SP (2020 - Q3)

Ladies and gentlemen, thank you for standing by and welcome to the Q3 2020 SP Plus Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Kris Roy, Chief Financial Officer. Thank you. Please go ahead, sir. Kris Roy

Thank you, Teresa, and good afternoon, everyone. As Teresa just said, I'm Kris Roy, Chief Financial Officer of SP Plus. Welcome to our conference call, following the release of our third quarter 2020 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 for 2020 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 the 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. They 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 measure 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 Chief Executive Officer.

Hey, thank you, Kris and thank you all for joining us today to review our third quarter results and discuss our business outlook. There are four key takeaways from our third quarter performance that I'd like to highlight. First, our business substantially recovered from the low point of Q2 when pandemic related lockdowns caused businesses to implement work-from-home protocols and travel came to a virtual standstill. Second, the actions we took to mitigate these challenging business conditions are working and have resulted in structural changes that have benefited us already and will continue to benefit SP Plus in the long-term. Third, our investments in technology are increasingly differentiating us in the marketplace. And finally, our scale, reputation and leadership position are winning us new business at a stronger pace than what we would have expected during such uncertain times. We're pleased to report adjusted gross profit of $42.4 million for the third quarter, which was a significant improvement over Q2 levels, and which reflected a strong showing within a difficult business environment. The sequential pickup in gross profit was driven by the performance of our Commercial and Aviation businesses. Transient parking volumes at our locations in major cities have steadily increased over the last several months. And it's some urban commuter-centric locations are even up compared to last year. This is due to the fact that mass transit and other shared mobility options have become less attractive modes of transportation in today's COVID-19 environment. And we believe that this situation is likely to persist for some time. With more than 3,000 managed and leased locations in our Commercial business and operations at 74 airports within our Aviation business, SP Plus is one of the industry leaders and we believe that our scale has played an important role in enabling us to recover as quickly as we have and to be on the receiving end of many new business requests. We're getting a higher inbound number of requests from new clients, as well as from existing clients for whom we already are providing services. So in fact, scale matters as does operational excellence. Ultimately, our clients' radar performance by how well our field employees deliver our services. And this gives me the perfect opportunity to commend our entire staff for their dedication to supporting our clients and going above and beyond expectations during this difficult time. Our ability to successfully deliver has been a key advantage in the current market climate, where some competitors are having difficulty providing a level of service clients require. Early in the pandemic, we developed a comprehensive COVID playbook, emphasizing social distancing, personal protective equipment and health screenings, effective signage and enhanced cleaning protocols at our facilities for the safety of our staff, our clients and their customers. This playbook has been extremely well received by our clients, and it's been a contributing factor in some of our recent new business wins. The sequential recovery in our gross profit and EBITDA demonstrates what we believe is the increased importance of our wide array of services, a more predictable and favorable business mix within our operating portfolio and our effort to optimize our overall cost structure. In the third quarter, demand for our services increased as businesses reopened and consumers return to offices, if only on a limited basis. Our technology solutions that enable touch-free transactions and mitigate congestion, as well as support social distancing have become increasingly relevant to clients and consumers in this environment. Also, through a combination of natural expirations and renegotiations that took place in the second and third quarters, we have now essentially reconfigured our operating portfolio is now comprised of fewer leases, with lower fixed rent obligations. And we've also been able to convert some leases to management contracts, which tend to have greater visibility and predictability. On the expense side, our adjusted G&A decreased 19% sequentially and 40% year-over-year. Some of the factors that contributed to a sizable reduction were temporary in nature, including base salary reductions that we reinstated effective October 1st. Also, as business conditions improve, we expect to appropriately scale our workforce and resume certain expenses. But there have definitely been cost reductions that are permanent and we see additional potential to further reduce our cost structure as we pursue process improvement initiatives. What I believe is clear from our performance during COVID-19 is the flexibility of our business model, which has enabled us to adjust and scale our costs quickly in the face of the rapid slowdown in our business in March and April. We made difficult business decisions, but ultimately reduced our costs dramatically, and were able to achieve positive free cash flow. Through all of this, our commitment to leading the digital transformation of our industry has remained consistent. Technology is a key differentiator for us in the marketplace that we continue to invest in after the onset of the pandemic. We believe it will be a major driver of our long-term growth. In the third quarter, we continue to see increased demand for our Sphere technology offerings, which include contactless reservation and payment options that are aligned with pandemic related safety measures. We expect to have more than 300 locations on our gateless on-demand solution by year end, which we believe is significantly more than any other parking operator. Our technology solutions are contributing to our success in winning new business. Specifically, our touchless technology offerings were key to winning several airport contracts this year, where new business activity was stronger than in recent memory. On the Commercial side, we added 64 new locations during the third quarter, some of which were previously managed by smaller competitors, who perhaps were not able to pivot to maintain service levels under the challenging business conditions brought on by this pandemic. As you saw in our earnings release, we took large impairment charges in the third quarter for certain intangibles and goodwill in our Aviation business. This was the result of the reduction in business activity experienced by our travel and hospitality clients due to COVID-19 restrictions and concerns. That being said, we believe that our Aviation business has unique service offerings, specifically Bags' value proposition and technology have become increasingly important in a world where social distancing and reduced congestion matter. We're in discussions with existing and potential clients around using Bags' service offerings post-pandemic and we continue to see this unique service as a long-term business driver. With that I'll turn the call back to Kris Roy, our CFO, who will provide a financial review of the third quarter.

Thank you, Marc. As always, I will talk to our adjusted financials. Please refer to our earnings release issued today after the market close for a full reconciliation of all non-GAAP measures to their nearest GAAP measures. For the 2020 third quarter, we reported $42.4 million in adjusted gross profit compared to $58.7 million in the year ago quarter, mainly due to reduced business activity as a result of the pandemic partially offset by $5.6 million from an early contract termination fee related to certain Aviation contracts. This year's number excluded $100,000 for restructuring, as well as $300,000 non-cash lease impairment charge. On a sequential basis, which we think is a better way to look at our overall financial results and to judge how we are adjusting to this challenging environment. Adjusted gross profit increased $38.5 million due to improving business activity as states and communities began to reopen. Sequentially in addition to the early contract termination fee, third quarter gross profit also benefited from lease terminations and lease conversions in the management contracts, excluding $1.6 million in restructuring costs, as well as a $1.3 million non-cash lease impairment charge, third quarter 2020 adjusted G&A decreased by 40% to $15.5 million. This year-over-year comparison reflects lower compensation and related costs, as well as a reduction in discretionary spending in light of COVID-19. Sequentially, adjusted G&A was down 19%, which was largely in line with our expectation, expectations and reflects our efforts to closely manage our overall costs. Please note that going forward, some G&A expenses will return as we have reinstated base salaries to pre-pandemic levels for those employees affected by the pay reductions enacted in April, as Marc mentioned. However, as a result of our cost management efforts, a significant portion of our G&A expense was permanently eliminated, setting the stage for us to operate with an overall lower cost basis. Adjusted earnings per share were $0.62 compared to $0.77 for the third quarter 2019. Adjusted earnings this quarter excludes $1.7 million of restructuring costs, as well as a $133.2 million non-cash impairment charge. The impairments were related to our Aviation business and primarily from our Bags acquisition. Again, although we reported year-over-year declines, we are we are pleased that we return to profitability on an adjusted basis sequentially. Among other factors, we benefited in the third quarter from several leases that came to their natural contractual expiration, many of which were unprofitable. Considering the current business environment, we are very pleased to report positive cash from operations and free cash flow. Year-to-date, the company generated $27.9 million in net cash from operations compared to $54.8 million in the year ago period. And the year-to-date free cash flow of $18.9 million versus $44.3 million in the same period of 2019. Now, I would like to share some of our thinking with respect to how the fourth quarter is shaping up. We expect to see incremental gross profit from improving business trends compared to this year's third quarter, excluding the benefit of the $5.6 million early contract termination fee. Additionally, potential expiration of some rent abatements will likely further reduce our fourth quarter results. Therefore, gross profit in the fourth quarter is unlikely to exceed the third quarter. In addition, we will have sequentially higher G&A costs in the fourth quarter for a number of reasons, including the reinstatement of approximately $1.5 million in base salary reductions that were implemented earlier this year, and at the onset of the COVID-19 crisis. And finally, at the end of October, we had $170 million of capacity under our senior credit facility. Based on our current visibility, we continue to expect to generate positive free cash flow for the remainder of this year and into 2021, and remain confident that we have ample financial flexibility to manage through these uncertain times. With that, I'll turn the call back over to Marc for some closing comments.

Hey, thanks, Kris. While the last few months have been challenging as you can see from our numbers, we have emerged as a leaner and stronger company. Adding this to our business advantages of size, scale and technology, we think we're well positioned to thrive and win additional profitable business in 2021 and beyond. We've shown that we are nimble and can manage through the worst of times, which we believe are behind us. And we expect our business to continue to move forward from here. We work hard every day to grow our business, while adding value for our clients. And we look forward to reporting our continued progress over the next few months in years. Teresa, let's open the line for questions.

[Operator Instructions] Your first question comes from Daniel Moore with CJS Securities.

Marc, Kris, good afternoon. Thanks for taking questions.

Yep. Hello.

And appreciate the incremental visibility into Q4, it's extremely helpful. Maybe just talk about the cadence of revenue are really more helpful. The gross profit, kind of July, August, September and into October on a sequential basis, how, you know, any sense for the cadence of how gross profit recovered through those periods?

Yep. Well, that I think the good news is that, what we saw and anticipated was that April would be the low month, and essentially every month, subsequent has been better than the one before. So it was a nice, slow, steady recovery through those months. And as we've gotten into early October, we're seeing more of the same, obviously, there's been a spike in COVID, as we see reported in the press. And so we don't know whether that is going to change that pattern that we've observed. But at least based on the information we have today, you know, we're seeing a strong October relative to September.

Extremely helpful. I just want a level set, you did a great job of it. But if we take Q3 as a baseline, back out the $5.6 million termination fees and adjust for the higher G&A that we'll likely have is on a run rate basis, I come out with, you know, sort of an adjusted gross profit on a run rate of $37 million and EBITDA on the $20 million range. Is that the right way to think of it? Are there any other non-recurring items?

I think you're on the right track there, Dan, in terms of kind of how you're thinking about the puts and the takes there in terms of, you know, what we've been able to give you in terms of kind of expectations for Q4. I think as we mentioned, it's unlikely we're going to kind of continue with what we had in Q3. So I think the way you're thinking about it in terms of backing out the termination fee and add back additional G&A from an EBITDA perspective is kind of the right way to think about it.

Very helpful. And then, so if we start it somewhere around that is a base and adjust for seasonality, et cetera. And as the world emerges from COVID, and, you know, travel recovers, the economy recovers, gross profit improves, how do we think about operating leverage from here? In other words, you know, for every incremental dollar of gross profit, how do we think, how much incremental EBITDA would you expect to generate, you know, net-net that we've got the revised portfolio and restructuring activities, et cetera?

You know, I think the thing we can say probably with certainty is that, you know, incremental growth and gross profit is going to generate more operating leverage than it did in 2019, because we brought our cost base down, in some ways permanently from 2019. But we've also brought our cost base down this year in some ways that are temporary, you know, we've talked about cuts, the compensation, and the like, and so we don't have enough visibility into what 2021 gross profit curve is going to look like. And so I think it's premature for us to sort of get too precise about what G&A might require, clearly as gross profit grows, we're going to need to bring some DNA back. But since we're good at controlling costs, you know, we're going to do that very, very carefully and judiciously.

Very helpful. Last for me, and I'll hand it over, but you're on pace for 300 gateless on-demand locations by year end. You know, where do we see that going as a percentage of the overall portfolio in '21 and beyond? And what's the revenue and gross profit differential for gateless facility versus an attended facility, all else equal? Just trying to get a sense of if there's a revenue differential and/or gross profit differential? Thanks.

Yeah, glad to take that on. You know, the gateless technology capability that we're talking about there is going to be primarily deployed in places that do not have gates now. And what that means our surface lots and other places like that. And what this technology does, of course, is facilitates more efficient payment options, you'll be able to use your device to pay so people don't have to go to a pay station to pay. It reduces some of their processing costs, because you don't need a pay station, you don't need someone to go there and tend to it. But you still do have an enforcement activity it's used to be mostly unattended lots and you got to send somebody to save, you know, a huge amount of labor from what you had before. But you're going to have better capture I think is already doing for and certainly more efficiency and I think potentially we are going to draw, you know, parkers who may prefer to go to a much easier transaction environment and what they have to do in other places. The other technology that we're deploying is part of Sphere Commerce is for gated locations. And that's really the preponderance of parking facilities that out there where you do have access control or you don't want to send someone around individually to do enforcement where you have staff on hand to be able to operate a lot of the parks' equipment and other things that go on there and do reconciliations and the like. And what the gated solution offers is really the opportunity to become more efficient in the operation of those type of facilities. And just to give you a little update, you know, we're deploying our gated solution, right now at a number of facilities. And while we haven't put it on full deploy yet, we expect to do so by year end. And I would imagine, we'll have, you know, talking about 100 or more locations on that solution, you know, during the first half of next year, and that will start to drive a meaningful reduction in costs. Now, if we deploy those at leases that meaningful reduction in cost that nurse to our benefit, if we deploy that at management locations, it benefits our management clients, and particularly, if they combine it with Sphere Remote where we can remotely monitor the facility. You know, you could go to a much different staffing level or maybe no staffing level compared to the traditional parking facility.

Very helpful, perfect. Okay, thank you for the color again.

Yep.

And your next question comes from the line of Tim Mulrooney with William Blair.

Hey, Tim.

Hey, Tim.

Hey, Marc. Hey, Kris. How are you guys doing?

Doing well. Doling well.

Yeah just a few questions for me. So first, can you talk a little bit more about your cost reductions in the quarter? How much of the $10 million reduction in SG&A would you consider to be, I guess, temporary until business activity comes back? And how much would you consider to be more structural kind of what we would think of as being annualized cost savings as we move into 2021?

I think it's probably a little bit difficult, Tim, as you kind of look at kind of the overall cost structure, certainly some of those were temporary in terms of what we saw for Q3. You know, as we mentioned on the call. I think a lot of this depends on kind of what we think the curve is really going to look like as we kind of move through Q4 and into early 2021. I think depending on how that curve is, we'll have to make the necessary investments into the business in terms of additional G&A. Now certainly, I think as we look at our overall G&A structure, I think we mentioned, you know, a lot of this is going to be permanent. I think there are some additional opportunities as we kind of go through Q4 and as we kind of think about 2021, but some additional initiatives and in terms of driving down our cost. I think it's challenging to kind of say, this percentage is kind of permanent in nature. Because I think as we look at the business, and what we need to invest in the business, I think that can change over time.

Okay, all right. I'll leave that there. Thanks, Kris. Moving to your location counts, you've reduced leased locations, I think by about 80 in the second quarter, and maybe close to 60 more in the third quarter. Do you feel that you're well positioned now, with the remaining lease contract location that you have? Or is this still a pretty fluid situation? And maybe we might expect another step down in that facility location count in the fourth quarter?

Well, I think there we have two sets of changes going in opposite directions. You know, as we talk, you know, we added 64 new management locations in the quarter. And we added I can't remember the exact number now, but at least 50 in the second quarter. So we're adding management locations, those aren't conversions from leases, those are new locations. So we're getting quite a bit of growth in our management contract portfolio and probably more growth in terms of new locations than we have in recent times. But at the same time, we've talked to you last quarter, and that continues. We're looking at leases as they either come up for expiration in the normal course or whether we have terms and conditions in those leases that enable us to renegotiate the terms or change their rent. You know, we're doing all those things. And certainly COVID has provided a trigger on some of those terms that have enabled us to reduce our lease commitments. And so that's happened. We have another, I don't know 45 leases that expire by their terms next year. And I think the only thing you can say for sure is that we'll follow our good disciplines of only renewing those leases that makes sense for us to renew and doing so on terms that can generate profit at the level of business activity that we have. And if we can't, then we're going to let them go. So you could see a continued decline in our lease count. You know, I think year-to-date, you know, we're down about 25% in our leases from where we were at year end, that may well go down further. But, you know, I think for us, it's not about how many leases do we have? It's whether their leases are generating enough profit for us to justify the risk that goes with those sort of commitments.

Yeah, absolutely and that makes sense. You know, I want to touch on the comment you just made a second ago, Marc, about some of the new wins that you've had recently, because we've seen some bankruptcy announcements in the industry this year. And obviously, everyone in the parking management industry is just trying to figure their way through these tough times. But I'm wondering if a company like yours with a larger balance sheet, is seeing opportunities to gain market share, and I guess, certain regions where your competitors are struggling.

I think that's definitely the case. I mean, if you look at, you know, if we were to run down the details in our commercial group of like, what have we won? You know, they're all being taken away from somebody else. And I think the effect that we've added more new locations in the past couple of quarters than probably any two quarters you know in the last couple of years, I think is a sign that, you know, some clients are, let's just say migrating to safety. They look at us, they look at our strong balance sheet, but they also look at our technology capabilities, when we are able to get out and explain to them what we can do with under our Sphere umbrella with contactless payments and, you know, Sphere IQ and our data analytics and Sphere Remote where we can remotely manage your facility and take costs out. I just saw a note today from one of our operating guys, where the client is - the prospective client is actually still being served by one of our competitors. But it's very excited about the possibility of working with a technology company that focuses on parking. And that's how they are viewing us. And so I think, I think potentially some of the smaller competitors that haven't made the investments in technology that we're able to make are going to struggle to retain clients in a world where technology is really going to drive the future.

I like that. You're not a parking management company, you're a tech company that does parking. So just maybe one or two more for me. So of your managed contracts, I know they can be structured in many different ways. And I was hoping you could share roughly or even directionally you know what percent of your managed contracts are fixed fee versus revenue share versus management reimbursement? So I think this would be really helpful for investors in understanding how your business might respond in the coming quarters to the various macroeconomic scenarios?

You know, we can try to help you although I don't think that needle moves all that much. You know, we've said for some time that roughly half of our management contract portfolio are fixed fee. But I'll give you an example of something that isn't a fixed fee, but it just shows the dynamics of what we're able to do. So within the hospitality industry, our contracts are typically rev share deals, which means that the revenue is collected by the hotel, and a percentage of that is kept by the hotel. And a percentage is given to us to cover the costs of operating the parking and also for us to make a profit. Well, as you can imagine, as the hospitality industry has suffered a bit of a drop in travel, there's been a drop in revenue. And so immediately when that happens back in, in March and April and May, you know, we see a big drop in revenue, and we scale our expenses down as much as we can. But some of these contracts now become unprofitable to us, even though they're management contracts. And so we immediately go back to our clients and say, we have a tradeoff to make, we can cut our costs further and that's going to affect the service levels to your guests. And if that's how you'd like to do it, we're happy to work with you on that or alternatively we need to adjust the revenue share percentage between us and you and to enable us to make money. And so we spent the summer doing that in our entire portfolio of hospitality clients and we had a very, very strong September as a result. The other thing that's helping September, and I think it's carrying on in October is that, well actual overnight room stays are down and many places you're seeing occupancy, you know now in the sort of 50% to 60% of prior year level. Whereas, you know, in normal times they might be at 90% of capacity. You know, Tim, more and more people are driving and so we're seeing people bringing a car sometimes half the time or even 60% or 70% of the time where is at normal periods, they're going to be maybe 20% of the people are bringing a car. And so that's an important sort of mitigator of the downward, you know, room stays that are taking place is that there's more cars being handled. And so and many of our hotels were actually not down all that much. And the number of cars that were parking overnight compared to pre-COVID times.

So that's a great example, Marc. So that's a fewer people staying at the hotel, but driving to the hotel more often. What happens when everyone starts going back to the hotel, but they're all continuing to drive?

Well, that'd be great, it would be a nice problem to have, we'll have to park even more cars. So, you know, I think, you know, look, we don't know when everybody's going to feel comfortable traveling at 2019 levels. But what we try to do with all of our clients, and more and more of our hotel clients are reopening and seeing increases in volume. We're trying to work with them to have a flexible arrangement that generates the service deliveries that they're looking for. We bring the latest technology to those hotels, and all of our dashboards and everything else to manage efficiently, our valet operations. And I think both they and we are pleased to see more people driving in, because it's a revenue source that benefits the hotel as well as us.

Yeah, all right. Last one for me. And I apologize, because I jumped on late, but did you give your retention rate for the quarter?

We didn't. You know, I think we're and if my memory serves, I think it was probably 89% or 90%. So down a little bit from last quarter, but still very strong in an environment like this. And that includes, of course, our leased locations that we're actively, you know, looking to work on and maybe close some of that.

Got you, thank you very much for your time.

All right, Tim. Thanks.

Thanks, Tim.

[Operator Instructions] Your next question comes from Kevin Steinke with Barrington Research.

Hey, good afternoon.

Good afternoon, Kevin.

Hi, Kevin.

So you talked again about higher inbound calls from prospective and existing customers, given your strong position in the market. I was just wondering if there was any noticeable trend in terms of, you know, the industry verticals that the clients are in or the potential clients are in that are coming to you? Or is it kind of across the Board?

There's definitely a lot of inbound calls coming from healthcare and university space, because these are, you know, verticals where there's a lot of people moving, they're active, you know, obviously, people are at hospitals, people or students are back at universities. And of course, there are sporting events taking place. And even though there may not be fans or there may be fans on a reduced basis, there needs to be planning and logistics for staff and other activities. So we're getting a lot of calls in those verticals. But quite frankly, you know, everybody is trying to figure out, how do I safely reopen? How do I reassure my customers that it's safe and a good place to be? And this comes back to what I talked about in my prepared remarks, you know, we developed the COVID playbook early on, that covers all of those protocols. And that playbook along with our technology that enables touchless or no contact transactions is a perfect combination to really address the needs that any client might have, whether it's an office building or a mixed-use property, what have you? These are concerns that everybody has right now. And so we're getting a lot of inbound interests from across the vertical marketplace, but I would say, you know, as it relates to sort of where is it very strong, it's in health care. And I think also where we do see a regional competitor struggling a little bit, some of their clients are reaching out to us and those clients may have freestanding parking garages or other properties. And well, you know, elite client is not necessarily concerned about COVID protocols. They are concerned about somebody having a strong balance sheet and the ability to pay the rent.

That's interesting. I mean, this perhaps potentially could lead to some sort of acceleration in your ability to penetrate those institutional markets that you've been targeting, I guess.

That's what we're hoping and, of course, you know, one other things we haven't talked about today, but that I find somewhat interesting is that, in the government sphere, so I'm talking about airports now, you know, for the most part, they have continued on with their normal processes. So if contracts are up for renewal, there's renewal processes going on. And that's given us the opportunity to bid on new contracts. And so far, this year, in terms of either new deals that have started or new deals that are going to start later this year, will have added more new airports than really any year for several years, I think we have 6 airports that have either started year-to-date or are going to be starting before the year is up. And we've also had major renewals at Miami airport and we're providing janitorial services at Fort Myers, that contract was rebid this year, and we were able to retain it. We're also just started up a couple of weeks ago, driving shuttle buses on the airside at Salt Lake City that was an extension of our parking contract there, we're now driving on the airfield side to move passengers and staff around the airfield, which is something that we see as a growth opportunity and an additional thing that we can talk to other of our 74 airport clients.

Well that's an interesting trend too. I mean so when these renewals are coming up? Or these opportunities are coming up? Are you seeing any kind of meaningful pushback on you know, fee structure or pricing? Or has that not really materialized as of yet?

Well, in the Airport space, because government contracting is a public process, there's always sort of a fierce competition between people who are qualified bidders and there's a lot of transparency about the incumbents deal. So you know, you can have the potential to what we call retrade those deals when they come up for renewal that can happen. And that's not a new feature, because of COVID, that's just part and parcel of it. But on the Commercial side, you know, the answer is no. I think that the main concern that our clients have is, what I talked about, how do I ensure a safe operation where the public are prepared to come in and use my facilities, whether they're working or they're just parking? So there's a bigger focus, you know, on what your COVID playbook is, and what technology can you deploy? And can you drive costs out, because as we've talked before, our fees are a small percentage of the revenue handled. So it's really the cost of the operation that matters most to clients. And when you can come up with technology solutions like Sphere Remote and other technologies that enable efficiency in the operation, that's a more compelling argument, than, you know, could you reduce your fees? So no, we're not seeing that. But time and time again, as we have won new deal. And we asked the client, you know, for a little feedback on like, well, what is it that has been sort of decisive for you? And that, you know, we keep hearing one or two things that's either your Sphere technology capabilities or the COVID playbook or both?

Okay, that's great. What about any progress on the national account relationships, I guess, in terms of just the existing ones you already have in place in the healthcare space, commercial space and their ability to drive location growth for you?

I think that continues to be an important focus, Kevin. And, you know, one other things that we've been rolling out, and you'll see some of this on social media now, are some of our Sphere capabilities are out on LinkedIn and other places and social media. And rather than just rely on our national account clients to be on LinkedIn and follow us, you know, we're sending that those - we're sending links out to them. And it becomes a very easy way to talk about our expanded capabilities. So I think it's safe to say that for all of our national clients, our main focus over the past 90 days since we launched Sphere, is really to talk about our technology capabilities, what we can do to enhance their operations by rolling these out into existing with Sphere IQ, which is our data analytics package. The more locations they give us, the more analysis they can have. And of course, the more visibility they have, because they can look on the dashboard and see a roll up of all their locations or individual properties. And so I think there's some potential momentum building. And once again, you know, everybody's decision making process, you know, it runs along a track, but I just, thing I can control is, not what they decide, but do we have the right array of tools and capabilities? Are we communicating those effectively to our national account, existing national account base? And are we effective at delivering for them? And I think we're well positioned for all of that as we look forward.

Okay, yeah great. I guess lastly for me just, you know, what are you seeing on the Aviation side in terms of a recovery? Has that kind of stalled out, you know, just at a lower level? Or did you kind of see any improvement as the quarter progressed or into October?

Yeah, well I think we're seeing modest improvements in travel volumes. If you look at the data that the TSA puts out, you know, back in April, screened passengers were down 90% from 2019. And now, the screened passengers just went over 1 million a day, which is maybe down third, you know, it's maybe down 60% to 70%. So it's still below 50% of pre-COVID. So as travel continues to come back, we're seeing our airport clients experiencing that, many of our airport clients are either beginning to embark or have already started embarking on major facility upgrade programs. And so there are needs for our services to either move passengers around on shuttle buses or use remote airline check-in from our Bags portfolio to enable people to check-in outside the lobby or construction may be going on. We're having a lot of discussions about that. Because, you know, COVID really didn't put a stop to that, these are multi-year plans and they're kind of going forward with those. And I think as far as the Bags business is concerned, we're starting to see some green shoots in terms of activity. You know, the government has lifted the no sale order on cruise lines. And so I think that cruise companies are expecting to be sailing sometime in 2021 and are making plans to do so. So we're having conversations with them about restarting some of the baggage handling and remote check-in activities there. I think with our airline clients once again, because volumes are starting to move up a bit. We're seeing an uptick in either restarting wheelchair or skycap services and the like. So whether what that recovery curve looks like? I don't know. But I think you can say that it's going to track along at a level that sort of tracks with the number of passengers being screened. That's going to be what the curve looks like.

Okay, thanks and congratulations on the nice rebound and results here.

Thanks a lot, Kevin.

Thank you.

Appreciate it.

And your next question comes from the line of Marc Riddick with Sidoti.

Hi, good evening.

Hey. Good evening, Marc.

Hi, Marc.

So I wondered - you've covered quite a bit and really appreciate all the detail and color around it. I was wondering if you give an update on the progress on preferred vendor programs and sort of how we're pacing there and maybe what their commentary has been around the technology offerings?

Yeah, I mean, I think that, especially as it relates to healthcare, we're seeing a lot of activity. So we're probably busier than we have ever been in terms of putting together responses for requests for proposals. But, you know, the decision-making process can be long, so I don't have a list of new wins that I can just, you know, rattle off the top of my head for you. But I think we're very, very encouraged by the level of activity that's taken place, the number of discussions and the number of proposals that we're making into the healthcare space, as I indicated a few minutes ago, you know, we're probably getting more interests from healthcare than any other vertical right now. And I'm sure a lot of that is on the back of these group purchasing organizations where, you know, they have an incentive to steer their healthcare partners, you know, to look at us if they have a need for our type of services.

Okay, great. And then the last one for me, I was sort of curious as to whether or not there was much of a differentiation between what you're experiencing as far as traffic and activity of major cities versus smaller markets, you know, particularly in New York, Chicago, that kind of thing. And maybe what that - and what mix of business might look like going forward versus, you know, maybe what it was a couple of years ago? Thanks.

Sure. Yeah. I mean, where I have probably more visibility on our lease portfolio, which, once again, you know, we have leases in all the major markets. So it gives us a bit of a barometer on what's going on. And, you know, what we have seen is a very big positive amount of revenue growth on leases in the quarter, you know, just to give you an idea, same location lease revenue is up 25% in the third quarter over the second quarter, for our lease portfolio, same leases. But the range - that ranges from, you know, 100% plus increases in some markets to negative numbers in other markets. So, you know, there's definitely, you know, wide variation around the country. Fortunately, the markets where we have more leases are tend to be up. And so that's been very beneficial. And we, you know, we've seen in some places in New York, for example, that people coming in on early birds, in the morning, the volumes are actually above prior year. And we attribute that to the fact that, you know, in the past, many, many people were coming into work and either shared mobility or mass transit, and now they're choosing to drive. So in some markets, there's also opportunities for rate increases, both for monthly parking and transient parking, because demand is that strong. In other markets, it's the other way. And so there's a bit of softness going on. So I think we'll continue to see that. It was a nice rebound in revenue, at leased locations in the third quarter, we're hoping to see that maintain itself, as I indicated earlier in the call, you know, we expect October to look pretty good relative to September, whether that upward trajectory, month-to-month at whatever rate there might be continues, will depend a lot on how COVID plays out here. But, you know, we're seeing definite improvement across most of the major markets. But there are a few where it's going the other way.

That's excellent to hear. Thank you very much for the color.

All right, Marc. Thank you.

Thanks, Marc.

And you have a follow-up question from Daniel Moore with CJS Securities.

Thank you. Just a technical one or two. The impairment, was that entirely Bags' or combination of Bags and other aviation assets?

I think, Dan it's hard because you know, we look at that business collectively to kind of break out exactly what's kind of Bags' and not Bags' but I think, as you look at that business, certainly, Bags was our latest acquisition. And so there's certainly a large amount of goodwill that went into there. I think as we start to look at kind of the shift that's happened as it relates to the travel, the travel and leisure and just kind of air travel, in general, as you start to see some of that shift out from a market perspective, that certainly puts some pressure around that particular segment of our business.

Perfect. And the early termination, early lease termination benefit in the quarter $5.6 million, was that cash benefit?

I wouldn't - no, not all of that was cash, I'd probably say about a little less than half of that would have been cash that was received during the quarter. And then we'll have a little bit of that come through here in the fourth quarter.

Right, but the full amount is a cash benefit. But it wasn't all received in Q3? Is that the right way to think about it?

That's the right way to think about it.

All right, very helpful. Thank you again.

Thanks, Dan.

Thanks, Dan.

And there are no further questions. I will now turn the call back to Marc Baumann.

Hey, thanks, Teresa. And thank you all for joining us today. We really appreciate you taking the time to hear us talk about our business and the quarter. And we look forward to speaking with you next time. Be well.

Ladies and gentlemen, that concludes today's conference call. Thank you for participating. You may now disconnect.