Viad Corp (VVI) 2005 Q3 法說會逐字稿

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  • Operator

  • Good day everyone and welcome to the Viad 2005 Third Quarter Earnings Release.

  • Today’s conference is being recorded.

  • At this time, I would like to turn the conference over to Director of Investor Relations, Carrie Long.

  • Please go ahead, ma’am.

  • Carrie Long - Dir. IR

  • Thank you.

  • Good morning everybody and thank you for attending this conference call.

  • Before we get started, I’d like to remind you that certain statements made during the call, which are not historical facts, may constitute forward-looking statements and actual results may differ materially from those projected in these 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 can be found in Viad’s Annual and Quarterly Reports filed with the SEC.

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

  • During today’s call, we will be referring to Tables 1 and 2 of our earnings press release and that can be found on our website at www.viad.com.

  • And with that, I will introduce Bob Bohannon, our CEO.

  • Bob Bohannon - Chairman, CEO, President

  • Thanks, Carrie.

  • Good morning everyone.

  • Thanks very much for being with us today.

  • On the call, you will hear from Paul Dykstra, President GES;

  • Kim Fracalossi, President of Exhibitgroup/Giltspur; and, of course, Ellen Ingersoll, CFO.

  • Before we discuss the results for the quarter, I’d like to first talk about the announcement today of our succession plan.

  • On April 1, 2006, I’ll turn over my responsibilities as President and CEO of Viad to Paul Dykstra and will remain as Viad’s Chairman of the Board.

  • I’m very happy about the Board’s decision to appoint Paul as my successor.

  • He’s been with us for over 20 years.

  • He spent his first 15 years with the Company at Travels Express, which we spun off as Money Gram International last year.

  • And, as most of you know, he has served as the President and CEO of GES for the past 6 years, where he has done a terrific job [owning] [ph] that company.

  • Paul has a strong management background and experience in strategic planning, acquisitions, and finance, and I’m confident that with Paul’s background and abilities he’ll turn out to be a great leader for Viad.

  • As part of the succession plan, Paul will be promoted to COO on January 1, 2006, and Kevin Rabbitt, who is currently GES’s COO, will assume Paul’s responsibilities as President and CEO of GES at that time.

  • Kevin joined GES in 2002 and has held several senior management positions, including COO.

  • He has a great understanding of the business and he’s been a vital part of GES’s successes in the past few years and I’m confident that Kevin will make a superb President and CEO for GES.

  • As I mentioned earlier, I am going to stay on as the Company’s chairman, but with Paul in place, I’ll be able to focus my attention on strategic initiatives for the Company.

  • I’ve very excited about this change and the upcoming promotions of Paul and Kevin.

  • Our Board of Directors spent a lot of time planning for this transition and we believe it will be a great success.

  • All of us are very excited about Viad’s future.

  • We have a strong balance sheet.

  • We’ll talk about that shortly.

  • We’re seeing positive signs for growth in our industries.

  • We’ll talk about that, particularly at Exhibitgroup/Giltspur.

  • And we are realizing substantial year-over-year improvements of our earnings.

  • On the third quarter, as we discuss the results, you may want to refer to Tables 1 and 2 in the earnings press release.

  • And simply put, we had a great quarter.

  • Third quarter income from continuing operations was $9.4 million, or $0.42 per share, which included impairment losses of $508,000 after-tax, or $0.02 per share.

  • Income, before impairment losses, was $9.9 or $0.44 per diluted share, which is much higher than our prior guidance of $0.27 to $0.33.

  • These strong results reflect very good performance at all of our operating companies and favorable tax settlements totaling $1.5 million, or $0.07 per share.

  • Segment operating income was $16.4 million on revenues of $191.1.

  • Now, the impairment losses that were recorded during the quarter relate to assets that were damaged as a result of Hurricane Katrina.

  • We’re in the process of filing claims with our insurance carriers, and while we expect to receive recoveries for damaged assets and business interruption, it’s too early in the claims process to estimate the amount or the timing of those recoveries.

  • As compared to the prior year, our third quarter results were impacted by negative show rotation revenue totaling $37 million at GES and Exhibitgroup.

  • On a year-to-date basis, show rotation did not have a significant impact, and year-to-date, our revenue is up $34.2 million, or 5.4%.

  • And income before impairment losses increased by $4.1 million or 14%.

  • So we are realizing very nice growth this year.

  • Now let’s move on to the individual operating Company segments, and, again, you’ll see those on Table 1 of the press release.

  • And with that, I would like to turn it over to Paul Dykstra to talk about GES.

  • Paul?

  • Paul Dykstra - CEO-GES

  • Thanks, Bob, and good morning everybody.

  • Our third quarter revenue was $119.6 million and operating income was $1.5 million, better than our prior guidance.

  • As compared to the third quarter 2004, revenue was down $21.2 million due to negative show rotation of about $27 million.

  • As we discussed in an earlier press release, our New Orleans operations were affected by Hurricane Katrina and we’re very, very thankful that all our employees are safe, and at this time all but a few have taken positions with other GES offices in either a permanent or temporary basis, depending on their individual situations.

  • However, the damage from the hurricane did impact our warehouse and caused some shows to be cancelled and others to be postponed and relocated.

  • As Bob mentioned earlier, we recorded an impairment loss of $508,000 after-tax, relating to the write-down of New Orleans-based assets that were damaged.

  • This loss is not reflected in our operating results.

  • It is presented as an impairment loss below the segment operating income line.

  • Regarding shows that were cancelled or postponed, we estimate that our revenue from such shows would have been about $800,000 during the quarter.

  • We don’t know how long it will take the New Orleans exhibition and event industry to recover at this time, but until we have that kind of nailed down, we expect that most major shows previously scheduled to take place in New Orleans will relocate to other venues.

  • Many of our third quarter shows were stronger than expected.

  • Our base same-show growth improved a healthy 5.6% during the quarter.

  • We defined base same-show growth as a measurement that we use, and this refers to revenue growth in our shows that occur in the same city and the same quarter each year.

  • We attribute this growth to continued improvement in the industry and to the efforts of our Products and Services Group to increase penetration into exhibitor discretionary spending.

  • Year-to-date, exhibitor discretionary revenue is up 8.1% from the same period in 2004, outpacing our overall revenue growth rate of 6.3% year-to-date.

  • Our industry, in general, continues to improve.

  • Tradeshow Week, an industry publication, had reported 7 straight quarters of positive growth in square footage, number of exhibitors, and number of attendees through the second quarter of 2005.

  • Metrics for the third quarter were just released and indicate continued growth.

  • Exhibitors seem to be spending more, but they are still using lighter way exhibits to reduce material handling and shipping costs.

  • Overall, we’ve seen very nice top-line growth so far this year and we expect to finish the year with mid-single-digit revenue increases over 2004.

  • Although revenue is expected to be up, operating income is expected to be relatively flat to 2004.

  • This is mainly due to margin pressures we’re seeing from a decrease in the freight density on many shelves, which negatively impacts our higher margin material handling revenue, the reduced freight density, as a result of exhibitors using lighter weight components in their exhibits, and bringing less product out on the show floor.

  • And, as we’ve discussed in the past, the increased cost of fuel and petroleum-based commodities has also impacted our margins.

  • To date, we have been working very hard to deliver strong operating results despite these pressures.

  • To offset the pressures, our Products and Services Group has been focused on driving growth and exhibitor discretionary revenue with great results.

  • We also continue to focus on implementing best practices to drive productivity improvements in utilizing new technology to enhance our margins.

  • Over the past 2 years, we’ve seen a significant increase in the cost of petroleum-based materials, such as carpet and graphic substrates.

  • During this time, GES has been doing everything we can to improve our productivity in order to maintain our margins while holding the line on prices.

  • However, with the sharp spike in petroleum prices in the last 6 months, and in anticipation that we will continue to see significantly higher costs of petroleum-related products, such as carpet, transportation, and plastics, like many other companies and industries that are affected by the cost of petroleum, we have decided to implement a petroleum surcharge effective immediately.

  • To my knowledge, we will be the first general services contractor to do this.

  • But the bottom line is that our cost of providing services to exhibitors has increased as a result of petroleum prices, which are beyond our control, and we must pass a portion of that cost along.

  • We will continue to focus on providing the best value to our exhibitor customers by minimizing the costs that we can control.

  • Before I wrap up my remarks, let me quickly cover our revenue backlog.

  • During the quarter, we signed $93 million in future bookings and we have nearly 70% of our forecast at fourth quarter revenue under contract.

  • Our total backlog for 2006 and beyond stands at $884 million.

  • In closing, we’re pleased that the industry is continuing on its upward course and we are seeing great results from our Products and services Group and from our constant focus on operational and productivity improvements.

  • We will continue to do a good job controlling costs where we can in order to deliver quality products and services at a good value to our customers and strong returns to our shareholders.

  • Once again, I am extremely proud of all the people of GES.

  • Our team responded incredibly well to the needs of our New Orleans-based employees and our affected gulf region shows and we delivered on our commitments to all our stakeholders.

  • Before I pass it back to Bob, I want to say that I am very happy and honored to have been chosen to succeed Bob as President and CEO of Viad.

  • Bob has been a great mentor to me over the years and a first-rate leader.

  • I’m looking forward to assuming the new position and the great opportunities that will come with it.

  • Now, I would like to introduce Kevin Rabbitt, who will take over as President and CEO at GES effective January 1.

  • Kevin?

  • Kevin Rabbitt - COO-GES

  • Thanks, Paul.

  • I am also very excited and honored to be assuming this new and broader role at the Company.

  • Under Paul’s leadership, GES has accomplished many great things and truly positioned itself as the industry leader.

  • We see many more opportunities ahead of us and I look forward to pursuing them in my new role.

  • It is my goal to continue the winning streak that GES has maintained over the past several years.

  • Paul Dykstra - CEO-GES

  • Thanks, Kevin.

  • Bob, back to you.

  • Bob Bohannon - Chairman, CEO, President

  • Okay, thanks, Paul.

  • Now I’m going to ask Kim Fracalossi to talk about Exhibitgroup/Giltspur.

  • Kim?

  • Kim Fracalossi - President- Exhibitgroup/Giltspur

  • Thanks, Bob.

  • Our third quarter revenue was $27.3 million, with an operating loss of $4.2 million.

  • This was an improvement over our prior guidance.

  • Now remember the third quarter is a seasonally slow period for Exhibitgroup/Giltspur.

  • Although we posted a loss in the quarter, I am very happy with our improved performance as compared to 2004’s third quarter.

  • We narrowed our year-over-year quarterly operating loss by over $700,000.

  • And we achieved this improvement in a quarter in which our revenue declined 28.5%, or $10.9 million.

  • As we mentioned before, revenue was planned to be down because of the rotation out of a major European air show.

  • Year-to-date, our revenue is essentially flat to 2004.

  • However, our operating results have improved $3.8 million.

  • And this is after $4.8 million in incremental legal fees that we incurred during the first and second quarters of this year to defend against unfair competitive practices in our kiosk business.

  • So before these one-time legal expenses, our year-to-date operating results actually improved by $8.6 million.

  • And that’s from a negative $7.8 million in the 2004 same period.

  • And fortunately for us, the kiosk litigation I talked about in our last call was settled in our favor.

  • This was a huge, huge win for us.

  • Our improved operating results in the third quarter and year-to-date are largely a function of significantly improved gross margins and reductions in semi-variable and discretionary expenses.

  • That’s excluding legal.

  • We’re reaping the benefits of the productivity improvements that we’ve been working on for the past 3 years and we continue to execute very well on initiatives to increase the productivity of our show service offerings.

  • If you adjust for kiosk legal expenses, we’re still on track to lower our breakeven point to about $180 million in revenue this year.

  • This is a goal that we set as part of our 2005 plan and we are very proud to be on course to deliver, as planned.

  • We are realizing great throughput on our revenue and we are very focused on growing that.

  • With all the restructuring and most of our major cost reduction initiatives now behind us, our focus has shifted to driving profitable top-line growth.

  • We continue to see strong RFP activity and we believe Exhibitgroup/Giltspur is included in more competitive bids than most of our competitors in the industry.

  • And our win ratio remains high.

  • We had several good wins in the third quarter, some of which will result in incremental revenue in the fourth quarter of 2005.

  • Price competition, while still a factor, appears to have abated somewhat from the magnitude of competitive discounting that we faced in 2004.

  • We’ll never stop working to reduce costs and drive productivity improvements, but we’ve got an efficient infrastructure in place now and some sales momentum behind us, putting us into a position to grow the business profitably.

  • On a macro level, we remain somewhat cautious about the economic environment, particularly because of the unknown impact on our client companies with rising interest rates and the increased cost of fuel, energy, and lumber.

  • There is some evidence that clients may be delaying their budget establishment until later in the year, so we don’t have a good read on how 2006 is shaping up yet.

  • But, as far as the remainder of 2005 is concerned, we don’t anticipate any pullback in client spending.

  • We saw a very slight uptick in construction revenue in the third quarter and we hope to see another uptick in the fourth.

  • This was the first increase in construction revenue that we’ve seen in the past 9 quarters.

  • For the fourth quarter, we expect that revenue will be in line with prior year’s fourth quarter and we expect to show another year-over-year improvement in operating income results on essentially flat revenue.

  • For the full year, we expect the flat to slightly improved revenue and we expect to cut our 2004 operating loss approximately in half.

  • Our team has done some great work and we are very proud of our achievements.

  • With the knowledge that our efforts over the past 3 years are paying off and a little wind in our sails from recent wins that fell straight to the bottom line, we are very excited about our future.

  • Bob, back to you.

  • Bob Bohannon - Chairman, CEO, President

  • Okay, thanks, Kim.

  • Let me cover now some highlights for the Travel and Recreation Segment.

  • For the quarter, revenue was $44.3 million, up $4.6 million, or 11.5%, as compared to the 2004 quarter.

  • Operating income was $19.9 million, up $2.1 million, or 12.6%.

  • Operating margins were 43.1%, as compared to 42.6% ending 2004 third quarter.

  • These results are in line with our prior guidance and reflect good revenue growth at both Brewster and Glacier Park.

  • Glacier Park’s operating season has come to an end.

  • It was another very good year.

  • We increased the room rates by 3% over 2004.

  • I should say rooms occupied 3% over 2004, which is a record year for Glacier.

  • Brewster’s growth during the quarter was mainly driven by good results at the gondola, the Mount Royal Hotel, and the ice field.

  • As compared to the 2004 third quarter, passenger volumes on the gondola increased 8% and rooms occupied at the Mount Royal Hotel improved by more than 700 basis points.

  • In addition, passengers at the ice field were relatively flat to the 2004 quarter, but revenue per passenger increased 7%.

  • So 2005 is essentially complete for the Travel and Rec Segment.

  • Glacier Park is going to close for the season, and Brewster is seasonally very slow during the fourth quarter.

  • And for the fourth quarter for this segment, we expect revenue and operating income to be in line with the 2004 quarter.

  • And so, overall, 2005 will be another very good year for both Brewster and Glacier.

  • So with that, I’ll now ask Ellen to discuss some financial highlights for the quarter.

  • Ellen?

  • Ellen Ingersoll - CFO, PAO

  • Thanks, Bob.

  • As shown in Table 2 to the earnings release, adjusted EBITDA was $19.1 million during the quarter versus $24.4 million in the third quarter of 2004.

  • And that decrease is primarily driven by the lower op income due to the negative show rotation that we spoke about earlier.

  • As shown in Table 2, free cash flow, defined as cash from operations, less CapEx and dividends, was $20.6 million for the quarter versus free cash flow of $7.2 million in the 2004 third quarter.

  • The increase is due primarily to working capital improvements.

  • And directionally for 2005, free cash flow is expected to approximate income before impairment losses plus depreciation and amortization minus restructuring payments, CapEx, and dividends.

  • For the full year 2005, our working capital is expected to have a slightly negative impact.

  • At September 30, 2005, Viad had total cash and cash equivalents of $143.7 million.

  • Our total debt at the end of the quarter was $17.8 million, with a debt-to-capital ratio of 4.3%.

  • Net interest income for the quarter was $348,000 versus net interest expense of $394,000 in the third quarter 2004.

  • Our depreciation and amortization for the quarter was $5.6 million, which is slightly higher than last year’s third quarter of $5.4 million, and the full year 2005 forecast is expected to approximate $22 million.

  • CapEx for the quarter were $3.3 million, in line with last year’s third quarter.

  • And the full year 2005 forecast will approximate $22 million.

  • Payment salary structuring reserves were $791,000 during the quarter versus $2.1 million in the third quarter of 2004.

  • We expect to make restructuring payments of approximately $2.7 million in 2005.

  • The 2005 income tax rate year-to-date, excluding asset impairment losses, was 36.9% versus 35.6% in 2004.

  • These rates reflect favorable tax settlements totaling $1.5 million in the third quarter of 2005, and $2.4 million in the third quarter of 2004.

  • Back to you, Bob.

  • Bob Bohannon - Chairman, CEO, President

  • Okay, thanks, Ellen.

  • Before we wrap up and take questions, let’s talk about guidance for the rest of ’05 please.

  • As a result of our strong results in the third quarter, we are increasing our full-year guidance.

  • We now expect income before impairment losses will be in the range of $1.38 to $1.42 per share for the full year 2005.

  • And as a reminder, the impairment losses amounted to $0.02 per share.

  • This compares our prior guidance of $1.25 to $1.34.

  • And it reflects growth of about 30% over our 2004 full-year income before impairment losses of $1.07 per share.

  • We expect full-year revenue to increase at a low to mid-single-digit rate from 7.85 in ’04 and segment operating income is expected to increase by mid-single-digits [indiscernible] rate from the 2004 amount of 53.4.

  • And full-year guidance for each of our operating segments can be found in the earnings press release.

  • For the fourth quarter, fourth quarter guidance has been reduced slightly to a loss of $0.08 to $0.12 per share, as compared to prior guidance of a loss of $0.05 to $0.10 per share and a prior year loss from continuing operations before impairment losses of $0.27 per share in the 2004 fourth quarter.

  • This slight decrease in guidance is primarily related to the impact of recent hurricane activity on tradeshows in the Southeast.

  • In closing, we’ve had a great year so far with very strong growth in earnings as the result of good performance across all of our operating segments.

  • Exhibitgroup’s substantial improvement in operating results on flat revenue is especially impressive.

  • And if you think about the legal fees, the 4.8 on the kiosk, if you after-tax that and do the EPS, that’s about $0.13 for that cost.

  • So I’m very proud of the work that Kim and her team have done to significantly improve the profitability of Exhibitgroup.

  • The strong RFP activity and stabilization of exhibit construction spending is very encouraging as well.

  • And, clearly, we hope that that means some future revenue growth.

  • While most times, a positive, we just don’t know when companies will decide to spend on new exhibits.

  • GES continues to deliver very solid performance.

  • Paul and his team are doing a great job in driving revenue growth and in controlling cost to offset the pressures of all our crate density and the high cost of petroleum.

  • Brewster and Glacier Park have also executed very well.

  • I can’t say enough good things about Dave Morrison and Cindy Ognjanov, who run Brewster and Glacier, respectively.

  • The 43% third quarter operating margin says it all.

  • Regarding the acquisitions pipeline, we continue to look for and evaluate good opportunities.

  • We took a very close look at a company during the third quarter, very attractive opportunity.

  • However, we fell apart in the end on price and we simply will not normally overpay for a company.

  • But there are other things out there that we’re working on.

  • We continue to explore and eventually we believe we’ll find the right one at the right price.

  • And going forward, we’ll remain focused on cost control, operational improvements, and revenue initiatives to preserve our strong year-to-date growth.

  • And for the full year, we expect to produce growth of about 30% in earnings and earnings per share, even with the legal expenses we’ve discussed that we incurred during the second quarter to protect our intellectual property.

  • So with that, I’d like for you to open it up to the Q&A portion please.

  • Operator

  • [Operator Instructions].

  • Kartik Mehta, Midwest Research.

  • Kartik Mehta - Analyst

  • A question, Paul, for you on the GES business.

  • I understand you said the margins have been kind of hampered by what’s happening with fuel costs and some other costs.

  • Is this just a matter of fuel costs coming down or is there a way to potentially improve those margins, even if we remain in this environment for energy and fuel costs?

  • Paul Dykstra - CEO-GES

  • A couple of things.

  • One, I mentioned we are implementing a petroleum surcharge, and that’s to cover the increased costs that we’re already having.

  • We’re certainly looking at getting more efficient to find ways that we can cut down volume, as we manage some of the rate issues.

  • So we’re attacking it from a number of different fronts.

  • Kartik Mehta - Analyst

  • Then, as you look into 2006, I know it’s early, but could you maybe provide us some type of guidance in terms of show rotation, if there are any large shows that might occur in 2006 or might not, just so that we can get a feel for what to anticipate?

  • Paul Dykstra - CEO-GES

  • Yeah, we don’t have that completely flushed out yet, Kartik, but it’s not going to be a big swing one way or the other.

  • Kartik Mehta - Analyst

  • And the last question for you, Bob.

  • Your cash continues to increase.

  • I think your net cash is now up to almost $5.70.

  • I know you talked about an acquisition you looked at.

  • Is there an opportunity -- are you to a point where, with all the cash, that you might now consider buying back shares or increasing the dividend or using your capital in another manner?

  • Bob Bohannon - Chairman, CEO, President

  • Well, we do have some, and the third quarter one was a great example, we do have so opportunities that we’re looking at.

  • And, of course, as we’ve always talked about, what we’d like to do is grow the Company but not in a reckless way.

  • The opportunity that we did have would have worked out to be -- I think you would be very happy with it.

  • I think you would like the numbers and that type thing.

  • And it also would have provided some real good future growth as well.

  • And, again, we’re still looking at other things.

  • Now, if we can’t get those things done, as I’ve always said, then certainly share option is the next thing.

  • And, Kartik, I think you know too that anything that we look out to buy, we balance that against, okay, what would happen if we just took the money that we are going to spend on the acquisition and buy back shares.

  • So we go through that and make certain we’re making the right decision.

  • Kartik Mehta - Analyst

  • Bob, could you talk about maybe what area that you -- that acquisition was a part of?

  • Bob Bohannon - Chairman, CEO, President

  • I’ve got to be very careful here.

  • I mean we’re in a very strict confidentiality agreement and I probably just should leave it, Kartik, that, again, it was an opportunity that would have provided us some real good growth opportunities and one that I think that owners and investors would be very happy with.

  • Operator

  • [Rob Longnecker], [Barrington].

  • Rob Longnecker - Analyst

  • I understand you guys have a confidentiality agreement on the acquisition, but can you give us a feel for at least roughly what kind of size and acquisition that would have been so we can get a feel for how much of your cash would have been deployed?

  • Bob Bohannon - Chairman, CEO, President

  • Sure.

  • It would have been over $250 million.

  • Rob Longnecker - Analyst

  • Acquisition size or revenues?

  • Bob Bohannon - Chairman, CEO, President

  • No, acquisition cost.

  • Rob Longnecker - Analyst

  • Wow, okay, thank you.

  • Operator

  • [Operator Instructions]. [Louis Sykes], [Penn Capital].

  • Louis Sykes - Analyst

  • I just had a quick clarification on the tax rate.

  • If you adjust for these tax settlements that you had in the quarter, what was the tax rate and where do you see the tax rate for the year?

  • Bob Bohannon - Chairman, CEO, President

  • Ellen?

  • Ellen Ingersoll - CFO, PAO

  • Sure.

  • If you adjust out for the $1.5 million in settlements, the tax rate is about 39.7%.

  • The tax rate for the year, I see it at 36.9%, which is what we’re at right now.

  • But if we adjusted out for that $1.5 million, it would be approaching 40%.

  • Louis Sykes - Analyst

  • Okay, 40%, excluding the settlement for the year.

  • Ellen Ingersoll - CFO, PAO

  • Right.

  • Operator

  • [Rob Longnecker], [Barrington].

  • Rob Longnecker - Analyst

  • You guys also, you obviously [indiscernible] because I’m kind of new to the Company.

  • Can you give some more color on when you are going to get information on whether you’re, I guess it’s your Glacier permit is going to get renewed or not?

  • Bob Bohannon - Chairman, CEO, President

  • Yeah.

  • We have been told, we’ve said the government can extend us up to 3 years beyond our contractual period, and we have been told verbally that they are in the process of getting the paperwork done and they are likely to extend us another 3 years.

  • Rob Longnecker - Analyst

  • Oh, that’s interesting.

  • Okay.

  • Operator

  • Kartik Mehta, Midwest Research.

  • Kartik Mehta - Analyst

  • Two follow-up questions, Bob.

  • One on the Exhibitgroup business.

  • You have been very good at driving down the cost in that business.

  • Is it possible now that you look at that business to drive it, the breakeven point, anywhere below $180 million, or is $180 million the right number?

  • Bob Bohannon - Chairman, CEO, President

  • I’m going to ask Kim to comment in a second on this, but I believe, I’ve always been one to believe that you can always adjust your Company down to where your revenue base happens to be for a breakeven.

  • So, yeah, if revenue dropped a hundred and a half or the things that Kim could do to get there, you bet.

  • Having said that though, and as I said in my comments, I’m so proud of Kim and her team because where they are today, I mean, again, if you factor in the legal costs that we talked about and the improvement that they have shown over ’04, they’ve had the unpleasant task of doing all the restructuring and that type thing.

  • And so with some of the signs that we’re seeing, they are now getting to the, we believe, the fun part.

  • So barring some type of huge event that none of us can reasonably sit around and predict or talk about, if the economy continues to move along as it has, we know about the pent-up demand on that, we are starting to see some of that, and with what they’ve done, Kartik, is that if we start improving the revenue, the throughput is going to be very significant.

  • So, Kim, would you pick up from there please?

  • Kim Fracalossi - President- Exhibitgroup/Giltspur

  • Yeah, absolutely.

  • There is always an opportunity to reduce your costs further.

  • Clearly, we have several manufacturing locations and things like that.

  • But at the point we’re at, we think it’s going to be a bit of a growth -- going forward on growth, and we think we’ll use the capacity.

  • However, because of the pricing in this environment, we have to continue to ratchet down the cost so that we stay competitive against the competition.

  • So we’re going to continue to do that and there are opportunities.

  • Kartik Mehta - Analyst

  • Kim, just to refresh our memory, what do you think is the incremental margin at this point in time?

  • I know it depends on what type of business you receive, but maybe a blended rate?

  • Kim Fracalossi - President- Exhibitgroup/Giltspur

  • Yeah, it’s very good.

  • It is north of 35%.

  • Kartik Mehta - Analyst

  • Just a clarification on the tax rate, would you anticipate about a 40% tax rate then for 2006?

  • Kim Fracalossi - President- Exhibitgroup/Giltspur

  • Yes.

  • Operator

  • [Operator Instructions].

  • There are no further questions at this time.

  • I’ll turn it back over to Mr. Bohannon for any additional or closing comments.

  • Bob Bohannon - Chairman, CEO, President

  • Okay.

  • Thank you.

  • Again, thanks everyone for being with us.

  • It was a super quarter.

  • We’re very pleased as we watch the progress now, the Exhibitgroup and GES, Glacier and Brewster.

  • We’ve talked about we’ll keep doing the things that we’ve done to try to make it even better.

  • So, thanks for being with us.

  • Operator

  • That does conclude today’s conference call.

  • We thank you for your participation.

  • You may disconnect at this time.