Viad Corp (VVI) 2004 Q1 法說會逐字稿

Welcome to today's Viad first quarter 2004 earnings release conference call.

Today's conference is being recorded.

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

Please go ahead ma'am.

Thank you.

Good morning, and thank you for attending our conference call.

I would 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 today's call, we will refer to tables 1 through 3 in the press release.

Our press release is available on our website at www.viad.com.

One last comment before we began.

This conference call may not be recorded or reproduced in transcript without the explicit written permission of Viad.

Now I'll turn it over to Bob Bohannon, our CEO.

Good morning, everyone.

Thanks very much for being with us this morning.

And we have the operating company presidents on the line;

Phil Milne, Travelers Express;

Paul Dykstra at GES;

Kim Fracalossi at Exhibitgroup/Giltspur.

Let me start this morning.

I know most of you would like an update on the status of the proposed spin-off of Travelers, so I'll start there before we move into discussions on the business side.

Please keep in mind that this transaction is subject to a number of conditions, including final sign-off from the SEC on the Form 10 document obtaining satisfactory banking and credit arrangements for each of the businesses, and final approval of the transaction by the Board of Directors of Viad.

And of course, we can give no assurance any such transaction will be consummated.

We have made very good progress and we believe we're on track to consummate the spin-off during the second quarter.

To date, we have achieved the following milestones.

We received the private letter ruling from the Internal Revenue Service confirming that the proposed spin-off will qualify as tax-free to Viad and its shareholders.

Both Viad and MoneyGram have held positive meetings and executed commitment letters with lenders in February of '04.

On March 30, MoneyGram filed an amendment to its registration statement on Form 10 with the SEC and is currently in the registration process.

And two of the three major credit rating agencies have concluded their analysis and have affirmed that they expect MoneyGram's debt to be investment grade after the separation.

The following additional material conditions much must be satisfied before the spin-off is completed.

We have to complete the SEC review process with the Form 10 and we have to negotiate and execute the final documentation of the new credit arrangements for both Viad and MoneyGram.

Also, approval for listing the common stock of MoneyGram on the New York Stock Exchange and the final approval of Viad's Board of Directors of the spin-off and related transactions, which will include setting a record date for the distribution of MoneyGram common stock.

In addition, we will repay our outstanding commercial paper, redeem our outstanding preferred stock, and offer to repurchase our outstanding public debt, and we will keep you informed as we reach any new significant events or as we go along.

For the first quarter, let me begin by referring you to tables 1 and 2 in the earnings press release.

For the first quarter, net income was 47 cents per diluted share, which included 14 cents from the sale and first quarter results of operations of Game Financial.

Income from continuing operations was 33 cents per diluted share compared to last year's first quarter income from continuing ops of 24 cents.

We did in the quarter incur spin expenses of 801,000, or 1 cent per diluted share.

For the quarter, segment operating income was 46.4 million, up 28.4 percent compared to the 2003 first quarter operating income of 36.1.

And the increase in operating income was largely attributable to improved results for Travelers Express.

For the quarter, cash and corporate investments were down 3.2 million from last quarter and now stand at 159.9 million.

The decrease is related to the sale of Game Financial.

At December 31, 2003, the cash balance included 33.6 million of Game Financial cash and ATMs.

With the sale of Game, Travelers has invested this cash, along with the remaining sale proceeds and their quote portfolio, and it is now included in investments, and accordingly is no longer included in the bucket of cash and corporate investments.

Our debt to capital ratio has decreased slightly since fourth quarter and now stands at 22 percent.

And at March, debt outstanding was 252.5.

The balance sheet remains very strong.

EBITDA, shown in table 2 of the press release, was 55.6 million for the quarter, up from 45.5 in the first quarter of '03.

And free cash flow for the quarter was 18.5, up from 17.9 in the first quarter of '03.

Some of the segment highlights, Payment Services revenue was up 11.5 percent from the first quarter '03, operating income was up over 58 percent due to the growth of MoneyGram and improved performance in the investment portfolio.

Revenue for the Convention and Event Services segment was down 8.3 percent from the 2003 first quarter, mainly due to soft demand in the exhibit construction business.

Operating income also fell 5.8 percent, while margins improved by about 20 basis points.

For our Travel and Recreation businesses, first quarter revenue was 3.9 million as compared to 3.3 in 2003 first quarter, and the loss was 1.3, reflecting the normal seasonal pattern.

And that compared to an operating loss of 1.6 last year in the first quarter.

On the Convention and Events segment, as we talk about this segment, the performance, you might want to refer to the results in table 1 of the press release.

Table 1 includes the revenues and operating income for the operating segments.

And with that, I will now turn it over to Paul Dykstra to talk about GES.

Paul?

Thanks, Bob.

Good morning, everyone.

GES had another solid quarter.

Operating margins and free cash flow were strong.

As expected, revenue was down slightly from 2003 due to loss of the electrical services agreement with the City of Detroit, which meant that we did not do the electrical services for the North American International Auto Show in January in Detroit.

That loss was not due to any performance issues; the City decided to utilize a minority electrical contractor for shows at Cobal (ph) Hall.

If not for that loss, revenue would have been up more than 4 percent from 2003.

We had several large shows perform better than expected during the quarter, most notably the International Consumer Electronics Show and World Shoe.

Both posted strong growth over last year, and this growth is certainly encouraging.

Until we see overall growth, however, across all industries and show sizes, we will remain cautious in our outlook.

During the quarter, we signed about 90 million of future business and we now have roughly 85 to 90 percent of our 2004 revenue signed.

Moving into the second quarter, we expect that revenues will be down about 10 percent from the prior year due to negative show rotation.

The National Plastics Expo, one of the largest trade shows in the world, rotates out and does not occur again until 2006.

In the third quarter, we will benefit from positive show rotation.

The International Manufacturing Technology Show, or IMTS, the International Woodworking Show, the International Baking Show, are every other year shows that will occur in the third quarter of 2004.

And in addition, we will service Mine Expo, which occurs every four years, during the third quarter.

These shows are among some of the largest trade shows in North America, and as a result, we expect to see a revenue increase in excess of 40 percent as compared to the 2003 third quarter.

As far as the industry is concerned, we're seeing some positive indicators such as growth in certain major trade shows, continuing improvement in the economy and corporate earnings, and an increase in new show launches.

However, I think we need a couple of more quarters of solid earnings before companies are comfortable enough to significantly increase their trade show spending.

Barring any world events, I think we'll start to see a pickup in the second half of the year on into 2005.

I am also pleased at the results we're starting to see from our newly launched products and services division.

This division was formed in the fourth quarter of 2003 to drive increased service and sales to exhibitors on GES shows.

We've gotten tremendous feedback from exhibitors from the enhanced proactive service calls, and this is leading to increased revenue as well.

We believe 2004 will be another good year for GES and we're off to a good start.

Our solid operating results, strong cash flow, and positive customer satisfaction scores tell us we're doing the right things.

We're looking forward to a rebound in the industry because we know we're well-positioned to provide superior service while improving returns for our shareholders.

We have a commitment to continuous improving and intend to continue winning for our clients and shareholders.

With that, Bob, I will pass it back to you.

Thanks, Paul.

Kim, would you now comment on Exhibitgroup/Giltspur?

Yes, thank you.

Exhibitgroup/Giltspur's first quarter operating results declined slightly as compared to last year's first quarter.

This was on a revenue decline of over 25 percent, primarily as a result of lost business from highly competitive pricing situations.

This lost business would not have been profitable to Exhibitgroup at the awarded prices.

With the prolonged weak demand for new exhibit design and construction, we are feeling a greater amount of price competition.

We believe that the low pricing some of our competitors are offering is a survival strategy that cannot be maintained.

When prices are too low, something has to give; either the quality or the company itself, or sometimes both.

And in fact, over the last couple of years and even most recently, we have seen some of our competitors fall by the wayside.

And no doubt, more will follow if the irrational pricing in the industry continues.

While we strive to price competitively, we will not price irrationally.

We believe that we bid a fair value at a fair price, and that by practicing margin discipline, we're acting in the best long-term interest of our company, it shareholders, employees and customers.

We further believe that as an industry leader, Exhibitgroup provides superior design, construction and customer service, as well as financial stability.

And these are the criteria upon which we choose to compete.

We will not compete on price.

That said, inevitably some clients do and will continue to select their trade show vendors based on price, especially in this time of restricted marketing budgets.

We are prepared to pounce on these deals because although it hurts our topline, it should only have a nominal impact on our operating income.

This was the case in the first quarter.

By sacrificing low margin business, as well as through our ongoing process improvements, we were able to increase our gross margin by over 200 basis points over the 2003 first quarter.

We're also hopeful that as marketing budgets become more robust with the improving economy, exhibitors will again place more importance on the quality of design, construction, customer service and creditworthiness during the vendor selection process.

This certainly should be good for Exhibitgroup.

Now regarding the topline, we continue to aggressively pursue new customers, and during the quarter we won several new clients, and we have a very strong prospect list and a steady stream of RSP's which we are currently responding to.

And as part of our recent restructuring efforts, we have introduced new sales and design offices in certain key markets, including San Jose and New York.

Our New York sales and design office, located in SoHo, has produced some very good leads in the very short time has been open.

In fact, for the first time in the New York region, we have had clients and potential clients stopping by our sales and design center to work with us.

This never happened before and allows us to have more contact and touch points with our customers.

We're very excited about the potential that these sales and design offices offer us.

In late March we participated in the Exhibitors Show, which is the show where members of our industry exhibit their products, and our target customers come to see all those products.

We created a huge buzz on the show floor with our booth, Welcome to the EG Funhouse, which emphasized our creativity, full-service offering, and our focus on providing a no-hassle experience for our clients.

We obtained a lot of high-quality leads, many of which have already turned into opportunities to submit proposals.

We are also encouraged by the fact that attendance at that show was up 30 percent from the prior year, which to us is an indicator that corporations may be planning to increase their spending on trade show marketing in the not-too-distant future.

In addition, many of the attendees, our potential clients, indicated that they wanted to build a new booth within the next 9 to 12 months.

So we can actually really feel this pent-up demand, but the question remains when will it actually release.

Looking ahead, visibility is still poor, and we expect our topline to remain under pressure.

That said, we are cautiously optimistic that the trade show industry will strengthen during the back half of 2004 and into 2005.

In contrast to last year, our clients' marketing budgets seem to be holding.

However, until we actually see a sustained increase in new construction orders coming in, we will remain cautious in our revenue outlook.

While we wait for the pent-up demand to release, we are busy making our organization stronger.

We're taking steps to ensure that when the economy rebounds, Exhibitgroup will be well-positioned to realize strong margins and to capture more market share.

None of our competitors can leverage the level of financial purport support that Viad provides, and few can offer to invest in the core businesses as we have been investing.

The large new customers we currently have and the ones that we are pursuing demand financial strength from their trade show partner, and we anticipate that they will continue to express a clear preference for Exhibitgroup/Giltspur as the industry's premier provider.

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

Back to you, Bob.

Thanks, Kim. (indiscernible) take them through the Payment Services segment please.

Thanks, Bob, and good morning to everyone.

Before I review results, I would just like to remind everyone that we plan to operate under the name MoneyGram International Inc. after the spin-off.

Our Form 10 has been filed under the name MoneyGram International; until the spin-off and in these comments today, we'll go by our current name, Travelers Express.

Looking at the first quarter, first quarter results for the Payment Services segment are shown in table 1 of the press release.

We had a very good quarter, and I want to thank each and every one of our employees for their commitment and focus on our consumers and business partners as we strive to offer affordable, reliable and convenient payment products and services.

Briefly looking at the first quarter, revenue was 191.3 million; that was up 11.5 percent compared with the first quarter of 2003.

Transaction fees were up 17 percent driven by growth in the money transfer business.

Investment revenue was up nearly 4 percent.

Operating income was $30.2 million, which was at the high end of the guidance range we gave last quarter.

I want to focus a little bit now on the global money transfer business.

Our global money transfer business had another just terrific quarter, driven by a relentless focus on the consumer value proposition.

Revenue was up over 23 percent and transaction volume up 33 percent over the first quarter last year.

In the quarter, we made good progress in developing our global network and offering new products.

Let me give you some additional color on our performance.

Our global money transfer agent base is up nearly 14 percent compared to the prior year's first quarter, and now stands at over 68,000 locations.

In the quarter, we signed over 1800 domestic agent locations and over 2000 international agent locations.

In the quarter, we also launched E-MoneyGram, an Internet-based service that allows consumers to send money through the Internet by debiting their bank accounts or paying with credit and debit cards.

E-MoneyGram also allows our customers to access our urgent bill services online.

These services are provided to what we call the convenience user of money transfer.

Convenience users tend to have banking relationships and use the Internet.

This was a different customer profile than the un-bank customer who also uses our services.

I think it's a great example how we are expanding the reach of our products and services through new distribution channels.

We also launched our Internet money transfer service through Yahoo! pay direct website.

Yahoo! is the Internet (indiscernible) with the largest Hispanic user group.

And we also continued to re-sign important agents, including Speedway Super America, a convenience store trade, who, in addition to offering money orders, will now test money transfer in their outlets.

We also see growing interest in the money transfer product from banks.

We signed our first major domestic bank in the first quarter, Union Bank of California, and this product was launched in the bank this week and we have a number of others at various stages of discussion.

This is a great opportunity for us to partner with an important segment of the financial services industry and we see great promise in this channel.

Just looking at money transfer performance geographically, international originated transactions grew 23 percent in the quarter.

In particular, international volume benefited from the expansion of agent locations in Italy, Spain and the United Kingdom.

Domestically originated transactions, including express payment, increased 36 percent in the quarter.

Domestic business benefited from the signing of additional biller relationships for our express payment (indiscernible) urgent bill payment service, and our ongoing co-marketing efforts with major agents.

Transaction volumes in Mexico grew 38 percent in comparison to last year's first quarter.

Volume was up due to a focused radio advertising campaign, the introduction of streamlined transaction processing, effective price strategies for this market, and key agent rollouts on both the send and receive side of the transaction.

Just a few more comments on specific markets.

In China, we continue to pursue our goal of doubling agent locations by the end of the year.

China is a very important market and we're making great progress in growing our agent base there, both through the expansion of existing -- through the expansion of existing relationships.

In the U.S., we are focusing on marketing campaigns in Chinese communities.

In India, the second-largest remittance market after China, we are also looking to double the size of our agent base by year-end.

And finally, we're very excited to announce that in Brazil we are currently in the process of rolling out 2400 Banco Itau locations.

This is a great agent for us, as Banco Itau is the second-largest bank in Brazil with a very, very strong name recognition in this country.

Brazil is a huge remittance market; second-largest in Latin America, eighth largest in the world.

We believe the market size is 4 to $5 billion in annual flow, and transactions will begin moving in early May.

Moving on to the money order side, Travelers Express continues to be the leading issuer of money orders in the United States.

In all of 2003, we issued about 295 million money orders.

In the first quarter, money order volume was down slightly from a year ago but up about 4 percent from the fourth quarter of 2003, as we neared the completion of the Albertson's rollout.

We expect to experience modest growth in this business as we continue to sign domestic agents such as retail chains who want to offer money orders.

Albertson's will contribute to our need in the money order market in 2004.

As the money order business continues to mature over the next few years, there will be a shift in product mix as we meet consumer preferences with stored value cards, Internet payments and other new products.

Now I want to shift our focus to Prime Link Official Check.

We continue to make good progress on our efforts to increase fee revenue in this business with the signing of new customers and the repricing of existing accounts, all with a fee component.

Our backlog is below historical levels at $61 million, but this really reflects the impact of a lower interest rate environment and our efforts to sign profitable business with a mandatory fee component.

Average investable balances are down, as expected.

The decrease reflects the effect of the runoff of last year's unprecedented refinance activity, which really is good news for us.

Shifting attention to the investment portfolio.

Remember, the investment portfolio includes balances from both money order and Official Check.

For the first quarter, average balance for the portfolio was $6.6 billion, compared with 6.7 billion in the first quarter of '03 and 6.6 billion in the fourth quarter of '03.

Table 3 of the press release shows the net float margin at 166 basis points.

You may recall that last quarter we told you that we expected net float margin to remain relatively strong into the first quarter of 2004.

That was really mostly due to our hedging strategy and a lower cost of funds.

At that time we also pointed out that we expected the net float margin to decline over the remainder of 2004.

This was really dye to our primary focus of keeping the net generation of the portfolio low in anticipation of rising rates.

Keep in mind that duration measures the sensitivity of the portfolio to changes in interest rates.

Currently the net duration of the portfolio is about 1.5 years.

We believe that over the course of 2004, net duration will average about 1.25 to 1.5 years.

For comparison purposes, last year at the end of the first quarter the net duration of the portfolio was about 2 years, and prior to that and before the recession and dramatically lower interest rates, it was in the 2.5 to 3.5 year range.

In simple terms, lower net duration means lower spreads.

Our hedging strategy will cause us to give up some return in the near term, but also means that we diminish the risk of missing out on the benefit of rising rates.

As part of our portfolio hedging strategy, we purchased floating-rate securities.

Because of many of the derivatives that matured over the last year were not replaced as balances declined, we purchased on a net basis more floating-rate securities.

These investments will benefit when rates rise.

However, in the meantime they offer lower yields.

With accelerating economic growth, the lower net portfolio duration better positions us for a rising rate environment over the next few quarters.

We expect that the net duration of our portfolio will continue to be kept relatively short for the remainder of the year.

As economic growth stabilizes and the Fed becomes less of a factor in the market, we do anticipate that the net duration of the portfolio will return to a more neutral position.

So we really believe we are well-positioned for the much anticipated rise in interest rates later in 2004 and into 2005.

Let's talk for a minute about guidance.

For 2004, the following assumptions are implicit in Viad's guidance for the Payment Services segment.

The money transfer business will continue to experience topline and transaction volume growth similar to the first quarter.

The money order business volumes will be modestly higher but revenue is expected to decline slightly in 2004 in comparison with 2003, due to the lower rates on balances.

Official Check business revenue will decline slightly from 2003 due to the full year effect of lower interest rates.

This decline will be partially offset by lower commissions paid to banks.

For the investment portfolio, overall for 2004, we expect the net float margin to remain fairly stable at 2003 levels, reflecting the impact of lower interest rates for the full year in 2004 and the effect of shortening the net duration of the portfolio in anticipation of rising interest rates.

For the full year, we expect our net float margin to be in the range of about 125 to 130 basis points.

Of course, actual performance will depend on a variety of factors, including interest rates, yields available on new investments, prepayment activity and other factors.

Average investable balances are expected to decline in the range of 2 to 600 million for the 2003 average balance of $7 billion.

This decline will be the result of slowing mortgage refinance activity.

To sum up, I want to thank you for your continued interest and support of Travelers Express.

Let me close by saying that we feel we have a great future, and all of us are extremely excited to be a part of this.

Back to you, Bob.

Thanks, Phil.

Now I'll ask Ellen to add a little bit more color on some of the finance numbers and so forth.

Ellen?

Thank you.

As shown in table 2 to the press release, adjusted EBITDA was 55.6 million during the quarter versus 45.5 million in the first quarter of 2003, and the increase is primarily due to higher operating income in 2004.

Also shown in table 2, free cash flow -- defined as cash from operations excluding the change in Travelers Express, Payment Service assets and obligations, less capital expenditures and dividends -- was 18.5 million for the quarter versus 17.9 million last year.

Payment Services total average investable balances were down 2 percent for the quarter compared to the first quarter of 2003.

The Prime Link Official Check balances were down 3 percent for the quarter.

At March 31, 2004, Viad had total cash and corporate investments of 159.9 million.

Our total debt at the end of the quarter was 252.5 million with a total debt to capital ratio of 22 percent.

Net interest expense for the quarter was $1 million, down from $3 million in the first quarter of 2003.

This difference is primarily related to lower average debt balances and interest rates.

Depreciation and amortization for the quarter was 12.7 million compared with last year's first quarter of 12 million.

Capital expenditures for the quarter were 10 million, up from 7.2 million in the prior year's first quarter.

The income tax rate for the first quarter of 2004 was 29.3 percent versus 27.7 percent for the 2003 quarter, and average outstanding potentially dilutive shares for the quarter were 87,217,000 compared 86,326,000 in the first quarter of 2003.

Back to you, Bob.

Thank, Ellen.

Before wrapping up the comments and opening the call to questions, let me provide some guidance for the rest of 2004.

Please keep in mind this guidance is subject to change.

As we have talked about before, the visibility for Exhibitgroup is still cloudy.

We expect Exhibitgroup's revenue will remain under pressure due to the prolonged weak new exhibit construction demand and pricing competition.

Also, Travelers' float-based revenues can be affected by changes in interest rates and other market factors.

Also, we want to point out that this guidance assumes no separation of Travelers from Viad.

If the separation occurs, there will be certain separation costs related to debt repayment and preferred stock redemption and for legal, accounting and investment banking services, among other things, as described in the Form 10.

These separation costs are not considered in the guidance.

Finally, I will note that the comparable 2003 numbers provided for the Payment Services segment do not include the results of Game Financial, which are now presented as discontinued operations.

For the second quarter, we expect diluted earnings per share to be in the range of 35 to 36 cents.

Payment services segment revenue is expected to increase at a mid-single digit rate in comparison to the second quarter of '03.

Payment Services segment operating income is expected to be flat to up by mid-single digit rates in comparison to '03, and this follows the expectation of lower investment revenue, offset somewhat by higher fees from MoneyGram transfer.

Convention and Event Services segment revenue is expected to decrease at a mid-teens rate in comparison to the second quarter of '03, largely due to negative show rotation in the second quarter for GES, which Paul talked about.

We expect this decline to be more than offset by a substantial positive show rotation in the third quarter.

Convention and Event Services segment operating income is expected to decrease by nearly 9 million from second quarter 2003 segment operating income of 25.2.

And travel and recreation services results are expected to be in line with the 2003 second quarter results.

Because of the significant impact of show rotation on our quarterly results this year, I also want to provide some high-level guidance for the third and fourth quarter.

For the third quarter, we expect diluted earnings per share to be in the range of 41 to 43 cents, reflecting positive show rotation.

For the fourth quarter, diluted earnings per share is expected to be in the range of 22 to 24 cents, reflecting the normal slower seasonal patterns for the Convention Event and Travel and Recreation businesses.

For the full year, we expect diluted earnings per share to be in the range of $1.46 to $1.51.

This includes the 14 cent gain on the sale and first quarter results of operations of Game Financial.

Income from continuing operations is expected to be in the range of 1.32 to 1.37 per diluted share.

And again, this guidance does not reflect spin-off-related costs that have been and will be incurred to affect the transaction of the separation of Travelers.

Payment Services segment guidance for the full year of '04; we expect revenue to grow at high single digit to low double digit rates in comparison to '03.

Their segment operating income is expected to grow at a high single digit to low-teens rate from '03.

And the guidance, as Phil pointed out, assumes a net float margin in the range of 125 to 130 basis points.

And as Phil also mentioned, the range is dependent on a variety of factors, including changes in interest rates, available yield on new investments hedging strategies, prepayment (indiscernible) other factors.

For Convention and Event for the full year, segment revenue is expected to decrease slightly from the 2003 revenue of 717 million, mainly due to soft demand of the new exhibit construction.

Convention and Event Services segment operating income is expected to increase slightly as compared to the 2003 segment operating income of not quite 45 million.

Travel and Recreation Service revenue is expected to grow at a mid-teens rate from '03, and operating income is expected to increase by 30 to 40 percent from 2003 op income of 10.5.

Let me close today by saying that we continue to be very excited about the direction of the Company.

We look forward to completing the spin-off of Travelers as soon as possible.

We're continuing through the registration process with the SEC, and are also moving forward with the other steps necessary to complete the spin-off.

And as I mentioned upfront, we do expect to complete this during the second quarter.

We believe that overall, 2004 will be a better year for all of our companies, with the possible exception of Exhibitgroup.

Until we see evidence of a sustained increase in new construction orders, and that increase in corporate spending is translating into increased marketing and event budgets, we will remain cautious in our outlook for the Convention and Event segment.

For the Payment Services segment, we expect money transfer to continue to experience strong domestic international growth.

This growth will be enhanced by new product and network developments.

The Official Check business will remain challenged by the hangover affect of low interest rates in '04, but we expect 2005 to be much better for this business, particularly with the continued rollout of mandatory fees.

And upon successful completion of the spin-off, MoneyGram, as well as new Viad, will be positioned for growth through acquisitions.

As we look beyond 2004, if the recovery in the economy holds, 2005 should be a breakout year for all of our companies.

And with that, I will close and ask you to open up the lines for the Q&A portion.

(OPERATOR INSTRUCTIONS).

CS First Boston, Dris Upitis.

Can you just give us an update on your hedging activities as they stand today?

I know that there were some swaps that rolled off in the fourth quarter and first quarter, and can you just give us an update on where those stand now?

Phil, will you do that please?

I guess maybe just starting off to talk about hedging, as we discussed, we really work under a very defined risk management policy.

And within that policy, we employ different strategies and different rate environments.

So in order to hedge the portfolio we use both floating-rate securities and fixed rate swaps.

I think over the last few quarters we've probably used more floating-rate securities rather than fixed rate derivatives because floating-rate securities give us more flexibility in volatile rate environments, and will probably see us shifting much more towards fixed rate derivatives over the next few quarters.

I can tell you that in March we purchased about 150 million of fixed rate swaps and another 225 million in April.

So we have made quite a move over the last couple of months, moving back into fixed rate derivatives.

And that is really to bring down that net duration I talked about in my comments as we prepare for the economic expansion that is happening right now.

When we think about the results versus a year ago, I know that there was a charge that brought down operating income a year ago in payment.

Can you just give us a sense for apples to apples, what the results were there?

Because I think there was something on the order of a 19 or $20 million charge.

(multiple speakers) $20 million was the charge.

I think if you look at the first quarter, we were extremely pleased with the performance that we got out of global funds transfer, and the type of growth that we're seeing.

And I think that the other thing that we really were pleased was the growth was coming across all the segments.

So as we looked at the business across the globe, we were seeing strong growth domestically, we were seeing strong growth overseas and very strong growth to Mexico and to Latin America.

So I think that gave us a tremendous amount of momentum out of the first quarter, is really the performance on the global funds transfer side.

Actually that was my last question, was just a couple of the specific orders there.

You mentioned China and India that you're looking to at least double locations.

Can you just give us a sense for what percentage of your locations were in China and India as of the end of '03, and how much of revenue those were?

It's not much of revenue.

We're really in the process of rolling out.

We did sign the second-largest bank in China, ICBC (ph), and we're just in the infancy of rolling that out.

But they have a potential of 25,000 branches in China when it's fully rolled out.

And we look to double our agent base in India this year as well.

So we're really just rolling on this, and we think we have just tremendous upside within those corridors.

The last corridor was just in Mexico, it sounded like very strong growth there.

Can you just comment on the pricing trends that you have seen?

Pricing has remained very stable to Mexico.

I think what the team is doing just a great job on is getting the right mix of send agents, and then really getting on some focused and targeted marketing and advertising campaigns to get the message out on our strengths to Mexico.

So I think it is just -- I think the team is just executing well on the strategy.

So we are really pleased with the performance down in Mexico.

I would also add to that, and Phil, that I think the other thing that Mexico that we believe is that prior to September the 11th, you had a new money transfer operation setting up along some U.S. city -- some U.S. border city virtually every month of every week it seemed.

And given the emphasis in respect to what some of the states and, clearly, the federal government on the money laundering side and that type thing.

I think that's helped us an awful lot, because there have been some crackdowns and so forth, the states and the government ensuring that these people are licensed.

And it's helped quite a bit.

Kartik Mehta, Midwest Research.

A couple of questions.

As you look at your portfolio -- and Phil, you've talked a little bit about rising rates -- what do you think the impact would be to the portfolio if rates rise 50 basis points over the next twelve months?

I think in general over the long haul we think that we're going to benefit from a rising rate environment, and I think that's why we have really positioned the portfolio to shorten the net duration to really -- in anticipation of the economy expanding, probably a more active Fed.

And that's really why we're kind of making the moves that we are right now, really more a defensive strategy and getting ourselves prepared for that.

So we think over the haul here, as the economy reinflates we will benefit from a rising rate environment.

Is it possible to quantify at all what the impact of the (indiscernible)

I barely heard you there, Kartik, but I think that's all laid out in the Q in terms of the impact of rising rates.

But I think the most important thing is that we have positioned the portfolio to benefit from that as that happens over the next year, year and a half.

As you look at your agents, is it possible (inaudible) talk about maybe what the backlog is of the number of agents you'll have over the next twelve months?

Kartik, I can barely hear you.

I think the question was the backlog of agents.

And I think the way I would characterize it, we have a very, very strong pipeline of agent rollouts.

And I think the big one I mentioned just earlier was the bank in Brazil, Banco Itau.

We're going to be rolling out 2400 locations in early May and we are really excited about that one.

Brazil is a huge market.

But the signings, the pipeline is very full and the signings look great on the global funds transfer aside.

I think the Brazil bank will put you over 70,000; correct?

Yes, it will.

(inaudible) if you look this quarter, what's the (inaudible) compared to (inaudible)?

Kartik, again, we're having a difficult time hearing you.

I think I heard you ask what percentage of the revenue at Exhibitgroup/Giltspur is refurbishment versus new exhibits?

Kim, can you give some color on that, please?

Probably 80 percent of the (indiscernible) on our construction side of things is refurb versus new construction.

But overall, the mix were probably just basically show services of probably 65 to 70 percent.

And then what we categorize as actually doing some construction work, whether it's refurb or new construction, is probably 35.

Kim, back in what I'll call pre-September 11, what would those numbers have been?

Generally, for the year they probably would have been -- you would have been closer to mid 40s on construction, 40 to 45 percent versus where we are at.

We're probably 10 percentage points lower now.

Lehman Brothers, Kristen Cooper (ph).

Can you comment on the year-over-year rise in CapEx?

Is that something that you can point one finger to?

And what's your plan for the full year?

The year-over-year rise -- if you look back, we have -- despite these terrible times that we've had -- have continued to invest in technology and systems.

That's true at MoneyGram and all throughout Travelers.

And also, we have upped it this year for GES for some new systems there that we think will really help enhance and drive some productivity movements and so forth.

So we made a conscious decision to (technical difficulty).

For the year, I believe that we will end up about 5 to 7 million over last year.

Ellen, is that a good ballpark?

, Right, we'll be slightly higher than last year.

What was last year's number?

Last year was about 43 million.

43.

Thank you.

My next question is, you have trimmed your full year guidance by about 3 cents excluding the 14 cent gain in this quarter; is that primarily driven by the Convention and Event Services poorer than expected performance in the first quarter?

No, we kept our guidance consistent with the Game press release.

The Game Financial transaction press release that we did, we obviously took out the end financial results of operations.

So that might be what you're thinking about.

But from that, we have not reduced the guidance.

My mistake;

I apologize.

My final question is, you mentioned earlier in your prepared comments and then quantified on the last call, a 25 percent rise in fees at the Prime Link Official Check segments; is that still a good proxy to use as far as what fee increases you are achieving right now?

Phil?

On a year-over-year basis?

Yes.

And I think just to add some color to that, we continue to add fees wherever we can on that product through repricing efforts.

And I want to emphasize, too, that all new business coming in has to have a mandatory fee component; we continue to push on that.

So all in all, we're very pleased with the progress we have made on that product in terms of introducing fees into that business.

And I think it's going to pay big dividends for us over time.

(OPERATOR INSTRUCTIONS).

Scott Sherrod (ph), Clovis (ph) Capital.

A couple of questions.

Phil, can you talk about -- at the end of the year you gave guidance for the interest rate net margin to be 1.1 to 1.25.

You've now rated it to 1.25 to 1.35.

Can you comment on what the thought process is there in raising it?

And then I have a follow-up question.

I think that the slight rise in that really is probably driven mostly by doing a little bit better in the first quarter than we thought.

I don't think we really changed, Scott, what we think about in the back half of the year.

So it's probably more a reflection on that than anything.

What I'm trying to figure out is I'm trying to back out of Game Financial the annual impact and the quarterly impact.

Did Game Financial have any seasonality, and what would have been the year-over-year impact?

Because I'm looking at your year-end comments in terms of you thought Payment Services was going to grow single to low double-digit off of 801; you now are saying it's going to be single to double-digit off of 7-something.

So I can back into that revenue number.

You said, you know, on that EBIT side it's going to be high single digit to low teens off of 115; you're now saying high single digit off of 111.

So that implies that Game Financial was only making 4 million; is that the number?

In operating income that's pretty good.

was there any seasonality to that?

Not really, no; it was pretty consistent.

So when you look at that, and then you kind of look at you guys did 30 million, and last year's Payment Services had about 30 -- you were up year-over-year in Payment Services a pretty good bit.

So that was a great quarter on the Payment Services side; correct?

Yes.

We were very pleased with the quarter, Scott.

Absolutely.

One last question if I may.

Bob, in terms of the jumping around on the Convention Services business from second quarter to third quarter, there's been a number of quarters that this has happened.

I think it happened in last year's third or something, where there was a little discrepancy between quarters.

My understanding is that the date of the show is set a year in advance or sometimes two years in advance.

So can you just help me understand why there continues to be this sort of jumping around of, okay the show is going to be -- we're going to do better in the third versus the second?

Are the shows moving or are we somehow missing our planning?

I just want to make sure we get our planning right once you become a public company, and then the movements make even that much more of a difference as when you're a stand-alone entity.

Sure.

And Scott, I think that clearly we'll do a better job in respect to the start of the year, walking through the show rotation aspects of it.

But no -- plastics, again, occurred last year, will not this year.

But in the third quarter we have the International Tool Show, one of the largest shows in the world, will occur this quarter.

Mine Expo, which is an every three, four year show, will occur in the third quarter.

So it's simply moving -- some shows will move from a quarter to a quarter over a year, depending on the location.

In other words, some shows will be in the second quarter in Las Vegas but in the third quarter in Orlando.

See, you get some of that; but no, we know the dates.

I'm a little confused then, because there's only one or two guys who are guiding who are kind of writing on you guys on Wall Street, and we're working off their models and we're working with you guys pretty closely to try and make sure we have the numbers right.

So I would just ask, and it's not that important but it will become increasingly important as a stand-alone entity, that we should be able on a one-year-out basis to give more color.

And it would probably help to give more color (indiscernible) to say -- okay, these are the shows in Q1, these are the shows in Q3, these are the shows in Q4; here's how it's going to work throughout the year.

On an annual basis it doesn't move much, but the quarters become more important when people think you, quote unquote, miss the number.

Scott, thank you;

I agree with you.

One last question if I may.

Have you made the final determination as to where the debt is going to go in the split?

We have not made the final determination.

I mean, we're still working on that, but we're reasonably close.

I'm sorry, I said one last question but I'm going to ask one more if you don't mind.

I was a little confused; on the Game Financial you pulled out the earnings, which I understand, but then there's a mention in the press release about some level of cash, $33.6 million that was sitting in the ATMs.

Can you just talk about that?

Is that our money, is that someone else's money?

Did that come out of our cash balance?

It's our money.

It was and still is.

We did have the 33 million in the ATMs, and that then was included in the bucket of what we label cash and corporate investments.

When that business was sold, Travelers keeps very, as little cash as they possibly can.

And so when that business was sold, Scott, that 33 million, they took the proceeds plus the proceeds from the sale and invested in securities.

And so therefore, that just moves to another bucket.

So it goes from essentially being restricted to being free?

Yes.

Locust Wood Capital, Paul Morris.

Thank you.

All my questions have been answered.

Marc Shapiro, Palisade Capital.

Phil, can you just comment for a minute on the new relationship with the United Bank of California?

There had been some concern in the past that the banks may be making (indiscernible) to this market.

Does this signal some type of change, and maybe a big opportunity for MoneyGram going forward?

I think -- we have talked a lot about this over the last couple of years and there's been a lot of chatter out there about the banks getting into this business, but I think we've been pretty consistent saying we think the banks are a great opportunity for us.

And I think as you look at the money transfer business and the barriers to entry, a lot of it is the branding and then the worldwide network.

And I think that's why we're seeing some movement towards some of the banks wanting to partner up with people like us.

So we think this is a real positive.

We continue to be bullish on the opportunity with banks, and we hope that Union us the first of some other big ones coming our way, as they focus on the consumer as well in this segment.

So we're really excited about it and we think we've got a lot of potential in this channel.

At this time it appears we have no further questions.

I'll turn the conference back over to you, Mr. Bohannon, for any closing remarks.

Thank you very much.

Thanks for being with us today.

We're going to push very, very hard to get the separation done as soon as possible.

We're working on all cylinders, and as soon as we have some additional news on it we'll make certain that we get it out in a press release.

Thanks very much for being with us.

Bye.

That does conclude our teleconference for today.

We would like to thank you all for your participation.

You may now all disconnect.