue to grow their business as well. And some of those properties are operated by third parties, not by them. In fact, none of them are operated by them. They're all operated by third parties. And if there is parking and many of those are on leases that will burn off. And I think the traction of working with them is that as those leases come up, it's going to give us an opportunity to further our relationship with them, along with moving forward with them as they look at new properties. One of the things we try to do for our property ownership and property management clients is help them evaluate what the financial opportunity is from the parking operation, especially if you bring in new technology like the Sphere platform. So we expect to be working with them to try to help them identify the financial opportunity for them of acquiring new properties.
Tim Mulrooney: Okay. That's very clear. Switching gears to pricing. I wanted to ask about pricing, not the contracts themselves, but the actual cost of pricing of the consumer. Across your portfolio, is the price of parking -- the price of parking tickets, is that going up right now in line with just about everything else that we see? I'm curious how much parking -- how much pricing on the parking might contribute to your leased location economics this year?
Marc Baumann: Yes. Well, one thing we do, and we've done this for a long time is we're constantly aware of what the competitive parking pricing environment is around any facility we operate. And clearly, if it's a management client, we're recommending to our management clients what rates they should charge, and for our leases, we make those decisions ourselves. One of the tools that we deployed during the pandemic is a web scraping tool as part of our tech platform so that instead of having to walk around and do rate surveys, but with a clipboard, we can actually get that information, put it with our pricing experts, and they can be making recommendations to our operating teams around changes to pricing. So that's an ongoing thing that we've been doing really for the last 18 months to try to ensure that we don't miss opportunities to move pricing with the market. I would say one of the things that's happened is that the transient demand, particularly in markets like New York, is so strong that we're reducing the allocation of parking to monthly parkers and so you have this strong transient demand. The monthly parkers are discounted parking. So we're allocating less of the parking facility to monthly parkers. And one of the ways that we do that is we put up the prices sharply for monthly parking, and we're motivating those people to pay to the market or to find an alternative for their monthly parking. So there's definitely an opportunity here during this time, but -- and it's not driven by inflation as much as it's simply driven by supply and demand. And so we're seeing more and more demand. And as that occurs, we're going to continue to put up prices.
Tim Mulrooney: Okay. But you wouldn't characterize the cost of pricing is increasing significantly this year relative to prior years, like we're seeing across a lot of different businesses?
Marc Baumann: Probably not necessarily in '22. But bear in mind, if it's a lease location, Tim, we do have to pay wages and benefits, and we have other input costs, too. So our team is going to be very keenly focused on ensuring that we're not seeing a loss of profitability at those lease locations as we maybe incur some higher labor costs or higher other input costs. So we're very, very focused on that. But what I would say is that in the earlier stages of the recovery, meaning last year, there were situations where we were like doubling monthly parking rates, you know what I mean. So I think we're through that period now. But I think we are in an inflationary environment. We are in a period where consumers are expecting prices to go up. But once again, people have fixed amounts of money they want to spend for various services and they're going to be shopping competitively. So we have to ensure that the rates we charge are competitive to the local marketplace that we're competing with for parking people.
Tim Mulrooney: Got it. Okay. Last one from me. I think hospitality is one of the areas that got hardest hit by the pandemic for you guys. And I don't know that you've ever disclosed what percent of your commercial revenue comes from hospitality in your valet business. But can you help us understand where that business is at relative to pre-pandemic levels. For example, if it was 10% of your business in 2019, is it back to 6% to 7% today? Is it still significantly depressed relative to 2019, which also isn't necessarily a bad thing? It represents an opportunity. Just trying to understand where that business is today.
Marc Baumann: Right. Well, our commercial division is over 3,000 locations as we've talked. And probably pre-pandemic, hospitality locations represented maybe 10%. I don't have the revenue and gross profit numbers here, but it's roughly 10%. So it's a significant and important part of our commercial business. And clearly, we had some hotels closed or eliminate services during the pandemic. So those numbers probably went down a bit. But what I would say now, and that's the important thing for us is that the most significant part of our growth opportunity going forward with our traditional services is really in hospitality. We added 12 locations just in the quarter, 12 hotels. We've got more in the pipeline. And you might say, well, why would that be? And it's because from a competitive point of view, we have a skillset. We have more four and five diamond resorts than anybody else. We have expertise handling the most demanding clients for people like Four Seasons and Ritz Carlton. And I think as hotels are seeking to restart and bring their businesses back to the pre-pandemic levels, they recognize that the first impression and the last impression at that property is what drives customer or guest satisfaction and likelihood to come back. And so we're seeing a tremendous amount of interest from hotels who are saying, I'd outsource this before to somebody else, and they're having -- they're not doing a good enough job. They're not focused on the KPIs that we're focused on. And so if we look at our competitors for operating hospitality, they're stumbling a little bit. And so we definitely see that as a real growth opportunity for us.
Tim Mulrooney: That's great color.
Operator: And ladies and gentlemen, we do have an additional question. This comes from Marc Riddick from Sidoti & Company.
Marc Riddick: I just wanted to follow up with something I forgot to ask about. I was wondering if you'd touch a little bit on the progress on both gateless locations where we finished the year and how we started the year there and where you think that could go as well as what we're looking like for overall retention rates and I'll start -- I'll just start with those 2.
Marc Baumann: Yes. I think you may have turned your attention away, Marc, for a second, but I did comment on the gated and gateless. We continue to drive the penetration of both those solutions. The gated solution is now probably -- sorry, the gateway solution is probably approaching 700 locations, and we'll continue to drive that. And the gated solution is certainly over 100 now with more in the pipeline. So I think we continue to see that as a way to drive transaction volumes through our parking.com mobile app. And so I think that will be a continued source of upward growth for us during the rest of this year, and I'm sure into next year. In terms of retention, our commercial division location retention rate was 92% in the quarter, which is a strong retention rate. We're glad to see it. It's up slightly from where we ran most of last year. In Q1 of last year, it was 87%. So we're pleased to see that ticking up as we focus hard on ensuring that we understand what clients are looking for and making sure that they are pleased and delighted with what we're delivering.
Operator: And ladies and gentlemen, with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Marc Baumann for any closing remarks. End of Q&A
Marc Baumann: Thanks, Jamie. And I just want to thank all of you for joining us today. We're obviously very excited about our strong start to the year and very much looking forward to speaking with you next quarter. Take care and be well.
Operator: And ladies and gentlemen, with that, we will conclude today's conference call. We do thank you for attending today's presentation. You may now disconnect your lines.
