Viad Corp (VVI) 2002 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the first quarter earnings release conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time.

As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Ms. Kim Fracalossi, Chief Financial Officer. Ms. Fracalossi, you may begin.

Thank you. Good morning and thank you all for attending our conference call. I'd like to remind everyone that certain statements made during this conference call, which are not historical facts, may constitute forward-looking statements. Actual results may differ materially from those projections in the forward-looking statements. Additional information concerning business and other risk factors that could cause actual results materially to differ from those in the forward-looking statements is contained under the caption "forward-looking statements in the financial statements filed with the SEC.

Before we begin today, I'll remind you that beginning with the first quarter of 2002 financial results now reflect the implementation of FAS142. As you know, this pronouncement means will is no longer amortized through operating expenses. For comparability in our comments we'll present results without goodwill amortization for the first quarter of 2001.

Also, the 2001 numbers discussed throughout the presentation will be before restructuring charges and other items.

And lastly all Viad and payment service segment revenues and operating income are on a taxable equivalent basis.

With that, I'd like to introduce Robert Bohannon, Chairman, CEO and President of Viad Corp.

Good morning, everyone and thanks for being with us today. We have the operating company presidents on the line, Phil Milne at Travelers, Paul Dykstra at GES and Gordon Anderson at Exhibitgroup/Giltspur, and of course you just heard from Kim here in Phoenix.

Overall, we're very pleased with the first quarter performance, particularly in light of the continued weakness in the economy. Both Travelers Express and GES drove our strong bottom line results.

In the quarter GES benefited from show rotation, cost savings from last year's restructure plan and labor efficiencies through the implementation of their show management process called

.

Travelers did very well this quarter, particularly with Moneygram and Official Check. Moneygram produced very strong transaction growth and the official check product continued its very strong growth.

One of the things that had revenues down slightly this quarter at Travelers was the lower interest rates on overnight money. Generally, we keep a significant balance in overnight cash for liquidity purposes. The rates were down about 400 basis points on a quarter over quarter basis and if you equalize for that Travelers' revenue would have been in the 11 to 12 percent range.

I think for year 2001 and first quarter of 2002 results reflect the real strength of Travelers. Despite the economic downturn and the tragic and the unforgettable events of September the 11th they have continued to produce strong revenue and operating income growth.

The first quarter the earnings per share was $0.37, up 15.6 percent over last year's first quarter EPS of $0.32 on a comparable basis. Operating income was 62.8 million, up 1.3 percent from 62 million in the first quarter of 2001.

Our cash EPS was $0.37, compared with $0.32 on the first quarter of 2001 and on EBITDA basis 72.7 million for the quarter, up slightly from 71.6 in the first quarter of 2001.

Travelers delivers strong growth, driven by excellent growth in the Official Check and Moneygram product lines. They produce 14.1 percent growth in operating income on revenue of 9.7 percent.

In the convention and events segments performance was in line with our expectations. Operating income decreased 16.7 percent on a revenue decline of 12. And, of course, the first quarter comparison is against a strong pre-economic downturn in prior year first quarter.

Just a few other comments about the first quarter before I discuss the operating companies. We continue to focus our efforts on building a strong balance sheet and improving our cash position. To that end, at the end of the first quarter we paid down 6 million of debt, bringing the debt levels down to 391 million. Our cash position at quarter end was 240 million.

Now let me spend some time on each of the major business segments. On the convent and event services segment it performed again as anticipated this quarter. If you'll recall in our last earnings call we told you that given the economy visibility into 2002 for this segment was poor. We anticipated show shrinkage, lower attendance and exhibit refurbishments instead of new builds for the year. We expected that all of these factors would lead to lower revenues for the quarter and for the year. And to offset the effects of the lost revenue we implemented a restructuring plan last year and the cost-cutting efforts have been successful. The segment showed a revenue decline of 12 percent down to not quite 255 million from prior year's 290 million.

Operating income for the segment was 22.2 million versus a profit of 26.7 million in the prior year's first quarter, down 16.7 percent.

However, we did see our cost cutting efforts take effect, resulting in operating margin basis points from last year's first quarter number.

And Paul and Gordon are going to continue to drive operating efficiencies and to cut costs to mitigate the loss on the revenue side.

On GES, GES delivered strong operating performance, particularly given the comparison against a stronger economy in the same quarter of last year. And as you know, the first quarter is historically the strongest quarter for GES in terms of revenue and operating income, because we service the greatest number of shows and events in this quarter. In the first quarter GES benefited from show rotation with the

Expo show returning to the mix and also there were a few smaller shows from last year's second quarter that fell into the first quarter of 2002.

All of this, coupled with improved efficiencies in managing the shows -- that's the Jump process that I mentioned up front -- and the cost-cutting efforts begun about 18 months ago helped GES deliver a strong quarter, despite what was going on in the economy.

We still see weakness in most of the business sectors, particularly technology and telecommunications. This weakness means less spending for conventions and trade shows and fewer exhibitors and contributes to what again we call show shrinkage. This show shrinkage will likely continue through the remainder of 2002 and therefore we are still maintaining our cautious outlook for both GES and Exhibitgroup.

In summary though GES is operating much more efficiently. We are encouraged by a couple of recently announced new signing of major shows for the year, the International Technology Tool show in the third quarter and COMDEX in the fourth quarter. We expect these signings to help the operating results of the back half of 2002 and in addition they just renewed E3, a large videogame industry show.

For Exhibitgroup, Exhibitgroup's top line growth was weak in the first quarter due to lack of demand for new exhibit builds. To put this in perspective, if we refurbish an exhibit that gives us about 30 percent of the revenue that we would get of a new build.

A changing business environment highlights why our restructuring activity was so important for this business and Gordon and his group, along with a lot of other help, has been successful in implementing the restructure plan. The planned benefits of the cost cutting are accruing to Exhibitgroup. However, the true benefits will not be seen until the revenues return to historic levels.

The visibility on this side of the business is still very limited. Exhibitgroup's customers are primarily Fortune 1,000 companies. They've decreased their spending significantly, so consequently we are seeing few new orders for new exhibits. Rather, we're doing the refurbishment work. They also are waiting for the last minute to make decisions on exhibits, which makes it very, very difficult for the coordinator and his people to plan.

We don't though believe that this is a fundamental change of the industry. We do believe this is a cyclical business whose fortunes track the dot-com, telecom, technology rise and fall and whose downturn was magnified by the events of September the 11th.

We obviously are experiencing a downward cycle. We hope that we're at the low point of that cycle and that we can return to a more normalized revenue base.

The restructure efforts outlined in the third quarter of last year are on track and almost complete. With that and the additional cost cutting efforts currently underway we believe Exhibitgroup will deliver very attractive returns when the economy turns around.

On a payment services segment we're very pleased again with the performance of Travelers in the first quarter. As I mentioned up front, given everything that's happened the last couple of years dot-coms, the downturn to September the 11th, this company has just continued to produce very strong and exceptional results.

As has been true for the last several quarters, performance was again led by very solid performance in Official Check and Moneygram. As I mentioned earlier, the operating income grew 14.1 percent, revenue grew 927 in the quarter.

They had a lot of good signings in the quarter. They signed Super Value for both Money Order and Moneygram. Super Value is one of the nation's ten largest supermarket retailers whose divisions include grocery stores such as Farm Fresh, Shoppers Food Warehouse and Shop and Save.

We're very happy about this win and expect that this association will contribute substantially to both the money order and wire transfer transaction volumes over the next five years.

Travelers is on track with the Moneygram rollout to Wal-Mart. The installation and training at all the locations is going very, very well. All Wal-Mart stores will be using the Delta Point of Sale product and Delta Works is a single platform for money order and wire transfer.

On the technology front we continue to beta test the Official Check Prime Link product that we talked about briefly during the last quarter call. We're testing that with a few major commercial bank customers. Prime Link is an Internet check printing system that will extend the application of the Official Check product line to bank branch locations and other financial services business that require remote check disbursement from a central authorization point, and this will include firms that do first mortgages, for example, and home equity loans.

Let me talk a little bit more about Moneygram, Official Checks and Money Orders. On Moneygram, Moneygram and Express Pay transaction growth, in combination with some nice growth in Mexico, are driving Moneygram's growth. The transaction volume grew 33 percent quarter over quarter, year over year, and the agent base continued to grow in the first quarter.

Moneygram's international business grew. And by the way international we are turning out all business, excluding domestic U.S. and Mexico. That grew in terms of both transaction volume and agent growth. Transaction growth was a little over 36 percent. Growth in the U.S. and Mexico corridor continues. Cambio Close is their main product there. That's going very well. And over half the volume from Mexico now comes through Cambio Close.

Another great thing, we believe, in the first quarter for Travelers was that we announced a joint partnership with Concorde EFS to offer ATM to ATM money transfer service via the Concorde Star ATM network. This arrangement adds significantly to Travelers' distribution network since Concorde has over 200,000 ATMs nationwide.

We also recently announced that Travelers has signed Banorte, a large Mexico bank with over 1,000 branch locations to an exclusive multi-year contract. This brings the total agent base in Mexico to over 6,300 locations.

Express Pay, that's growing rapidly and the transaction volume for this product nearly doubled over last year's first quarter. This is a small but growing service that customers use to wire transfer payments to creditors. Travelers establishes the agreements with creditors to provide these wire transfer services and I know Phil and his group are very excited about the growth prospects for this product.

On the Official Check fees the continuing trend of the bank outsourcing creates and continues an opportunity that we've had for quite some time. Official Check continues to be the leading driver of revenue growth and in the first quarter the total average balances grew over 30 percent from prior year quarter. The backlog continues to be very healthy at over a quarter of a billion dollars and the outlook for this business for 2002 and for the next several years we think is very, very attractive.

On Money Order the Money Order volume was essentially flat with last year's first quarter. As we've talked about before in 2001 Travelers spent a good deal of time in weeding out some agents in the interest of preserving our credit quality, and we probably won't see any dramatic increases in transaction volume in 2002 because the credit watch continues.

That said, the Money Order business is a great business for them. It continues to contribute significantly to their very fine operating margins. And on the Money Order side we have pretty much completed the rollout of all the Wal-Mart locations.

So before I summarize and give some guidance I'll ask Kim to go through some more of the financial details. Kim?

Thanks. For the quarter cash EPS, defined as income before significant non-cash charges and credit, plus the after-tax goodwill amortization, was $0.37 for the quarter, equal to our EPS because there were no non-cash charges or add-backs. That's up 15.6 percent from $0.32 in the same period last year.

Cash flow EBITDA on a growth up basis was 72.7 million versus 71.6 million in 2001, up slightly for the quarter.

Free cash flow, defined as cash from operations, excluding the change in Travelers payment service assets and obligations, less capital expenditures and dividends was about 41 million this quarter versus just under 13 million last year. The main drivers of cash flow improvement were the improvements in working capital and reduced capital expenditures.

Payment services total average investable balances were up just under 33 percent for the quarter, as Bob had mentioned.

The total debt at the end of the quarter was 391 million, bringing our debt to capital down to 33.8 percent.

As Bob had previously mentioned, this was while we paid down about 6 million in the quarter from 397 at the end of the year. On a year over year basis our debt is down about 55 million from the end of the first quarter in 2001.

Net interest expense for the quarter was even with that of the fourth quarter of last year but lower than the first quarter of 2001, below our quarter over quarter improvements because our average debt for the first quarter of 2002 was about 84 million, lower than the average debt for 2001 for the same quarter.

At March 31st 2002 Viad had investments of $176 million. This is an increase of about 6 million from December 31st 2001 balance of 169.6 and that's what you'll see in the financial statements when we issue the Q in about three days.

After the end of the quarter we received an additional 20 million from quarterly operations, so the total investments, our short-term investments in cash and cash equivalents was what Bob had mentioned, the $240 million.

Depreciation and amortization for the quarter was 13.2 million, up slightly on a comparable basis with last year's 12.9 million. And remember for both years those are adjusted for the elimination of goodwill amortization.

Capital expenditures for the quarter were 7 million, down from 12.4 million in prior year's first quarter. For the full year we expect capital expenditures to be about where they were last year at roughly 50 million, so it's just the timing difference on that.

The income tax rate for the quarter was 26.8 percent versus 27.2 percent for the first quarter of 2001 and the 27.2 percent is adjusted for the goodwill, so that's a comparable basis.

Our average outstanding and potentially diluted shares for the quarter were 86.728 million compared with 86.672 in first quarter of 2001.

Now I'll turn it back over to Bob.

Thanks, Kim.

Before we open the call to questions I'd like to take a moment to give some guidance for the remainder of 2002. I know there's a lot of talk about recovery and so forth a lot earlier last year about the second half of this year but we haven't seen that, at least from our small vantage point, particularly at Exhibitgroup/Giltspur, who do business with a lot of the Fortune 1,000 companies. We've not seen those customers commit to new spending and so accordingly, particularly for the convention and events services side we are going to maintain a conservative and cautious view for the remaining part of the year.

We'll continue to focus on reducing the cost structure on the convention and events services segment. Phil and his team are going to continue to drive growth in the payment services segment, and we want to deliver strong cash flow at the consolidated level.

So for the year and consistent with our prior guidance we expect to deliver earnings growth of 3 to 6 percent. This translates into EPS in the range of $1.49 to $1.53.

For the full year we expect the payment services segment to continue to show strong performance and to deliver revenue growth in the low double digits to low teens for the year.

Our outlook for the convention and events services segment is for a revenue decline of 10 to 15 percent from 2001 levels. This is slightly greater than we talked about previously. I think then we were talking 5 to 10.

For the second quarter we anticipate EPS to be in the range of $0.35 to $0.38.

The payment services segment will again show strong performance and is expected to deliver revenue growth in the low double digits to the low teens for the quarter.

We anticipate that in the convention and events services segment show shrinkage, show rotation and delayed customer spending on new exhibits will result in a 20 to 25 percent revenue decline from second quarter 2001. For this segment the second quarter has traditionally been heavy in technology shows and some of these shows are down by more than half compared to last year. Given this trend, we expect that this year some company's will not attend shows or will clearly reduce their exhibit size.

Having said all that though, we're very excited again about the new signings, specifically COMDEX and the International Technology Tool show and the progress that Paul and Gordon and their teams have made on restructuring. And GES, in particular, they have done an excellent job in delivering proven cost savings associated with this restructuring.

We had a very nice quarter. We handily beat the analysts' estimates for the quarter. However, the analysts quarterly estimates were extremely conservative for the first quarter and they were more heavily weighted for back half recovery. But remember our show cycle and quarterly history in the convention and events services segment doesn't support strong performance in this segment for the back half of the year, because you don't have a lot of large shows.

That said, we do believe that 2002 is going to be a better year than 2001 and we remain committed to doing everything possible to make certain that we get every dime of expense out that we can and to do all possible to increase shareholder value.

We talked before but we strongly believe that our convention and event businesses are fundamentally very good businesses and very solid industries. In rapid succession these companies have faced four significant events. We had the dot-com meltdown. We had the telecommunications collapse. We've been through a relatively severe economic downturn and, of course, the tragic, unforgettable events of September the 11th.

Despite all this though the convention and event services segment delivered positive operating earnings and cash flow in 2001 and they continue to do that in the first quarter of 2002.

As I look back over the past 12 months we clearly have made some mistakes but we have also made some remarkable progress and our people have been right at the head of that. We have improved operating cost structures for a major restructuring. We've strengthened our balance sheet significantly, despite an extremely difficult environment.

As I look over the past 12 months we've improved our cash position approximately $85 million, we've whittled down about 55, 56 million in debt, we've improved our working capital approximately 50 million and we have renegotiated a very strong credit facility. So all in all I'm very, very proud of our people and what they have been able to accomplish, despite some very, very difficult circumstances.

And with that I'd like to open up the call to Q&A please.

Thank you. If you have a question at this time please press the 1 key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue please press the pound key. Again, if you have a question please press the 1 key. One moment for questions.

And our first question is from

of Credit Suisse First Boston.

Hi. Good morning. Nice job on the quarter, guys.

Thank you.

Just a question on the Moneygram, money transfer business. There's been a lot of talk about increased reporting requirements, money laundering, things like that. Can you talk a little bit about what effect you've seen so far and especially what you expect going forward?

Sure. I'll give just a bit and then turn it over to Phil. You know, there was an article in the Wall Street Journal the other day and if you read the article it would make it seem that this, the wire transfer companies, Moneygram and Western Union were going to be facing some totally new and complete and huge stuff. Western Union I know and Moneygram have been working with

for years and we have been subject to a lot of rules and regulations and responsible for implementing those at the agent locations.

So there are going to be some new wrinkles to it and the truth of it is we welcome those, because there's been an awful lot of wire transmitters, money transmitters that have been under the radar screen in this country and so we think that all the new rules and so forth are going to be good, because it will help further regulate those small wire transfer companies.

And again most of it we already do. We have clients training in place with all of these agents to work that out with

some time back.

So from my perspective I don't see any -- I think all of this is helpful and we're very happy to do it. And, Phil, why don't you add to that, if you want to.

Yeah, thanks, Bob. Yeah, I think we're well positioned to deal with any new requirements from

. As Bob said, we've always worked closely with Treasury. I think you will see some increased reporting requirements for the agents and we continue to educate agents about that. In fact, we've just put out some new draft regulations out on our Web site for agents to tap in. And once the new regulations are finalized we'll be doing a mailing to all of our agent base.

So, yeah, I think we're in very good shape on those regulations and we'll continue to work very closely with Treasury on those.

Okay, thanks. Can you also just elaborate a little bit on the progress that you've made with Wal-Mart? You said that you're in the process of rolling that out. Can you estimate about how many locations you've rolled that out to and what the timing is on the full rollout?

Phil?

Yeah. I think we're in just about every location. I think we've closed in maybe 50, 60 locations left to get up and running and I think we'll be wrapping up the training of those within the next couple weeks, so we're running very much on schedule, actually a little bit ahead of schedule and we'll be ready to run the whole network here within a couple weeks so we're in great shape on that one.

Okay, great. Thanks a lot.

Thank you and our next question is from T. Charlie Quinn of

.

Good morning. Congratulations on the great quarter.

Thank you.

Still, I have three questions for you as they relate to the Official Check business. I was hoping you could, one, break down numerical terms, investable balances derived from Official Check transactions versus money order transactions.

Two would be within Official Check could you quantify the volume attributable to housing related transactions, be it original purchases or refinancing?

And then three, if you could break down the growth in that business from new bank customers sort of bringing accounts online versus higher throughput at existing bank accounts.

Thanks.

Phil?

Hey, Charlie. How are you doing?

Hey, how are you?

Well, we've traditionally never broken down the investable balances between money orders and Official Check and I think we always report those on a consolidated basis.

In terms of the refi versus new mortgages, clearly we saw a spike up in the refis in the third and fourth quarter. I don't think that that has nearly been as high as we had seen here in the first quarter as we saw in the third and fourth quarter so that has trailed down somewhat, but we continue to fill in with new business and I think the mortgage business itself from just existing home sales and new sales has been relatively strong so we continue to bring new business in from that side.

So I think it's really a mixture. We still see same source sales growth I guess is what the question was on OCs from our existing customers, and maybe the only part that probably isn't as strong as it was in the third and fourth quarters would be those refis and those were just off the chart from the fourth quarter with how low rates were. I think most mortgages in the country were in the money, so to speak, so those were quite strong in the fourth quarter.

Could you quantify what the same store sales growth would be?

We really don't give that figure out but it was -- yeah, it was quite strong. I think we were really pleased with what we saw out of it.

Fair enough. And, Bob, one last question. It's 240 million of cash on the balance sheet. It looks ballpark free cash flow this year of over 100 million. How do you plan to allocate this free cash going forward?

I'll apologize; I'll have to give you a little longwinded answer on that. You know, I talked about some of the things that occurred over the past couple years, and I used to love -- I was in love with leverage and I mean that very sincerely. Today I only like leverage, given what has gone on around us. You know, you can never plan obviously for something like September the 11th. And we know that one of the things we must do above all is make certain that we maintain that triple B specifically because of Travelers Express.

So we had decided back in the first quarter of 2001 that we didn't like some of those things that we were seeing with respect to the economy and we said we really need to shore up the balance sheet and that's what we have been about doing.

And how much is enough? I mean, when you look at the 240, look at the debt, that type thing? And right now I don't know how much is enough. We'll probably continue to shore it up a bit more, but for the most part we've always said that our first priority is acquisitions. We have nothing of any size that we are working on right now either in payment systems or in convention and events.

But we'll probably, you know, if something pops up in the acquisition side obviously we're in good shape but we'll probably continue to build for another quarter.

I wish I could get relaxed in respect to everything that is going on. And, you know, you read different articles or you read different things, you hear different views and there are a lot of people saying that things are going to get better. There are a lot of people saying that, no, things aren't. And then when you take in those external things that we can't control with respect to some of the political things, that type thing, it's very, very difficult to look out and to play.

So for right now, long-winded and I apologize, we just feel that it's best for us to keep the balance sheet shored up and then we should be in good shape for whatever occurs in the future.

Thanks, Bob. Thanks, Phil.

Thank you.

Thank you and our next question is from Eric

of

Capital Management.

It's Eric

. Could you review the convention business and how much is related to technology, auto, et cetera and just sort of rank them by how much each one is down?

Sure. Paul Dykstra?

Sure. Auto actually has been fairly strong for us. It wasn't something we necessarily anticipated but a lot of our auto business has been very strong.

In technology we're seeing anywhere from 10 to 50 percent down and continued weakness there, although we had a lot of that built into what we had planned for the year.

And Paul, just in respect to -- I don't know if you have the numbers in front of you but it may be helpful, just in respect to GES the technology component was probably, what, 30 percent of your business, 35 percent of your business at one time?

Yeah, at one time it was.

I think for the total combined segment technology is probably around 20 percent of the overall business now for that segment and auto is probably 10 to 15 percent.

Thanks.

Our next question if from Jack Kelly of Goldman Sachs.

Good morning. It's Dean

for Jack Kelly and a couple questions. The first relates to pricing trends and when you comment on the signing of the super value. Any change in pricing there in this environment?

Phil?

No, I think we saw a super value come in where we'd seen similar types of accounts of that size over the last couple years, so I would say no, no new trend in that at all. So no, no pricing trend.

So nothing different in the way your competitors are acting?

No, uh-uh.

Okay, good. And then when you discuss shrinkage in the shows what's your sense? Do you think it could be coming to a close or bottoming here? What kind of indicators are you looking at?

Well, in that part you know on anything other than the dot-com side I think we believe that after this year, because the first two quarters of the year where GES, for example, they do an awful lot of their business and the two quarters last year most companies had already committed well in advance of whatever they were seeing happening for the first half of the year. But I think we still continue to see mixed results. Some of the big shows on the attendance spaces, they were flat the last year. We've had others that were up. We've had square footage that was flat; others were down. So attendance and square footage are generally two of the big drivers.

I think though that until we get through the second quarter we're not really going to be able to gauge anything until the third or fourth because by the third or fourth quarter last year I think obviously everything was, the economy I think people were talking about it, we had September the 11th, that type thing, so it will be interesting to see what happens in the third and fourth quarter.

And lastly what's your sense of further cost cutting opportunities in '02?

Well, I think that particularly on the exhibit group side I mean we've done a lot of the top line cost cutting. The most difficult thing always is to make certain that we get in best practices throughout the system. I was asked at the last conference call, well what about the large ones, can you ever get them back up to double digits and so forth, and my answer was yes because in Exhibitgroup we've got two, just to name two, but two super operations in Dallas and in Cincinnati and with great margins and that type thing. These teams, Dallas and Cincinnati, they had a lot of terrific best practices and so Gordon and his folks are now obviously trying to make certain that the other cities that we have are down steady in those things, putting them back in place.

So there's more to do. The easy part, if you will, in terms of getting the costs down, although the most emotional part is shutting down facilities, that is almost done, but the best practices thing we're getting some benefit out of that now but I have no doubt that there's a lot more benefit to get once those things are totally implemented throughout Exhibitgroup.

On GES they have done a terrific job. They're doing a lot of the best practices that I think Paul and his team would tell you they still have a lot more work in front of them on the cost side, again not so much on the people thing but rather just getting more efficient and sharpening routines, and this thing called

it's -- Paul, describe

if you will to the audience, please.

Sure, Bob. It's really just an acronym that we coined for our pre-show planning and implementation process. Our business is a lot about very, very good solid up front planning, working with our clients and our exhibitors to put together a game plan then that we can go out and execute, and the better we plan the better that we execute. So it's a process that we've been implementing over the last 12 to 18 months here and it's really taking hold now.

Great. Thank you.

Thank you and our next question is from Dan Adler of Bear Stearns.

Good morning. Following up on the comments you just made, Bob, I was just thinking of convention services going out a few years. In the past the two groups had earned revenues north of a billion dollars and had operating margins north of 10 percent as you lived through double digits.

Are those two targets achievable in the future -- I'm not saying in this year but in the future, revenues north of a billion, operating margins in the double digits on an annual basis?

Dan, I absolutely believe that. Gordon believes that. Paul believes that. I mean, again when you take the four things that I've mentioned with respect to the whole dot-com meltdown, the telecommunications collapse, the big downturn in the economy, September the 11th when everything stopped, and yet again this segment with positive cash flow, positive earnings, and so I think a lot of people have kind of thought that gee these aren't very good businesses. I think they're terrific businesses and anytime you have businesses that withstand those four type of things in rapid succession I have no doubt that we'll be able to return -- I mean, once the economy straightens out and again if we have a normal and a same business environment I have no doubt we'll be able to return to double digits and very strong growth and that type of thing.

The other interesting thing today when you walk around in some of the shows and some of the activities with what's taken place I think it's still an absolute best venue for bringing potential buyers with companies. I mean, you can see it, you can feel it, you can touch it, you can act on it.

So we are very cautious. We don't know what's going to happen or when the economy will upturn but I can tell you we are going to have those businesses in position that when the economy does turn back around they should be able to do an awful lot to capitalize on the upturn side.

The other thing that we try to do, and with Paul and Gordon and all the leaders of the teams out there, is that it's very easy, as you know, to get down in an environment like this. Rather, we just see this as a terrific opportunity to correct some mistakes that we've made in the past years, to get a lot more efficient, to get best practices in, that type thing.

So all in all I think that despite all the heartache that we've had it's going to turn out to be one of the best things that's happened to these two businesses.

So I honestly am just very, very excited about when this economy turns and I think we'll be in terrific shape there.

That's not to demean what they're doing now, again because with all of those events, as I mentioned, with positive earnings and the cash flow I'm very, very pleased with that.

In this economic downturn, have you seen some of the weaker competitors drop out of the business so that your competitive position might be enhanced when actually the businesses really do start to pick up?

We've seen a couple smaller companies and on GES, in the GES field that have been sold. We have seen certainly some on the Exhibitgroup/Giltspur side that are out of business, have smaller competitors, are out of business. And, you know, if you look down at the whole banking environment these days, I mean obviously the banks have tightened up significantly and it's much more difficult for people to get credit lines and that type thing. So any time we have an environment like that we certainly should have an advantage, given our capacity, our investment crate and that type thing.

I'm still very disappointed. We just aren't doing a good enough job in respect to getting a lot of these Fortune 1,000 companies out of the convention decision side up to the CFO or some of the finance people. When these companies build an exhibit, for example, they are making a credit decision because they have to give 50 percent up front deposit. And I'm still disappointed with the efforts that our people in Exhibitgroup have made in respect to getting that message across. I think it's a very important one and I think that if we can get better at that I have no doubt we're going to attract more business.

Great. Thank you.

Thank you.

Thank you and our next question if from Michael Millman of Salomon Smith Barney.

Thank you. A couple of things maybe you could touch upon for us. You've mentioned that transactions in Moneygram were up 33 percent. Can you give us an idea of what that translated into growth and revenue?

Secondly, Western Union beside regulation also talked about competition. You've touched upon it but maybe you can talk a little bit more about it.

And thirdly, is it reasonable for us to assume late in the second quarter that you'll be able to maintain roughly the 8.7 percent margin?

Phil, will you take the first piece of that?

Sure. Hey, Mike, how are you doing?

Hey, how are you?

Good. Yeah, transactions, Moneygram versus revenue, as you know we don't break out revenue but I can tell you that we had a very strong quarter in revenue and continue to see good trends on the Moneygram side.

In terms of competition, I don't see anything different than we've talked about over the last couple quarters. I think we continue to be well positioned in the business vis-...-vis the competitors and I think the Super Value signing is a good example of that, you know, we go in there and we're leading with technology in the Delta Works and we're leading with our consumer value proposition. I think that's continuing to play well in the marketplace.

And as I look out, you know, we just got the conversion of Super Value done, we're finishing up the Wal-Mart rollout. So we think we're well positioned with the competition to continue to drive good results.

So I'd say those are my two comments on that, Mike.

Thanks, Phil.

You bet.

And, Mike, on the third piece I'll ask Kim to respond to that. And if I recall, your question is the 8.7 percent going to hold.

And do you mean that for the convention, right?

Yes.

Yeah. No, if you'll not we've told you that the revenue will be down significantly in the second quarter, so you won't see the same kind of throughput as you did in the first quarter. But on a year over year basis you won't start seeing improvement in margins until the third and fourth quarter in that segment.

Can you guide us a big towards what you think the margins --

For the full year I think you will be slightly better than where we were last year, because you'll see the improvement in the back half, but remember the back half is not strong for us in the convention business. The big business happens in the first and second quarter. So last year in your first and second quarter you had a better economy so we're comparing that off a better economy and there's certainly significantly lower revenues. So last year you had about 10 percent margins. You should be a little better than half of that.

In the second quarter you mean?

Yes.

Thank you, Kim.

Thank you.

And again if you do have a question please press the 1 key. And our next question is from Chuck Webster of

Capital.

Good morning. Three questions for you: First of all, just following up on Mike's question, if you're somewhere in the 150 million per quarter revenue range for conventions in the second half, given the cost take outs do you think you can be profitable?

On the convention side absolutely.

Okay. Then up to the payment services side. Phil, you've had a couple quarters prior to this one where the margins were down following several where they were up. Now they're up again. Can you just shed a little light on the dynamics on the margin side?

Sure, I'll ask Phil. And, Chuck, as you know at Travelers on the margin piece it always gets back to the mix in the end. But, Phil, do you want to add to that?

Yeah, I think, Chuck, it's mostly a mix issue and as Moneygram continues to grow as the fastest growing product along with Official Checks, those are lower margin products than the money order product. But I think in the first quarter we got good efficiencies out of the back office on the products and we're doing a good job of keeping expenses in check and getting the throughput. So I think that's really the store there.

On a go-forward basis it's really a mix issue for us as we continue to grow Moneygram and Official Checks very, very quickly.

And that's what I was getting out of the mix side. Moneygram, if it's flat, roughly flat, it hasn't deteriorated much over the last few quarters, do you think --

Moneygram or Money Orders.

I'm sorry, Money Orders. If that's plateaud in terms of its negative effect on mix and then on margins, are we in a position now looking out where perhaps anything unusual or big investments you're going to resume some favorable margin comparisons?

You know, on a product by product basis, Chuck, we're seeing good margin expansion. It really gets to the overall mix. And you saw the type of

that we're seeing on Official Checks.

Phil, you faded out for just a second, about ten seconds.

I did?

Yeah.

I'm sorry. You know, Chuck, I think what we're seeing on a product by product basis you're seeing margin expansion and we're doing a good job on the product. It really is going to get down to the mix issue as we go forward and you're seeing the type of growth that we're getting on Moneygram and Official Checks and they don't have the margins that the money order product does. So, you know, it really will depend on that growth as we go forward.

Okay, thanks.

And then one last question. Kim, I'm sorry if this is out someplace and I just haven't seen it, but with the FAS goodwill adjustments do you have queues two through four for the segment EBITDA so we can forecast on an apples to apples basis?

Yes. We have -- hang on.

We can do this off the call if it's easier.

It's $0.04 a quarter in total and hang on. For payment services it should be about 2 million.

Two million per quarter spread pretty evenly?

About 8.2 for the full year and then for the convention event it's 1.9 and 7.8 for the year.

Thanks very much.

Thank you. Let's take one more question.

Thank you. And our final question is from

of Lehman Brothers.

Hey, everyone. Thanks for taking my call. My questions are more on the international corridor front. I'm wondering if you can give us an update on the Italian post office installation?

Phil?

Sure. The Italian post office continues to do very, very well. I think we are in excess of 8,000 locations and volume ramp up is exceeding our expectations so we're very, very pleased with the Italian post office and what we've been able to accomplish on that rollout. So we see very, very positive trends from that particular customer.

Are you still on plan for about 15,000 by the end of the year?

I would think so, yes, and now that we've gotten to the top 8,000 locations we'll continue to look for those locations that can drive the greatest volume and keep pushing towards those, so I think 15,000 is very doable for the year.

Great. Are there any other European or other region cross-border corridors that are kind of popping their head up on the radar screen?

Yeah, we're seeing some good growth specifically out of the UK to Africa continues to be a good corridor for us. Spain to Eastern Europe is a good corridor as well as Spain to Central America. And Western Europe to Eastern Europe in general is a very good corridor, as well as Italy to Eastern Europe and Italy to the Philippines. So we're seeing very good growth out of those corridors.

Great. My final question is just about the U.S. and Mexico corridor. Any update on the competitive environment there, particularly with Wells Fargo's entrance?

We have heard really since the announcement from Wells, which I believe was in January, I don't think we've heard really anything regarding that so far. I think as Bob mentioned we had a good quarter in Mexico in the first quarter. We continue to think we're positioned well going into Mexico and we are real excited about the addition of the

and those 1,100 locations and they hit some towns that we didn't have, so I think that was a great signing and we're working on that installation and ramp-up right now.

So, you know, we think we continue to be very well positioned going into Mexico with our

product. With the network that we now have in Mexico and then with the full Wal-Mart rollout we think we're in very good shape.

Great. Thank you very much.

You're welcome.

Thank you. Just a couple quick closing comments: Again, very, very proud of the team, despite horrendous environments operating in that type thing, given all the events we've talked about. I look at Travelers and what they've done. I look now at GES and what is being done and what can be done for that business and the same thing with Exhibitgroup.

So if we clearly get a little up tick and so forth I think our company is well positioned both from a balance sheet standpoint and a business standpoint to take advantage of that.

So thanks for being with us today and we'll talk with you soon. Bye.

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