Viad Corp (VVI) 2003 Q3 法說會逐字稿

Good day, everyone, and welcome to the Viad third quarter 2003 earnings release.

Today's conference is being recorded.

At this time I would like to turn the call over to Ms. Ellen Ingersoll, the Chief Financial Officer.

Please go ahead.

Good morning.

Thank you for attending our conference call.

We are very sorry for the technical problems with the line, but now we would like to begin.

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 projected in the forward-looking statements.

Additional information concerning business and other risk factors that could cause actual results to materially differ from those in the forward-looking statements is contained under the caption "Forward-looking Statements" in Viad's financial statements filed with the Securities and Exchange Commission.

During our call today we will refer to Tables 1 through 3 in the press release, and our press release is available on our website at www.viad.com.

One last comment before we begin, this conference call may not be recorded or reproduced in transcript without the explicit written permission of Viad.

Now I will introduce Robert Bohannon, Chairman, CEO and President of Viad Corp.

Good morning.

Thanks for being with us today.

We have the operating company Presidents with us as well -- Philip Milne at Travelers;

Paul Dykstra at GES;

Kim Fracalossi at Exhibitgroup/Giltspur; and of course, you just heard from Ellen.

Joining Ellen, we apologize for the technical problems that the conference center had, but I think they're all straightened out now, so hopefully everyone is on and can hear us.

Let me start today by talking about the efforts to separate Travelers Express.

Last quarter we announced that the Board of Directors of Viad authorized the Company to pursue the separation of Travelers from the remaining Viad businesses by means of a tax-free spin off.

The transaction is subject to a number of conditions, including among other things, receipt of a satisfactory ruling from the Internal Revenue Service; confirmation that the long-term debt of Travelers would have an investment-grade rating; availability of satisfactory banking and credit arrangements for each of the businesses; and then final approval of the Board of Viad.

Let me bring you up-to-date on the progress since last quarter call.

On July 29th we announced we planned to tender all public debt, pay off all commercial paper and redeem all outstanding deferred stock at $101, concurrent with the transaction.

On August 5th we filed with the Internal Revenue Service for tax-free ruling on the proposed separation.

And usually the Internal Revenue Service takes six to nine months to review this, though the transaction is not expected be consummated earlier than the end of the first quarter of 2004, and of course no assurances can be given that any such transaction will be consummated.

We're very pleased and excited about the efforts to spin off Travelers.

The separation should mean great things for the future of the Payment Services business, as well as for remaining Viad.

With its own equity currency, Travelers will be positioned as a formidable player in the Payment Services Arena.

That's our belief.

They will be better positioned to compete for acquisitions that expand their networks and product offerings.

They should also be able to attract capital to support growth of their business, and probably more so than in the current conglomerate structure that they're part of today.

We believe that they have a great management team in place and existing infrastructure.

And they are ready.

All of this should ultimately translate into greater value for shareholders.

Remaining Viad, comprised of the convention and travel companies, will also benefit from the separation.

We will be working very closely with Paul Dykstra, Kim Fracalossi in the conventional event arena, Dave Morrison and Joe Fassler at the travel companies, together to chart the future of these companies and focus on profitability improvement.

These companies have experienced a lot of the economic pressure over the last few years, but all are great solid businesses with clear discernible differences that offer great value.

So in summary, we are all looking forward to this.

I thank each and every employee at Travelers and convention event and the travel and recreation companies.

Ellen mentioned Table 1 and Table 2 in the earnings press release.

We're now going to go over some numbers.

The quarter results came in right about where we expected.

For the third quarter income from continuing operations was 27 cents per diluted share, down 27 percent compared to last year's third quarter income from continuing operations of 37 cents per share.

In the quarter we also had 1.5 million in income from the discontinued operations, which added 2 cents to diluted earnings per share, bringing diluted EPS to 29 cents per share.

Segment operating income was 38.7 million, down 23.5 percent compared to last year's third quarter of 50.6.

The decrease in operating income was attributable to lower investment income in our Payment Services segment and negative show rotation in our convention and event segment.

For the third quarter the cash and corporate investments were up 31 million from the last quarter and now stand at 152.6 million.

We used cash to pay down 6.1 million in debt during the quarter, and the debt to capital ratio now stands at 24 percent.

At September 30, 2003 the debt stands at 255.4, so we now have a net debt of 103 million.

Our balance sheet is in the best shape its ever been.

EBITDA cash flow, shown in Table 2 of the press release, was 47.5 million for the quarter, down from 62.5 in the third quarter 2002.

Free cash flow for the quarter was 43 million, down from 53.3 million in the third quarter 2002.

Now let's talk about some of the operating segment highlights.

Payment services revenue was essentially flat to third quarter 2002.

Operating income was down 15.5 percent quarter-over-quarter due to the effects of lower interest rates on the investment portfolio.

Year-to-date payment services revenues have increased 3.4 percent, but operating income is down by 15 percent in comparison to the prior year.

Revenue for convention and event services segment was down 23 percent due to negative show rotation and weak demand for new exhibit construction in the quarter.

The segment had an operating loss of 1.1 million, as compared to 2.2 million profit in the 2002 third quarter.

Year-to-date revenue was down for the segment 7.6 percent, but operating income was up 10.4.

For our travel and recreation businesses revenue in the third quarter was down 12 percent and operating income fell nearly 23 percent.

Comparing year-to-date results, revenue was down nearly 10 percent and operating income is down 22.

These results reflect lower bookings at Brewster related to SARS and other travel related issues, as well as the effect of forest fires in Glacier Park during the peak summer season.

On the convention and event segment, and again as we talk about this segment you may want to refer to Table 1 of the press release.

Table 1 includes revenues and operating income for the segments.

Paul Dykstra, I would now like to turn it over to you to talk about GES please.

Good morning.

In the third quarter GES performed as expected, and I should point out that the year-over-year comparison of results I will give on today's call are related to negative show rotation in comparison to last year's third quarter.

The third quarter 2003 revenues were down year-to-date but operating income and margins improved in comparison to the nine-month period in 2002.

The improvement and operating margin speaks to our success in servicing shows more efficiently, tight cost controls and reduced company overhead.

GES also produced strong operating cash flow in the quarter.

This is a result of good performance at shows such as MAGIC, World Shoe and Cosma Prop (ph) that took place during the quarter, and success at reducing our working capital.

As discussed, the decrease in revenue in the quarter is attributable to negative show rotation.

The term show rotation means that certain shows are not annual and only take place every two, three or even four years.

In last year's third quarter we serviced one of the largest trade shows in the world, the International Manufacturing Technology Show, or IMTS.

IMTS contributed significantly to third quarter revenues in 2002.

The show does not occur in 2003, so revenues are lower in this year's third quarter.

We're very happy to report, though, that we have this show signed for quarter three 2004.

Our flagship operation in Las Vegas continues to lead our success.

GES's is headquartered in Las Vegas and the market here is growing.

Las Vegas is home to three of the top ten convention centers in North America, and has a 26 percent market share of the top 200 trade shows in 2003.

Las Vegas's share of the top 200 is projected to increase over the next few years, and GES's leading market share positions us to leverage new opportunities here.

We plan to aggressively pursue those opportunities.

The trade show and convention industry continues to be challenged, but we see areas of improvement.

Performance of individual shows still varies by industry type, and we continue to see weakness in technology shows but strength in other industry shows such as health-care, security and industrial and construction.

GES's performance in light of a different market remains strong.

The diversity of our portfolio of business is a natural hedge for exposure to any particular industry.

In weak times our strong book of business helps us to continue to deliver relatively good performance.

In the third quarter we also re-signed approximately 60 million of future business, which means that over 800 million is currently contracted through long-term contracts for 2004 and beyond.

Until the economy shows sustained improvement, the best way to offset industry uncertainty is to focus on unrelentingly on efficiency and cost control.

We have been very successful at driving improvement in our operations and overhead, and this is proven with our operating margins, which are improving despite lower revenues.

As we bring more and more sophisticated practices and automation to the shows we service and to our customer service function at GES, we will attract new business while driving out costs.

We're certainly focused on the top line as well.

Right now we're working to enhance service and deliver new product offerings.

At the same time, we're focusing on selling more to our existing exhibitor customers.

We expect fourth quarter revenue to be about 10 percent lower than fourth quarter 2002.

This is due to general market softness and a shift in schedule for certain shows that typically occur in the fourth quarter but took place earlier in the year.

In summary, we continue to look forward to the turnaround in the economy because we know we are well positioned with a superior service offering and improving returns for shareholders.

Despite a very tough environment, GES is very strong and getting better every day.

And we're committed to continuing to deliver great performance.

Bob, I will turn it back to you.

Kim, would you now take the audience through Exhibitgroup/Giltspur please?

Exhibitgroup/Giltspur performed slightly better than expected in the third quarter, despite challenging convention and event market conditions.

We do continue to face weak demand.

As anticipated, third quarter 2003 revenue declined in comparison to the third quarter of 2002 as a result of continuing client cutbacks in spending, but also because of negative show rotation.

And with respect to rotation, the Farnborough Air Show in Europe, which occurs every two years in the third quarter, did not take place this year, and that impacted our operation in England.

Our restructuring and centralization cost savings are beginning to fall to the bottom line, and we're pleased with our progress to date.

As I mentioned on previous calls, we will see the throughput on these savings when we get the volume back.

Visibility in the fourth quarter is relatively low.

Our biggest challenge this year is keeping our top line as strong as possible in an environment of caution and diminished client spending.

There are some selected bright spots in industries like health-care and automotive that consistently use face-to-face marketing to introduce new products.

In addition, we continue to aggressively pursue new customers and have recently won several new opportunities from Fortune 1000 companies.

We have a very strong prospect list and a steady stream of RFPs to which we are responding.

On the cost side, as of September 30, 2003 we are on target with our restructuring and centralization plan.

We've completed over 95 percent of our manufacturing centralization, 99 percent of our property transfers and 98 percent of our headcount reduction.

As planned, we have completed virtually all of the work by the end of the third quarter with a minimal amount remaining for the fourth quarter.

We're pleased with the progress on the restructure and we're hitting the savings projected.

Consistent with what we have said on previous calls, this restructure effort will reduce our fixed and semi-variable costs by about 12 to 14 million pre-tax on an annualized basis, with about 9 million in pre-tax savings planned for 2003.

Again, this level of projected savings is not contingent upon any revenue improvement.

During the third quarter we realized an additional 40 percent on our projected annual cost savings for a cumulative year-to-date cost improvement of over 70 percent.

In addition to our restructuring and centralization activities, we also continue our work at re-inventing and streamlining our business processes and realigning our workforce to capture more value in the manufacturing process.

When the economy rebounds, as we know it will, we will have positioned Exhibitgroup/Giltspur to emerge as the strongest exhibit design construction company in our industry.

None of our competitors can leverage the level of financial support that Viad provides; few can afford to reinvest in their core businesses as Exhibitgroup/Giltspur has invested.

The large new customers we currently have and the ones we're pursuing demand financial strength from their trade show partner, and we will continue to seek them out as a premier provider.

We believe that when the dust settles on fiscal 2003, Exhibitgroup/Giltspur will have increased market share in the industry, as we did in 2002.

These share gains will occur through customer retention and the relative strength of some of our segment-specific businesses like health-care rather than through overall revenue growth.

We're holding more ground than many of our small competitors, but we also expect to report major new account wins.

These share gains mean greater economies of scale, which further widens the competitive gap that exists between Exhibitgroup/Giltspur and our smaller, less-advantaged competitors.

Our goal is to continue to leverage our strengths relative to the competition to win.

Back to you, Bob.

Thanks Kim.

Now on to the payment services segment.

Phil, will you begin please?

Good morning, everyone, and thank you for joining us.

Before I review results for the quarter, let me give you three major takeaways from today's discussion about Travelers Express.

First, Travelers Express is a growth company, with MoneyGram leading the way.

MoneyGram is a great business for us.

It's got sustainable growth potential, and it truly is in the early stages of its growth cycle due to favorable demographic trends.

MoneyGram will contribute significantly to strong performance in the future for our company.

Second, the Money Order business will see growth next year with the addition of the Albertsons' Money Order business, and will continue to contribute substantially to our operating income.

And third, our investment portfolio challenges will continue, but the PrimeLink/Official Check business is profitable and continues to offer longer-term potential for us.

Talk a little bit about the third quarter -- third quarter results for the payment services segment are shown in Table 1 of the press release, and the third quarter revenue was 203.7 million.

That's essentially flat to the 203.8 million last year.

Operating income was 28.5 million.

That's a decline of 15.5 percent from the 33.8 million last year.

During the quarter we continued to see strong growth in fee related businesses, really driven by the results of MoneyGram.

However, this growth was offset by comparatively weaker investment results.

Operating income declined due to continue compression of net float income.

Year-to-date revenue growth was 3.4 percent and operating income declined by 15.1 percent, again due to the lower interest rate environment and compression of the net float income.

Let's move on to some specific results for the quarter related to our three key product offerings, MoneyGram, Money Order and PrimeLink/Official Check.

MoneyGram performed very well again this quarter.

Fee revenues were up 19 percent, with transaction volume up 32 percent this quarter over the third quarter of last year.

For the nine months ended September 30, 2003 MoneyGram revenues were up 21 percent with transaction volume up 30-32 percent.

This is our ninth consecutive quarter of 25 plus percent growth in transaction volume.

Let me give you some performance measures for MoneyGram, comparing the third quarter 2003 and the year-to-date 2003 to the same periods in 2002.

International originated transactions grew by 25 percent in the quarter and 32 percent year-to-date.

In particular, international volume benefited from the rollout of the new multi-currency systems, enhanced 24 by 7 customer service and support capabilities that were implemented in the quarter and additional locations in the United Kingdom, Morocco and China from our current network partners.

Domestic originated transactions, including ExpressPayment, increased 36 percent in the quarter and 37 percent year-to-date.

Domestic transaction growth benefited from the rollout of the Duane Reade stores in New York City and our ongoing co-marketing efforts with Wal-Mart.

The majority of domestic growth is attributable to our ExpressPayment wire transfer product.

ExpressPayment is just a terrific product that has grown tremendously, particularly since we signed with Wal-Mart.

Creditors know how easy it is to direct people to the local Wal-Mart for urgent bill payment.

Transaction volume to Mexico grew 23 percent in comparison to the third quarter of last year.

Volumes to Mexico benefited from an increase in strategic independent agents in key markets and a targeted advertising campaign.

Finally, our overall agent base is up 11 percent compared to the third quarter prior year and stands at about 61,500.

On the money order side, money order volume declined approximate 5 percent in the third quarter compared to third quarter of last year, primarily due to the loss of volume from Kroger.

However, we continue to see strong growth at Wal-Mart and the addition of Albertsons will allow us to capture lost volume.

In addition, our approval rate for new agent signing continues to increase despite the decline in volume.

Albertsons is truly a great win for the money order business.

Rollout will take place over the next year.

Albertsons will be the first customer to roll out our net T3 terminal, which offers faster processing and greater flexibility in accepting various forms of payment.

Moving on to our PrimeLink/Official Check business, PrimeLink/Official Check continues to be impacted by the interest rate environment.

Official Check average invest able balances grew over 25 percent in the third quarter this year compared to the third quarter 2002.

Our PrimeLink installation backlog now stands at about 108 million.

During the third quarter we signed five new bank customers and we have a good number of prospects in the pipeline.

Let me provide a little more detail about investment results.

The investment portfolio consists of balances from both our money order business and our PrimeLink/Official Check business.

About 80 percent of these investments are related to the Official Check business, which earns a spread -- float revenue less commissions paid to the banks.

In contrast, the money order portfolio earns float revenue and we do not pay out float related commissions.

With the growth in the OC portfolio the Company has experienced greater compression in investment results.

Contributing to the compression have been -- unprecedented mortgage refinance activities has caused us to hold substantially higher cash balances over the last several quarters and these have been invested at historically low overnight rates; faster turnover of the mortgage bond holdings within our investment portfolio which has caused reinvestment funds that at lower rates; the fixed nature of our interest rate swap obligation.

We lock into fixed pay rate until the swaps mature.

We use interest rate swaps to fix our cost at commissions OC banks.

We do expect three things to improve the OC business and spread business over time.

First is the maturing of swaps.

Let me give you some more specific information about swap maturities.

As of September 30th there are about $3.4 billion worth of swaps outstanding.

Last quarter we told you 845 million would mature from the third quarter 2003 through the end of the first quarter of 2004.

Out of the 845 million, 245 million matured in the third quarter.

During the fourth quarter 2003 350 million more will mature.

The first quarter 2004 another 250 million will mature. 100 million additional will mature in the fourth quarter 2004, bringing total maturities for 2004 to $350 million.

The greatest benefit of swaps maturing will not be realized until 2005 when the highest fixed rate swaps expire.

In 2005 950 million in swaps will mature.

Thereafter the remaining book swaps will mature between 2006 and 2012.

Second, as mortgage refinance activity slows down our portfolio will return to more normal levels of cash balances.

As we have told you before, cash balances have been invested at very low overnight rates and we make little if no income on these additional balances.

Third, we are changing the OC business model to incorporate a large fee income component, lessening our reliance on float over time.

For our guidance for 2003, the following assumptions implicit in Viad's guidance for the year payment services segment.

In the fourth quarter MoneyGram's transaction volumes should continue to grow at a rate similar to the third quarter.

Annual transaction growth from MoneyGram in 2003 should be in the range of 30 to 32 percent.

In the fourth quarter money order transactions will be the same as the third quarter.

For the full year money order transactions are expected to be 5 to 8 percent below 2002 for total transaction volume of 314 million.

However, we expect margins to remain relatively stable.

Average invest able balances are still expected to grow in the range of $750 to $850 million for the year.

Fourth quarter balances will drop in comparison to the fourth quarter 2002.

The decrease in balances between third quarter 2003 and fourth quarter 2003 will be about $800 million.

This is good news for us because it indicates a slowdown in mortgage refinance activity.

We expect to end the year within average portfolio balance in the range of $6.5 to $7 billion.

And we expect the overall net investment margin for the portfolio to improve in the fourth quarter, and be in the range of 105 to 115 basis points; up from the 93 basis points we had in the third quarter.

As I close I just want to thank all of you for your continued interest and support of Travelers Express and cite how very excited all of us are about our future.

Bob, I will turn it back over to you.

Now, Ellen will add a few more financial details.

As shown in Table 2 to the press release, cash flow EBITDA was 47.5 million during the quarter versus 62.5 million in the third quarter 2002, down 24 percent.

Also shown in Table 2, free cash flow -- defined as cash from operations, excluding the change in Travelers Payment Services assets and obligations, less capital expenditures and dividends -- was 43 million for the quarter versus 53.3 million last year.

Our payment services total average invest able balances were up almost 20 percent for the quarter.

PrimeLink/Official Check balances were up over 25 percent for the quarter.

At September 30, 2003 Viad had total cash and corporate investments of 152.6 million.

That's up 31 million from the second quarter 2003.

Our total debt at the end of the quarter was 255.4 million, bringing our debt to capital ratio to 24 percent.

We paid down over 6 million in the quarter from 261.6 million at the end of June.

Net interest expense for the quarter increased to 2.3 million from 123,000 in the third quarter of 2002.

And I will remind you that the third quarter 2002 included 3.5 million in interest income related to a federal tax refund.

Our depreciation and amortization for the quarter was 13.4 million compared to last year's amount of 13 million.

And our capital expenditures for the quarter were 10.9 million, up slightly from 10.2 million in the prior year's third quarter.

The income tax rate for the first nine months of 2003 was 26.1 percent versus 22 percent for 2002.

And our average outstanding and potentially dilutive shares for the quarter were 86,720,000 as compared to 86,616,000 in the third quarter of 2002.

And I will pass it back to you, Bob.

Before we wrap up the comments and open the call to questions, let me give some guidance for the full year and third quarter of 2003.

This guidance is consistent with the guidance that we gave at the end of the second quarter conference call; it has not changed.

For the fourth quarter 2003 EPS is expected to be at the low end of the range of 21 to 24.

Payment services segment revenue is expected to increase at a low to mid-single digit in comparison to the fourth quarter 2002.

The segment operating income for payment services is expected to increase at a low to mid-single digit rate from the fourth quarter 2002.

Convention and events services segment revenue is expected to decrease at a low double-digit rate in comparison to the fourth quarter 2002 revenue due to general market softness, a shift in schedule for certain shows that typically occur in the fourth quarter but took place earlier in the year and anticipated weak demand for new exhibit construction.

On the operating income side for convention and segment, that's expected to be slightly above breakeven compared to fourth quarter 2002 operating loss of 1.3 million, and that reflects increased operating efficiency from some of the restructuring initiatives.

For the full-year 2003 income from continuing operations is expected to be in the range of $1.20 to $1.23.

This range, again, is unchanged from guidance provided last quarter by the Company, but we do anticipate we will be at the very low end of the range.

On payment services, the segment revenue is expected to grow for the full-year at a low single-digit rate comparison to 2002.

And payment services segment operating income is expected to decline at a low double-digit to mid-teen rates in comparison to the full-year 2002.

On convention and event, the segment revenue is expected to decline for the full-year at a high single to low double-digit rate in comparison to the 2002 revenue.

And that's again primarily due to decrease demand for exhibit construction and negative show rotation that Paul and Kim talked about.

Convention events services segment operating income is expected to increase at a high-teens rate in comparison to 2002.

And that's primarily due to the ongoing cost reductions and operating process improvements.

A lot of this has been gained through some of the restructuring initiatives.

So let me close my comment today by saying first, again, that we're excited, optimistic and encouraged about the direction of the Company.

We believe that the time is right to separate Travelers.

We believe that Travelers on its own will be able to do so much more to grow and to create shareholder value.

We are pleased, too, that there are some signs of economic recovery.

While our companies are currently challenged by weak demand and low interest rates, the management demand team has been focused, and they're focused as well on the future, of moving pass these challenges.

And we believe 2004 will be a better year all around.

Right now, we're in the process of preparing our plans and forecasts for 2004 and we will be ready to share our outlook with you at the first quarter conference call at the end of January.

For 2004 we continue to believe our revenue will remain under pressure and the convention and event businesses.

The wild card, of course, is corporate spending.

And we just have to wait and see what corporate marketing budgets will look like for next year.

Despite revenue pressure, we believe we can continue the trend of margin improvement in those businesses in the convention and events segment.

For travels a few factors should bode well for 2004.

We have had a recent trend of interest rates slowly beginning to rise.

We have action plans in place to get more fee income from the Official Check PrimeLink business, buffing the reliance on float income.

And Phil took you through the maturing of some of the swaps in late 2003 and early 2004.

And, of course, MoneyGram, which is driving fee revenue growth, and they show no sign of slowing down.

So again, overall we look forward to 2004 and believe it will be a better year for Travelers, a better year for the convention and events segment and the travel and leisure segment.

So with that, David, we will close and you can open the call up for questions.

(OPERATOR INSTRUCTIONS) Jack Kelly, Goldman Sachs.

Good morning.

Kim, a question on Exhibitgroup, and maybe a follow-up on GES.

On Exhibitgroup, you mentioned the visibility for the fourth quarter was kind of low.

I don't know if that's typical given that we're in the fourth quarter.

But I guess more importantly, the bulk of the cost cuts seem to be done there and I guess it lost money in the quarter because the segment did.

Are there any other cost cuts that you can do?

Or is it just you're simply kind of mercy of volume to kind of get into a profitable status?

Secondly on GES, it was mentioned that about 60 million of business was re-signed.

Any sense of what pricing on that is or potential profitability on the business that you are re-signing currently?

This is Bob.

Let me make a couple of comments.

Historically, for GES and for Exhibitgroup, the third and fourth quarters are very slow quarters whether business is robust or whether the clients that we've seen in the last couple years are just not big quarters for either Company.

I think the main reason is all of the major shows take place in the first two quarters of the year.

A lot of that has to do with weather.

In Las Vegas, which is such a huge center, there aren't many large shows there during the July, August, September period because of the high temperatures.

And so, the third and fourth quarters for the convention event side are just not anywhere near comparable to the first and second.

So Kim, with that, I will let you pick up on Jack's part, and then Paul, you can take the GES question.

With respect to visibility in the fourth quarter, the visibility for our business is typically not as great as many other businesses because the decisions to spend, particularly in this environment, are made sometimes at the last minute.

The tradeshow manager, they don't set the budget; they just receive the budget.

So they may not know how much they're going to get as you approach these different shows.

And what has happens, a bit of a trend for us, is that the visibility has shrunk from maybe a good three months down to about a month.

And then sometimes until you get the signed order, you can have somebody who thinks they're going to be able to spend the money, but it gets yanked at the last minute.

So that is pretty typical and will probably be consistent as we go through the fourth quarter.

And at the moment we don't really see that improving.

With respect to cost cutting, there are always opportunities for additional cost cuts.

A lot of the major structural changes with the centralization of the manufacturing certainly helped us capture those in big chunks.

But we still have a lot of opportunity teed up that we're going to keep pursuing as we go forward.

Our goal is to continue to lower the cost structure of this business so that all of it is leverage able when the economy does turn around, but that we can make a very nice profit even if the economy doesn't turn around.

So that's our plan.

Basically until volume improves, you expect you will be marginally profitable?

Is that fair?

Yes, but continuing to improve.

And we will keep driving the margin improvement as we go forward.

If perchance we thought there was no growth, you could certainly cut a lot more and actually get your profitability up pretty significantly.

But we believe that the economy is going to turn around in the not too distant future, as it has historically over the last 35 years.

And so we want to be prepared for that.

So if we thought that that wasn't going to happen, there are opportunities to cut significantly.

But we're preparing for growth, not for continued decline.

Paul, would you take Jack's second piece on the GES side, on the signing of the 60 million?

I would say that the renewals were consistent with our existing portfolio, as far as pricing on that.

Okay.

So the trend in the last two or three quarters has been steady, not just this most recent quarter?

Yes, I would say it's been fairly steady.

Again, we find that the large shows in consumer electronics, World Shoe, things like that, they're doing very well.

We're still, as Paul mentioned I think in his comments, technology challenged, if you will, in some of these shows.

That's the market that just does not come back.

Kristen Cooper (ph), Lehman Brothers.

I have a question for you regarding your guidance for convention and event services for the remainder of the year.

If I read into your language in the press release, you have slightly reduced your full-year '03 convention and event services revenue guidance from a high single-digit decline to a high single to low double-digit decline.

You say in your language for the fourth quarter guidance that some of the revenue decline will come from shows that normally happen in the fourth quarter but happened earlier this year.

Is that where this change is coming from?

And if so, why didn't you see that earlier?

I'm not aware that there was any change in the guidance for convention.

But Ellen, do you want to pick up on that?

Yes.

There are no significant differences in the change in guidance.

So I am just splitting hairs?

Yes, they're really isn't a significant difference from what we guided last time.

Okay, great.

Thank you for clarifying that.

My second question is very quick.

Can you give us the transaction volume growth for ExpressPayment alone?

We traditionally haven't broken that out.

We've combined that with the domestic business.

You gave 70 percent last quarter, so I wasn't sure if you were going to be splitting that again.

No, I think we're just going to continue to lump that in with the domestic side.

That's all I had.

Thank you very much.

Kartik Mehta, Midwest Research.

Good morning.

A couple of questions for you on MoneyGram.

I saw that the agent base grew 11 percent.

As you look at this, Phil, going out into 2004, maybe as long-term perspective as you can look, what do you anticipate agent growth being?

I think we would probably put it in the range of the mid-teens on a go forward basis for agent base growth.

Sequentially, you again had good transaction growth on the MoneyGram piece.

Is that the result of increased advertising?

Or is it just the result of increased agent base, and especially agents that are probably giving you a little bit more -- just a bigger, better profile?

I think it's probably a combination.

One, I think we've gotten smarter about our agent selection, especially for the international side, getting into the right neighborhoods and getting the right agent signed up.

I think we've also gotten a little smarter about our promotional activities and our targeted marketing and advertising activities.

And then, of course, we continue to add good quality agents.

I think it's really a combination of those things.

What about pricing?

Any corridors where you're seeing increased pricing or increased competition, whether it be from niche players or from others?

I think in general pricing has remained pretty stable.

I think you can see from the numbers we're very proud of the progress we've made in Mexico and have really increased our share of that marketplace.

Once again, I think that's the right agents, the right price point and of course the right targeted advertising.

I think we've gotten smarter in terms of understanding each ZIP Code on an individual basis and what we need to do to be competitive within those corridors.

I think pricing for the most part over the last couple of quarters has been quite stable.

As far as Wal-Mart, I know in the past you have been reluctant to give transaction growth as far as Wal-Mart is.

But can you give any color on where Wal-Mart stands in terms of as an agent?

Are they in the top three, in the top five?

Where do they stand?

And you alluded that they're going to doing a little bit more advertising, or they are.

Do you anticipate that accelerating at any point?

Because this is a telephone call you can't see how big I am smiling when I talk about Wal-Mart.

We continue to be really ecstatic about what's going on at Wal-Mart.

They are definitely top five for agents.

And I think we've developed a good close working relationship with their marketing folks.

And I think between the two of us we're getting a lot smarter in terms of how we promote, advertise, get signs up -- things like that -- with Wal-Mart.

And I couldn't be more pleased with the progress we're making with Wal-Mart and that partnership in whole.

Would you anticipate advertising accelerating, doing different types of advertising or will it stay what it has been for --?

I think what you are going to see is continued, very targeted advertising.

I think you're going to see better in-store signage, better in-store promotion, which is one of the best things that we can do, is making sure the visibility is within the stores.

When people walk in, they know that MoneyGram and money orders are there.

So I think you will just continue to see us get much more targeted and much more visible within Wal-Mart.

Last question on convention.

I think when we were at the analyst day, Bob, the convention was alluded to possibly getting to 10, 11 percent margins if some of the revenue mix changed a little bit and wouldn't need that much revenue growth.

As we stand today after the third quarter is that still possible and do you believe that can happen?

Absolutely.

Kim and Paul, I would ask you to comment on your respective businesses on that.

I agree, absolutely.

I see no reason that can't happen.

Same here.

We've made a lot of progress just this year in getting there.

I think as Paul alluded to and as Kim talked a little bit more about, we're very hopeful for up ticks and for that business to come back some.

If not, there are further things that they can do on the expense side to help derive margin expansion.

Anecdotally, have you seen some evidence that would point to that 2004 can be better?

For Kim's business most of the Fortune 1000 today are putting together their marketing plans for 2004 and planning for their overall budgets.

So Kim and her team have kind of adopted a little wait-see.

Again, we're seeing in certain sectors that it's going to remain very healthy because they are more accustomed to doing more of the face-to-face.

On some of the company's that have pulled back from a convention schedule, or have refurbished, they are in the process now of trying to make a decision on new builds, that type of thing, and what they're going to do for their program.

I am a little bit encouraged, obviously, by some of the earnings numbers that we've seen, and the unemployment numbers dropping.

And if that continues to hold and people feel a little bit better, I suspect psychologically that's going to help Kim's industry a good bit.

On the GES piece where the slowdown has really been, as opposed to the large national shows, that's been on the technology front that we talked about and that's also been on some of the regional shows.

And if, again, companies commit more dollars in '04 -- which, if we had to bet right now, that's how we're betting -- than they did in '03, we should see both GPS and Exhibitgroup have some pick ups.

Thank you very much.

The other thing I would just add on to what Phil said about the Wal-Mart thing, I thing it's terrific what's happening there.

It has grown very fast and we're just on the edge of that.

On the other hand, having said all that, toward MoneyGram with the spread in distribution now throughout the world, now good opportunities we think in China and it's huge there.

So the MoneyGram story itself, while Wal-Mart is terrific, it is across all countries on the international side, as to the opportunity piece.

So I do want to point that out.

(OPERATOR INSTRUCTIONS) Dris Upitas, Credit Suisse First Boston.

Good morning this is Paul filling in for Dris.

A couple questions on the payment side of the business.

First, on Official Check, I think you began talking maybe on the last quarterly call, or maybe at the analyst day, about increasing the fee component of the Official Check product.

Just curious if those discussions have been begun with the customers and what the feedback has been on that.

Yes, we have begun implementing that.

I think we've had very encouraging results so far.

And we've also implemented that on all new business going forward as well.

So I'd say we've made very good progress on that.

On the MoneyGram side of it, some of your competitors have talked about increased compliance issues and regulatory issues.

Just curious if you guys and seen any impact from that and any impact on transaction volumes?

I don't think we've seen that on transaction volumes.

Certainly they has been increased emphasis from the regulators on compliance, and we continue to aggressively work on that side to always make sure that we're doing everything that we can on the compliance side.

So we continue to put a lot of compression on that.

We're investing in both people and systems to make sure that we're doing everything we can on compliance.

I don't think its hurt volume whatsoever, but there has certainly been increased activity.

Lastly, on Money Order you talked about volumes improving a bit in '04, mainly due to Albertsons.

Just curious what your longer-term take is on that business, and maybe what a longer-term three to five year type growth rate would be for that business.

I don't know that I would want to speculate on the longer-term growth rate.

We're going be very pleased.

We think we're going to get money orders growing again next year.

Albertsons was a big win for us.

I think we're just going to continue to focus.

We're the biggest in that business and we think that we can continue to improve our market share in the overall market side of it.

I think you'll probably see some turn around in same-store sales, but I think that our opportunity really is to get a bigger share of the existing market out there.

That's really what we're going to focus on.

Great, Thank you.

Michael Millman, Millman Research Associates.

Could you talk a little bit about the difference between the growth in revenue, and the growth in transactions in MoneyGram, and talked a little bit about whether that's been driven by the great growth in ExpressPayment?

In other words, I guess does ExpressPayment generate a lower average fee?

The biggest part of that difference is the growth that we've had in ExpressPayment.

And that will continue to be the biggest factor as we go forward.

ExpressPayment is the fastest-growing segment we have.

And that is at a much lower price point than the traditional wire transfer business.

So that would explain the bulk of it.

To take that one step further, is there a big difference also in profitability between the ExpressPayment and the traditional MoneyGram business?

Actually, no, because the way ExpressPayment is set up it's a direct to the biller, so we don't have the commission on the other side as you would in a traditional MoneyGram wire transfer.

So from a profitability standpoint it is very good for us.

Thank you.

(OPERATOR INSTRUCTIONS) We're standing by with no further questions at this time.

I will turn the call back over to our speakers if you'd like to make any additional or closing remarks.

Thanks, everyone, again for being with us today.

Sorry about the technical glitch upfront.

Again, we're going to work hard in this quarter to make it as good as we possibly can and continue to work on the separation of Travelers, which is the most important thing we think we can do.

Thank you again.

Goodbye.

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