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SP Plus Corp  (NASDAQ:SP)
Q4 2018 Earnings Conference Call
Feb. 21, 2019, 9:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2018 SP Plus Corporation Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instruction will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce, one of your host for today's conference, Mr. Vance Johnston, Executive Vice President and Chief Financial Officer. You may begin.

Vance C. Johnston -- Executive Vice President, Chief Financial Officer, and Treasurer

Thank you, Tiffany, and good morning, everyone. As Tiffany just said, I'm Vance Johnston, Chief Financial Officer at SP Plus. Welcome to the conference call for the fourth quarter and full year 2018. I hope all of you had a chance to review our earnings announcement that was released last evening. We'll begin our call today with a brief overview by Marc Baumann, our President and Chief Executive Officer. Then I'll discuss our financial performance in a little more detail, after that we'll open up the call for a Q&A session.

During the call, we'll make some remarks that will be considered forward-looking statements, including statements as to our 2019 outlook and guidance and statements regarding the Company strategies, plans, intentions, future operations and expected financial performance. Actual results, performance and achievements could differ materially from those expressed and/or implied by these forward-looking statements due to a variety of risks, uncertainties or other factors, including those described in our earnings release issued yesterday, which is incorporated by reference for purposes of this call and is available on our SP Plus website.

I would also like you to refer to the risk factor disclosures made in the Company's filings with the Securities and Exchange Commission. In addition, as we have in the past, our commentary will focus on adjusted results. A full reconciliation of all non-GAAP measures to their nearest GAAP measures was presented in the tables accompanying last night's earnings release, which is incorporated by reference for purposes of this call and is available on our SP Plus website.

Finally, before we get started, I want to mention that this call is being broadcast live over the Internet and then a replay will be available on our SP Plus website for 30 days from now. With that, I'll turn the call over to Marc.

G. Marc Baumann -- President and Chief Executive Officer

Hey, thanks Vance, and good morning, everyone. I'd like to begin today by thanking the growing SP Plus team for all their contributions this past year and what turned out to be another milestone year for us. We achieved solid gross profit growth from existing business across the majority of our markets and maintained our strong focus on controlling costs and managing risk, all of which contributed to good growth in year-over-year, adjusted EBITDA and free cash flow.

In 2018, we also made significant progress implementing several key initiatives including further enhancing revenue management capabilities, executing our vertical market strategy and deploying new marketing and technology solutions. Most notably, we successfully relaunched our parking.com website, which enables consumers to locate and purchase parking online, and we rolled out enhanced dashboards for clients under our SP Plus inside analytics brand. We also sold our interest in Parkmobile LLC, which generated a significant return for our shareholders and gave us increased flexibility in the digital marketplace.

Lastly, and very importantly, we completed the acquisition of Bags and are very excited about all the opportunities it presents to grow our combined business. We believe the significant progress we made in 2018 sets us up well for future growth and to continue to drive shareholder value.

Turning to the fourth quarter. Gross profit from existing business grew 6% in the fourth quarter of 2018, as compared to the fourth quarter of 2017, with strong growth at a number of airport operations and good growth across many commercial markets. Also contributing to the favorable year-over-year growth in adjusted gross profit was the non-recurrence of a 2017 legal settlement, in addition to a more favorable adjustment in prior year casualty loss reserve estimates in 2018, which when combined comprised $2.3 million of the year-over-year growth in gross profit.

Location retention for our commercial business was 88% for the 12 months ended December 31st, 2018, down slightly from 89% for the 12 months ended September 30th, 2018 and down from the 92% for the 12 months ended December 31st, 2017. If you recall, we lost a few municipal contracts during the first half of 2018 that represented a large number of locations and these losses disproportionately impacted 2018 retention rates. We continue to believe that the retention rate of 92% is a good target for the commercial business. More and more over the last several years, and especially now with the acquisition of the Bags business, the concept of locations is less applicable to our non-commercial business. Therefore, we've modified our presentation of locations to apply to our commercial operations only and we'll use this presentation going forward.

Our vision, as we look forward to 2019 and beyond is to further develop a leading integrated business services company, focused on parking, transportation, baggage services and other key services across multiple verticals, and to do so while maintaining a disciplined approach to capital allocation. In 2019, our primary focus will be driving new business and leveraging the cross-selling opportunities from the Bags acquisition, and we're making progress on a number of key initiatives in support of these priorities.

We've added a new business development in subject matter experts in the key vertical markets of hospitality, events and healthcare to drive new business. We've also expanded our SP Plus consulting capabilities, which we believe can open the door to other opportunities with clients. We will also continue to significantly enhance and expand our revenue management, marketing services and digital initiatives in 2019. In addition, we expect to see continued success driving risk management programs to reduce our total cost of risk.

Finally, I want to spend some time talking about Bags. As previously mentioned, this acquisition presents numerous cross-selling opportunities and taking advantage of these opportunities will be a major focus in 2019. Examples include distinct opportunities for Bags to provide remote airline check-in services to existing SP Plus airport and hospitality clients. Likewise, there are opportunities to provide parking management, ground transportation and potentially some other core SP Plus services to existing Bags' clients.

We're already moving quickly to take advantage of these opportunities, but it will take some time to fully realize the potential. In addition, we're working with outside advisors to help us further flush out the longer-term strategic growth opportunities and related investments to drive growth for Bags and the combined company. This work is under way and we expect to be able to give you an update around mid-year. What is clear, is there's a lot of excitement around the Bags acquisition and what the combined business can achieve in the next several years. We believe that gross profit and EBITDA of the combined business will grow at a faster rate than what the legacy SP Plus business has recently delivered, and I'm very excited about the future of SP Plus. As I said, we expect to be able to provide more detail on longer-range growth targets for the combined business around mid-year following our work on long-term growth opportunities for Bags.

With that, I'll turn the call over to Vance to lead you through a more detailed discussion of our fourth quarter and full year 2018 financial performance and provide guidance for 2019.

Vance C. Johnston -- Executive Vice President, Chief Financial Officer, and Treasurer

Thanks, Marc. I'd like to spend a few minutes reviewing our financial results in more detail. As we have before, my comments will focus on adjusted results. A full reconciliation of all non-GAAP measures to their nearest GAAP measures was presented in tables accompanying last night's earnings release, which is incorporated by reference for purposes of this call and is available on our SP Plus website.

Fourth quarter 2018 adjusted gross profit excluding the results of Bags increased $3.6 million or 9% from the fourth quarter of 2017. As Marc mentioned in his opening remarks, the main factors that contributed to this year-over-year increase were overall better performance from existing business, the non-recurrence of a 2017 legal settlement and a more favorable adjustment in prior year casualty loss reserve estimates in 2018.

Adjusted G&A for the fourth quarter of 2018 increased by $2.4 million or 12% from the same period last year. The increase in adjusted G&A was due to accruals for performance-based and long-term compensation that were $3.3 million higher than the fourth quarter of 2017. Without the increase in these costs, G&A would have actually decreased year-over-year.

Resulting adjusted EBITDA for the fourth quarter of 2018 increased $1.1 million or 5% over the same period of last year for the reasons I just discussed affecting adjusted gross profit and adjusted G&A. Adjusted EPS was $0.57 for the fourth quarter of 2018, an increase of $0.17 or 42% over the same period of 2017. In addition to higher adjusted EBITDA, a lower effective tax rate resulting from the 2017 tax reform act and lower depreciation and amortization expense contributed to the year-over-year increase in adjusted EPS.

Touching briefly on the year-to-date results. Adjusted gross profit for the full year of 2018 increased $3.8 million or 2% over the same period of 2017. Strong gross profit from existing business and continued reductions in overall healthcare program costs were the primary drivers. Adjusted G&A during 2018 increased by $200,000 from the same period of 2017. A significant increase in performance-based compensation cost was partially offset by $1.7 million vendor cost recovery and continued disciplined cost management.

Resulting adjusted EBITDA for the full year of 2018 increased $3.6 million or 4% over the same period of 2017. Adjusted EPS was $2.34, an increase of $0.64 per share or 38% as compared to the same period of 2017. In addition to adjusted EBITDA growth and a lower effective tax rate, resulting from the 2017 Tax Reform Act, lower G&A expenses primarily due to the burn-off of certain acquisition-related intangible assets in 2017 and lower interest expense before the impact of the Bags acquisition contributed to the increase in adjusted EPS. The Company generated free cash flow of $62.2 million during 2018, which included cash expenditures of $5.2 million related to the activity supporting the acquisitions of Bags and another acquisition we evaluated earlier in the year and $1 million for higher cash interest on the increased borrowings to fund the acquisition, which was offset by $3 million of free cash flow generated by Bags, post-acquisition.

I do want to point out that the free cash flow in 2018 was also favorably impacted by higher than normal levels of certain working capital items, which we expect will return to more normal levels in 2019. We estimate that the timing benefit received in 2018 was about $10 million and we have contemplated this normalization in our 2019 free cash flow expectation. As you saw in the press release, we are also providing full year 2019 guidance. For GAAP measures reported net income attributable to SP Plus is expected to be in the range of $46 million to $49 million. Reported EPS is expected to be in the range of $2.05 to $2.15 per share. Net cash provided by operating activities is expected to be in the range of $54 million to $68 million. For non-GAAP measures adjusted net income attributable to SP Plus is expected to be in the range of $58 million to $61 million. Adjusted EPS is expected to be in the range of $2.56 to $2.66 per share. Reported EBITDA is expected to be in the range of $110 million to $120 million. Adjusted EBITDA is expected to be in the range of $111 million to $121 million and free cash flow is expected to be in the range of $40 million to $50 million.

To provide a little bit more color on free cash flow, we expect the acquired Bags business to be cash flow accretive in 2019 by approximately $9 million to $12 million, which incorporates the increased borrowing costs on the additional debt incurred to finance the acquisition. The decline in expected 2019 free cash flow from 2018 is primarily due to the following factors: one, the expected normalization of certain working capital items that benefited 2018, as I discussed earlier, which we estimate to be about $10 million. Two, the timing of fiscal year 2020 payroll that has to be pre-funded in 2019, which we estimate is about $7 million. Three, we also expect to make payments in 2019 for certain settlements that were expensed in an earlier period. The total expected payments were approximately $4 million. And four, finally, we expect that 2019 capital expenditures and payments for performance-based compensation will be higher than 2018 levels by approximately $6 million.

The factors I just outlined comprise approximately $27 million of the year-over-year decline in free cash flow. When you net this against the $9 million to 12 million of free cash flow is expected to be generated by Bags in 2019, the net year-over-year free cash flow impact from these items is approximately $15 million to $18 million. We would normally not provide this level of detail, but given the anticipated reduction in 2019 free cash flow, we thought it was important to provide some more -- some additional detail. For purposes of 2019, adjusted net income and adjusted EPS guidance, the amortization of all acquired intangible assets have been excluded. This represents a change to the previous definition of adjusted net income and adjusted EPS. We believe excluding the amortization of acquired intangibles, not just from the Bags acquisition acquisition, but from our previous acquisitions, better represents the performance of the core business. Starting with the first quarter of 2019 amortization of all acquired intangibles will be excluded from all presented periods for adjusted net income and adjusted EPS.

The impact of acquired intangibles on amortization on reported EPS was $0.20 in 2018, $0.03 related to the Bags acquisition and $0.17 from our prior acquisitions, and is expected to be $0.48 in 2019, $0.32 from the Bags acquisition and $0.16 from our prior acquisitions. To give you a little more color on Bags, the outlook for 2019 reported net income, reported EPS, EBITDA and free cash flow anticipates approximately $1 million for costs related to the integration of the Bags acquisition. The Bags acquisition is expected to be slightly accretive on reported EPS, excluding one-time integration costs, but including amortization of acquired intangible assets and increase in interest costs on debt incurred to finance the acquisition. And as I mentioned earlier, the Bags acquisition is expected to be accretive to free cash flow in 2019.

Finally, I want to mention that for reporting purposes, for example in the segment reporting and that will be presented in our 10-K , which we expect to file next week, we have combined Bags with our legacy airport business and have renamed as the Aviation division. As we have previously discussed, a significant portion of the Bags business is with the airlines and airports and we believe that there are significant cross-selling opportunities between Bags and our existing airport business, and as such, we plan to manage these businesses closely together. This concludes our formal comments.

I'll turn the call back over to Tiffany to begin the Q&A.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from Dan Moore with CJS Securities. Please proceed.

Pete Lucas -- CJS Securities, Inc. -- Analyst

Yes, hi, good morning. It's Pete Lucas for Dan. I apologize if I missed it, but it's going to Bags, ex non-recurring items was accretive by $0.04 in Q4 for just one month of the quarter, was there anything unusual in terms of seasonality or other items that boosted earnings during that period?

Vance C. Johnston -- Executive Vice President, Chief Financial Officer, and Treasurer

This is Vance, I'll just comment on that briefly. So, as you can imagine, in the month of December, given the nature of their business, which is closely related to travel and airlines can be a little bit greater than other months. So there is some factor of seasonality that they would experience in that one month.

Pete Lucas -- CJS Securities, Inc. -- Analyst

Okay, perfect. And then in terms of the cross-selling opportunities, you touched on those a little bit. And -- so if -- fair to say look for an update on that come mid-year, is that what you're looking for? And can you just reiterate the -- you went over parking management remote check-in, just a couple of things you're looking for there in terms of opportunities?

G. Marc Baumann -- President and Chief Executive Officer

Sure, I mean we'll be giving ongoing updates about cross-selling, because the cross-selling opportunity benefits, both the Bags business as it is today and also the SP Plus business as it is, you know prior to the acquisition of Bags. So there's opportunities that go both directions as we said in our prepared remarks. So, yes, we'll be giving updates on that as we go forward, but I think the exciting news -- well we use the word exciting a lot, I think in our comments and what's great is that we are excited, but I think what matters a lot more from my point of view is that both the existing SP client base and the existing Bags client base are very excited about this combination.

And I've spent quite a bit of time meeting the larger client relationship people for Bags during the first month or so following the acquisition and started talking to them about those cross-selling opportunities in the array of services that SP Plus could bring to meet their requirements. And I think there's a real interest there in exploring those with us. And likewise, our own organization at SP Plus have been introducing Bags to some of our larger clients, where it's appropriate, as Vance indicated particularly in the airport space, but also in some of the large hospitality -- universal (ph).

We also provide a lot of services at SP Plus and again those SP Plus clients are very excited about what Bags can bring because it offers the opportunity to help them provide a better experience for the guests or the people traveling, and also offers a potential cost saving opportunity and a congestion reducing opportunity for them in some of their operations. And so I think we're going to start to see some very exciting developments on the cross-selling front over the next few months.

Pete Lucas -- CJS Securities, Inc. -- Analyst

Great , thanks. And you covered a lot of the financial information, so I do appreciate that. Just one housekeeping item, interest -- what Interest expense do you expect for 2019?

G. Marc Baumann -- President and Chief Executive Officer

We don't typically give that out as individual item. We -- you can expect that -- I think our -- the credit agreement that we entered into in kind of the interest rates are certainly kind of presented, a document that's been publicly filed Pete, but we typically don't give out kind of the component of interest expense as part of our guidance.

Pete Lucas -- CJS Securities, Inc. -- Analyst

Perfect. That's it from me. Thank you.

G. Marc Baumann -- President and Chief Executive Officer

Thank you.

Operator

Thank you. (Operator Instructions) Our next question comes from Tim Mulrooney with William Blair. Please proceed.

Tim Mulrooney -- William Blair & Company L.L.C. -- Analyst

Yes, good morning.

G. Marc Baumann -- President and Chief Executive Officer

Good morning, Tim.

Vance C. Johnston -- Executive Vice President, Chief Financial Officer, and Treasurer

Good morning, Tim.

Tim Mulrooney -- William Blair & Company L.L.C. -- Analyst

So, does the 88% retention rate you gave in the fourth quarter, does that include Bags?

G. Marc Baumann -- President and Chief Executive Officer

No. So I think when one of the things that is probably worth going over again, Tim, is the fact that with the acquisition of Bags, the historical concept of locations really starts to fall apart. As we talked in our disclosures around the Bags acquisition, they delivered delayed luggage at 270 airports. There's a constant sort of change in number of locations where activities are taking place and I think as we look at the business, we've said, the fundamental issue of locations as it relates to Bags business isn't really all that meaningful.

And I think, as we know our airport business at SP is also fairly stable business, and you can sometimes see quite a bit of volatility in location counts as we win contracts that have multiple locations or naught (ph). So I think from explaining to investors and explaining the kind of trajectory of our business, we said the concept of location is really most meaningful for our legacy commercial business, which excludes airports and excludes Bags. And so, the information that we presented today has been adjusted, so that is comparable, and you'll see that in our filings as well, so that you're -- we're not comparing a new definition of locations for 2018 with a different definition for prior time periods.

Tim Mulrooney -- William Blair & Company L.L.C. -- Analyst

Okay, Marc, that's helpful. So that was -- that actually addressed the another question that I had. Your facility count -- now you said, it only includes commercial and institutional, is it an other way of saying it that it just excludes your aviation business?

G. Marc Baumann -- President and Chief Executive Officer

That's right. That's the right way to look at it, Tim.

Tim Mulrooney -- William Blair & Company L.L.C. -- Analyst

Okay. Okay, that's helpful. It looks like your leverage ratio is around 3.5 times net debt to EBITDA, somewhere around there. I mean what are your capital priorities moving forward? Should we kind of assume a pause in M&A and focus on deleveraging the balance sheet over the next couple of years?

G. Marc Baumann -- President and Chief Executive Officer

No, I don't think anything has really changed at all. As we've talked before, our leverage can fluctuate when we see an opportunity to grow our business through an acquisition. But because of the amount of free cash flow, the combined companies will generate on a prospective basis, our leverage comes down pretty rapidly. So I'd say from my point of view, we are continuing to explore ways to invest in our own business with technology and other things that we can do to accelerate our organic growth. We continue to review opportunities.

We passed on most opportunities because we want to make sure that if we do acquire something that makes good sound sense from an investment point of view, but we will be continuing to look at opportunities both in parking and also ancillary services that we can bring to our clients. And of course, we're always looking at driving value for shareholders. And so that means that other ways of bringing value to shareholders are also under constant evaluation by Management and our Board of Directors. So I don't think there's any magic about a certain leverage level that we have to be at and we're certainly very comfortable where we are today.

Tim Mulrooney -- William Blair & Company L.L.C. -- Analyst

Okay. Alright. That's helpful. Thank you, Marc. And Vance, I have a couple quick ones for you. If I look at your gross profit and your managed contract business. If I pull out the $3.4 million that Bags contributed, it looks like your managed contract business was still up double-digits year-over-year in the fourth quarter, now it's pretty strong growth there. Can you just give us a little more detail about what drove that increase in your legacy business?

Vance C. Johnston -- Executive Vice President, Chief Financial Officer, and Treasurer

Yes, a couple of things and -- the biggest -- one of the biggest contributors as we kind of mentioned in our opening remarks is really kind of good growth in our existing business, so across the majority of our markets. So I think that certainly was the primary driver. We had a couple of other items that were favorable to gross profit as well. But I think as you think about management contracts in particular, I think that's what (inaudible) key on is kind of continued good growth in our -- across most of our major markets for our existing business.

Tim Mulrooney -- William Blair & Company L.L.C. -- Analyst

Okay. So that gets me to my last question which is, if I exclude the Bags acquisition, what is your assumption that you built in the guidance here for -- how we should think about gross profit growth for the legacy parking business in 2019 or if you don't want to get that specific to 2019, maybe you can just talk about from a higher level, how to think about growth in the legacy parking business?

Vance C. Johnston -- Executive Vice President, Chief Financial Officer, and Treasurer

Yes. Well, I think -- I think what -- we've talked about for some time, our desire to accelerate the growth of the organic SP Plus business, and obviously, we're happy to see that we had 2% growth in gross profit in 2018. But if you look at the past few years, we've sort of been in that kind of 2%-ish more or less. And obviously for the longer term, the part of the thesis behind the acquisition of Bags is that we think the combined company can grow faster. That being said, as we highlighted in our remarks, Tim, we've made investments in subject matter and business development experts in the hospitality space, in the healthcare space and it expanded our SP Plus consulting capabilities because we're -- we were all thrilled about the cross-selling opportunities between SP and Bags. But at the day-to-day level for our organization, we need to invest in our activities to grow the organic growth of the legacy SP business independently of Bags. So I'm hopeful that those efforts will bear fruit.

There's a lot of really good things happening right now in both hospitality and healthcare already with some of our new accounts that we brought on board, which we'll expect to talk about later in the year. So I'm hoping we can move the needle on the organic SP business independently of Bags, then we have the Bags capability to grow on its own and we also have the cross-selling opportunities that I spoke to a few minutes ago. So all in all, our expectation is that we can move the needle and achieve faster gross profit growth for the Company.

Tim Mulrooney -- William Blair & Company L.L.C. -- Analyst

Okay. I look forward to hearing more about some of those initiatives later this year and good luck in 2019. Thanks, guys.

Vance C. Johnston -- Executive Vice President, Chief Financial Officer, and Treasurer

Thank you, Tim.

G. Marc Baumann -- President and Chief Executive Officer

Thanks, Tim.

Operator

Thank you. And our next question comes from Kevin Steinke with Barrington Research. Please proceed.

G. Marc Baumann -- President and Chief Executive Officer

Kevin, you might be on mute.

Kevin Steinke -- Barrington Research Associates, Inc. -- Analyst

Sorry, can you hear me now?

G. Marc Baumann -- President and Chief Executive Officer

We can.

Vance C. Johnston -- Executive Vice President, Chief Financial Officer, and Treasurer

Yes, we can hear you Kevin.

Kevin Steinke -- Barrington Research Associates, Inc. -- Analyst

Okay. I apologize for that. So thanks for all the detail on the year-over-year comparisons for free cash flow guidance. I guess, as we look at the adjusted EBITDA guidance for 2019, the factors that we should think about impacting the year-over-year comparison include the timing of the payroll that you mentioned as well as the assumption of higher performance-based compensation. I'm just trying to reconcile the SP Plus legacy business adjusted EBITDA, plus the Bags adjusted EBITDA and add those two together and then maybe you got some headwinds there from those items you called out. So, any color on that would be helpful?

Vance C. Johnston -- Executive Vice President, Chief Financial Officer, and Treasurer

Yes, Kevin, I think the -- So couple of things. I think the two things that you mentioned related to adjusted EBITDA guidance for 2019 are really -- they're not really impactful. Those are really items that are impacting free cash flow guidance. So the prefunding of payroll for 2020 that happens on an odd day in 2019, which means we have to fund that payroll. So it's really kind of -- it's not really a -- an expense differential timing issue between the -- but it's really -- when the cash goes out. But I think if you kind of key in, I think you've got it right. I mean, the way to think about our EBITDA guidance for 2019 is that it's -- the existing core SP Plus and then obviously we made the acquisition of Bags and so that EBITDA will be combined with that and that gets us to the $111 million to $121 million.

I think, one thing that is happening is that we do have a little bit higher G&A expenses in 2019. We expect it to be a little bit higher just because we did have some open positions and things of that nature and some further investments and compensation and things of that nature. But I mean, I think, you know, that would be one thing, obviously a lot of number of factors that are impacting what we expect to take place during 2019, but we certainly feel good about it.

Kevin Steinke -- Barrington Research Associates, Inc. -- Analyst

Okay. Yes, following up on that. Are there any other significant investments factored into the 2019 guidance we should be thinking about in terms of building out the cross-selling capabilities or vertical market strategy or anything along those lines?

Vance C. Johnston -- Executive Vice President, Chief Financial Officer, and Treasurer

Yeah, we -- I mean, not significant. We did kind of mention -- I mention obviously that is in G&A, we did mentioned in our prepared remarks that we have approximately $1 million of integration-related costs that we expect to hit in 2019. Now those will hit our reported numbers. We are adjusting that out for EBITDA guidance, which is effectively the difference in our -- $1 million difference between our reported EBITDA guidance range and our adjusted EBITDA guidance range. And then on CapEx, not a big difference from '18 to '19, but that will come back up slightly to more normalized levels in 2019, which really is kind of factor that will kind of impact free cash flow, but not significant, but it will be coming up somewhat in 2019.

Kevin Steinke -- Barrington Research Associates, Inc. -- Analyst

Okay, all right, that's helpful. I want to follow-up a little bit on the cross-selling, the remote check-in, do you have a good sense, yet is -- just the mechanics in the length of the sales cycle for cross-selling or selling the remote check-in to airports and hospitality? How they might differ in length or just trying to get a sense as to how quickly some of those, the cross-selling of remote check-in might be able to catch on.

G. Marc Baumann -- President and Chief Executive Officer

Sure. I mean, I think in some ways it parallels the sale process that we already have one we're selling into government as opposed to selling to a private company. So, government has more structured process. There's more formality to it. There's more deliberation and scrutiny because it's in the public domain, whereas a private business if there is a compelling argument to go forward with something or propel -- compelling proposal they can just make the decision to do that. So I think that difference will be true here. I think the one thing that's working in our favor in this space, particularly as it relates to bringing remote check-in to more airports, is that airports are facing congestion problems and up until now most of the conversation around congestion has been congestion, because there's more ridesharing vehicles going in there and there's long traffic line that are slowing things down as people try to move in and around the airport.

But as the airports think about the future and how -- what to do about that, one of the things that's come up on the radar screen now is the loading and unloading of people with their luggage at the curb is a significant contributor to congestion. And then once they get inside there's another whole congestion set of problems as it relates to people checking luggage and then obviously moving through the TSA lines and so I think there is a sort of an emerging consensus by planners around airports that they need to do something about that. And remote check-in is a perfect solution because it enables you to take the luggage from the traveler someplace else besides the curb front. And so I think -- I would say it's an idea whose time has come and I think for us as we look at it, Bags is doing remote check-in, there's quite a bit going on in the sort of travel and cruise space right now. But in terms of airports themselves. It's only three airports and SP Plus operates at 70 airports.

So you have a massive opportunity to get that in front of a large array of airports and one of the things that's happening independently of us is that airports that SP operates and airports that are operated by other operators are already reaching out to Bags to talk about the potential for remote check-in as a service. So that being -- that's the good part, but nonetheless, you're still -- you still face some of the contracting issues that I talked about a few minutes ago. And so we're very optimistic that there's opportunity there, but there will be a sales cycle, we're hoping to have some cross-selling opportunities contributing to our performance in 2019. But this is a multi-year set of activities and focus to really drive remote check-in throughout the travel and leisure industries.

Kevin Steinke -- Barrington Research Associates, Inc. -- Analyst

Okay. That sounds great. In terms of your revenue management capabilities, where do those stand in terms of maybe your desire to roll those out more broadly? I mean would you still consider it to be more pilot phase or any update on just the revenue management capabilities that you're building out?

G. Marc Baumann -- President and Chief Executive Officer

Sure. Well, I think one of the things that our pilot has taught us and we've been doing the pilot now for about a year, is that there are different segments of travelers or people parking their cars that can be influenced by revenue management type activity. And so I think, the obvious one and the one that has probably the most potential. Are the people that are looking for parking online and just like in aviation and just like in hospitality the online customer is spending some time looking at alternatives and they're making decisions that are based on price and convenience and the like. Whereas the person driving up to the parking facility to just park for that day is maybe not doing as much planning ahead. So I would say the opportunity for revenue management is greatest in the planning ahead here -- and planning ahead consists of those people that are looking to part for the day and our planning ahead online, it can consist of people going to airports and planning ahead for a trip and trying to figure out what am I going to do about that and it can consist of people that are seeking monthly parking because they're making a commitment to park in a certain place for an extended period of time and there is obviously a price sensitivity there.

So a lot of our focus, while we've been conducting the pilot to learn about these difference, which is called customer groups has been to build out our capabilities to more effectively manage online transactions and to be able to manage multiple channel partners, what they were going to sell, the parking online, either for monthly parking or drive up parking through our parking.com app that we launched in 2018, whether we're going to use one of the other aggregators that are out there to sell some of our inventory through. It requires the capability to be able to manage in that online environment and be able to optimize not only pricing, but also ease and efficiency of the whole transaction process. And so a lot of our investment and focus in 2017 and 2018 has been around those areas. As we continue to learn about our ability to influence different customer groups.

I think now, we're going to be turning our attention a little bit more to what happens when you get to the parking facility and one of the challenges that's out there for everyone is that parking facilities are owned by thousands and thousands of different entities, large and small and the equipment at the parking facility is owned by those thousands and thousands of entities and the decision-making around upgrading that equipment, enabling it for a frictionless experience are decisions made by those people. And so one of the things that we are trying to do, to differentiate ourselves in the marketplace is to come up with some proposals and some offerings that we can give the clients and say here's how you can attract people who are transacting in the online space. And when they get to the facility they want a very frictionless experience. They don't want to pull the ticket. They don't want to go stand in line at a pay station and do all of that. They wanted it to be a very easy in and easy out, and we have those solutions available now and we're implementing them with some of our clients.

But I think that will become a major focus for the future and I think ultimately when people decide where to park, there's going to be obviously the proximity to where they are going. That's going to be important variable, the price that they pay that will be an important variable, but I think also the kind of quality of the experience, the transaction experienced both in advance, if they choose to do it in advance, but also when they get to the parking facility are going to be another factor that's going to be running through people's heads. And so those facilities that make the investment in a frictionless experience are going to ultimately be attracting parking customers to away from places that don't. And so our goal is to be -- position ourselves well to help our clients navigate successfully and that's changing kind of environment.

Kevin Steinke -- Barrington Research Associates, Inc. -- Analyst

Okay. That's a great update. Very helpful. Just if I could throw a couple of number questions in here. Now, that you're going to exclude amortization expense -- the expense from the adjusted EPS -- I mean, are you just going to kind of give the year-over-year comparable numbers throughout the year as you report your quarterly results, that is provide what EPS would have been in the year ago quarter, when you report or is there any way we can adjust our numbers ahead of that?

Vance C. Johnston -- Executive Vice President, Chief Financial Officer, and Treasurer

Yes. Kevin, this is Vance. I think a couple of things. I think one, I think in our prepared remarks we provided what we expect the 2019 amortization expense on acquired intangibles to be. So you would get that as kind of the difference between our reported to our adjusted and so I think it's fair to kind of assume that going throughout the rest of the year. We'll probably just provide -- will provide reported EPS and then we'll provide and provide commentary on adjusted EPS. But we probably won't provide specific commentary, since we've already given kind of what we expect amortization on acquired intangibles to be.

Kevin Steinke -- Barrington Research Associates, Inc. -- Analyst

Okay. So when you said 2018, it was an impact of $0.20, so we can just factor that out, I guess, if we want a better year-over-year comparison?

Vance C. Johnston -- Executive Vice President, Chief Financial Officer, and Treasurer

Correct.

Kevin Steinke -- Barrington Research Associates, Inc. -- Analyst

Okay. And then lastly, would you -- the $5.2 million of depreciation and amortization expense on the income statement, how much, if any amortization expense from the Bags acquisition does that include? Just trying to factor that out?

Vance C. Johnston -- Executive Vice President, Chief Financial Officer, and Treasurer

Are you talking in 2018?

Kevin Steinke -- Barrington Research Associates, Inc. -- Analyst

Yes. The fourth quarter of 2018. Does that include any --

Vance C. Johnston -- Executive Vice President, Chief Financial Officer, and Treasurer

Yes, would have had very little -- it would have had very annual amount. Yes, very minimal amount.

Kevin Steinke -- Barrington Research Associates, Inc. -- Analyst

Yes. Okay. Sounds good. Alright, thanks for taking all the questions.

G. Marc Baumann -- President and Chief Executive Officer

Thank you, Kevin.

Vance C. Johnston -- Executive Vice President, Chief Financial Officer, and Treasurer

Yes. Thank you, Kevin.

Kevin Steinke -- Barrington Research Associates, Inc. -- Analyst

Thanks.

Operator

Thank you. (Operator Instructions) Our next question comes from Marc Riddick with Sidoti. Please proceed.

Marc Riddick -- Sidoti & Company, LLC -- Analyst

Hi, good morning.

Vance C. Johnston -- Executive Vice President, Chief Financial Officer, and Treasurer

Good morning, Marc.

G. Marc Baumann -- President and Chief Executive Officer

Good morning, Marc.

Marc Riddick -- Sidoti & Company, LLC -- Analyst

I wanted to start with -- you've made some commentary around the -- some initial meetings, Marc that you had with some of the larger clients, and I was wondering if you could sort of touch a bit on, maybe one or two of the top things that those clients are excited about with the acquisition. And also how that kind of plays into the mix of national account contributions and maybe what we might see there versus local accounts?

G. Marc Baumann -- President and Chief Executive Officer

Sure. I'd be glad to. I think two things were running through my head when I wanted to get out and meet these folks. One was, of course to provide the reassurance that they may or may not have been seeking, but I wanted to provide it even if they weren't, that nothing is going to change in a way that's going to be detrimental for the business relationship that they have between Bags and their organization. But because some of their -- which was I think very, very well received, I should say. But because these are very large companies, some of them are major airlines than others. They definitely think in terms of how can I -- how can I manage and have have vendor relationships where someone is able to meet my needs wherever they might be.

And so I think when they see that Bags was acquired by a larger company with a very strong balance sheet and capital capabilities, I think they are very, very pleased to see that and understand that we are there to support Bags in delivering services to them. So I think that was probably the most important and fundamental situation. And I'm hoping that would -- that will lead to -- it maybe an opportunities just for Bags' current service offerings to be provided to them in more locations, in more places and we can help Bags in many cases the other places where they're large clients would like additional services are places where SP Plus operates right now. And so it makes it a little bit easier for us to support Bags in providing those services as opposed to they're going into a new place by themselves. So I think that's going to bode very, very well for the future.

The other thing though that came out and clearly they knew in advance of the meeting that Bags have been acquired by SP Plus and a little bit about what SP Plus was. But when I got in there, sort of talking to them about the array of things that we do, obviously there's parking management, which is our sort of core business, but also the fact that we take 37 million people on sort of bus rides and we do other things in terms of services, they were very, very interested in them and interested to hear that we could do more than just -- than just parking management. So I think there will be opportunities for us to discuss down the road as we move through '19 and '20 ways that SP Plus can really provide some new services to these clients that were not provided by Bags and some of these companies are companies that are not current clients of SP Plus. So I think that's why I think the cross-selling opportunity goes both directions.

Marc Riddick -- Sidoti & Company, LLC -- Analyst

Okay. Great. Thanks for that. And then I wanted to sort of switch gears a little bit. You touched a little bit on the core business and some of the vertical opportunities. You touched on hospitality and healthcare. I was wondering if you could sort of give a little bit of an update on maybe -- you also touched on major markets, which -- we appreciate those details. But I did want to touch on where we -- where you've might have been seeing some of the strength that you saw in with vertical some being maybe a little better than others and maybe what you see going forward and from a standpoint of what the verticals look like.

G. Marc Baumann -- President and Chief Executive Officer

Yes, I would say in general most of our markets performed quite well in 2018. We clearly -- we've talked about New York over many years and we are still working on trying to get New York to where we would like it to be from a growth point of view, but most of our other markets -- I'm not trying to say that New York had a bad year, it didn't. But my point is that, in general, we had strong performance across our marketplace. I think when you think about the future though, our legacy verticals, which tended to be things like commercial office buildings, the surface parking lots, freestanding parking garages, we continue to seek opportunities to manage those as we always have with our local management teams that are on the ground in all the major markets in the United States and some in Canada.

But when we think about where -- where can our growth come from for our future, we are -- we really look at some of the ones you mentioned, hospitality, healthcare, but also the institutional space whether it's large venues, we obviously continue to seek opportunities to operate sporting venues, either for big events like the Super Bowl that we do or the Kentucky Derby that we did last year, but also to have year round relationships at these large venues, many of which are owned by universities and often the sporting event, either a consulting contract for sporting event or the sporting event operations represents the opening of a door to a relationship, and I could go on and on about the number of situations where they have a problem and we go in with a consulting contract and we offer up solutions and then they come back later and say, well, can you just implement it and then that leads into a year round opportunities for us for event management, parking management, if it's university, it could be permitting and enforcement, other shuttle bus operations, et cetera.

So I think for the longer term, those clients that are concerned with and interested in service, the experience of a guest, the experience of a fan or an alumni, or the experience of the patient or their family coming into a medical center, I think you're going to increasingly look to us as being able to provide not just an efficient operation, but the quality of experience that they're looking for to differentiate themselves from other places that are maybe just not thinking along those lines.

Marc Riddick -- Sidoti & Company, LLC -- Analyst

Okay. And then I guess the last thing for me for now. There was a mention as far as a normalized level of CapEx and I know kind of looking at that range for '19. I was wondering if we should think about that as being sort of the -- is that kind of the baseline going forward that we should be thinking about for CapEx? Thanks.

Vance C. Johnston -- Executive Vice President, Chief Financial Officer, and Treasurer

Yeah, I mean I think as we talked about for CapEx in 2019, we expect it to kind of come up slightly in a more normalized level. And so we haven't provided any kind of further guidance on either free cash flow or for other metrics at this point of time going forward, but I think it's at a more normalized level now. We will -- talked about previously, there are certain things that could impact our CapEx that can cause things to vary, such as we may have a really good opportunity that comes up, so we're not aware of any point in time that requires additional capital and providing the right return structure, we would do that. But outside of that, I think it's certainly as we look forward now to more reasonable level.

Marc Riddick -- Sidoti & Company, LLC -- Analyst

Okay. Thank you very much.

Vance C. Johnston -- Executive Vice President, Chief Financial Officer, and Treasurer

Thanks, Marc.

G. Marc Baumann -- President and Chief Executive Officer

Thanks Marc.

Operator

Thank you. And at this time, I'm showing no further questions in queue. I'd like to turn the call back over to Marc Baumann for closing remarks.

G. Marc Baumann -- President and Chief Executive Officer

Thanks, Tiffany. And I'll be brief. I just want to thank all of you for joining us today and letting us have a chance to talk about our 2018 results and our plans for 2019. As we indicated in our prepared remarks, we're looking very much excitedly about the future and making plans, and have a lot more to say about some of that as this year unfolds. So, thanks again. Have a great day. And we'll look forward to speaking with you next time.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes this program. You may now disconnect. Everyone have a great day.

Duration: 52 minutes

Call participants:

Vance C. Johnston -- Executive Vice President, Chief Financial Officer, and Treasurer

G. Marc Baumann -- President and Chief Executive Officer

Pete Lucas -- CJS Securities, Inc. -- Analyst

Tim Mulrooney -- William Blair & Company L.L.C. -- Analyst

Kevin Steinke -- Barrington Research Associates, Inc. -- Analyst

Marc Riddick -- Sidoti & Company, LLC -- Analyst

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