Viad Corp (VVI) 2006 Q2 法說會逐字稿

Good day and welcome to the the Viad Corp 2006 second quarter earnings call.

This call is being recorded.

I'll now turn the call over to the Director of Investor Relations, Carrie Long.

Please, go ahead.

Thank you.

Good morning and thank you for attending our conference call.

Before we begin I'd like to remind everyone that certain statements made during this call which are not historical facts may constitute forward-looking statements.

Actual results may differ materially from the 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 can be found in Viad's annual and quarterly reports filed with the Securities and Exchange Commission.

This conference call may not be recorded or reproduced in transcript without the explicit written permission of Viad and during today's call we'll refer to tables one and two in our earnings press release.

That press release can be found on our website at www.viad.com.

With that, it is my pleasure to introduce Paul Dykstra, President and CEO of Viad Corp.

Good morning, everyone.

Thanks for being with us today.

On today's call, you'll also hear from Kevin Rabbitt, President and CEO of GES Exposition Services, and Ellen Ingersoll, Viad's Chief Financial Officer.

Before we cover our results for the second quarter, let me first discuss our share repurchase activity.

During the quarter we repurchased 585,000 shares which completes the 1 million share repurchase that we announced earlier this year.

At the same time our cash balances grew to $160.8 million.

Our strong balance sheet earnings and cash flow make it possible for us to employ a balanced strategy of returning capital to our shareholders while pursuing growth through strategic acquisitions and selective investments in our existing operations.

We recognize that capital is precious and it must be allocated with great discipline to ensure that value is created for our shareholders.

As part of the balance capital deployment, we announced today that we intend to repurchase up to one million additional shares.

But please, keep in mind that our first call on capital continues to be a strategic acquisition.

We're working diligently to find the right opportunity at the right price.

I should also mention that in June, we amended and restated our revolving credit agreement.

We were able to obtain $150 million commitment and achieve lower borrowing spreads and fees then the previous agreement.

The facility is for a term of five years, and may be increased an additional $75 million under certain circumstances.

And now I'll move on to our second quarter results.

As I discuss our second quarter results you may want to refer to tables one and two in the earnings press release.

The second quarter was another very good quarter for Viad.

Income from continuous operations was $18.6 million or $0.86 per diluted share up 67.6% as compared to the 2005 second quarter.

These results were also much better then our prior guidance of $0.52 to $0.60, primarily due to better than expected results at Exhibitgroup and favorable tax settlements of $0.15 per share.

We also benefited from strong results at GES and the Travel and Recreation Services segment.

Segment operating income for the quarter was $25.8 million up 15.7% from 2005 second quarter due to improved results at all of our operating companies.

Revenue increased $10.4 million or 4.6% to $237.4 million, driven primarily by strong growth at GES.

Now let's move on to the individual operating segment results; again, you may want to refer to table one of the press release which provides revenues and operating income for each of the operating segments.

Now I'll turn it over to Kevin Rabbitt to discuss GES.

Kevin?

Thanks, Paul.

We had another great quarter and for that I want to start with thanking all the hard-working, dedicated employees of GES.

Revenue for the quarter increased $18.9 million, or 12.6% to $169.3 million from $150.4 million in the second quarter of 2005.

Operating income was $18.4 million, up $2.2 million or 13.7% from $16.1 million in the 2005 quarter with operating margins of 10.8%.

Both revenue and operating income were in line with prior guidance.

The growth over 2005 was due primarily to very strong same-show growth and continued growth in our exhibitor discretionary revenue driven by the product and services group.

Our base same-show growth during the quarter was 11.4%, up from 10.8% in the first quarter and 6.8% for the 2005 full year.

As a reminder, base same-show growth is one performance measurement that we use and it refers to revenue growth in our shows that occur in the same city and th same quarter every year.

We attribute this strong growth to our successful efforts to address the needs of both show organizers and exhibitors by providing industry leading and great customer service at a good value.

GES has built a culture of continuous improvement that leads to the reinvention of our service offerings to best suit the needs of current customers and potential customer.

Our products and service groups is just one example of the reinvention.

We're also doing a good job driving operational excellence and reinventing our internal processes through the development and implementation of new best practices and utilization of technology to drive productivity improvement.

Additionally, we continue to make good progress in the pricing front through our petroleum surcharge program or other effective price increase in order to partially offset the impact of increased petroleum costs.

As a result of our successful initiatives to drive profitable growth through pricing and productivity improvements, we continue to expect an increase in performance based incentives for 2006 as to compared to 2005.

Because of this we increased our accrual for such incentives as compared to the 2005 second quarter.

Now I'll quickly cover our revenue backlog before commenting on our outlook for the remainder of 2006.

During the second quarter, we signed $151 million of future bookings including a four-year contract with the Chicago Auto Show.

We have over 60% of remaining 2006 forecasted revenue under contract and our total revenue backlog for the rest of 2006 and beyond, stands at over $900 million.

For the third quarter, we expect revenue to be in the range of $140 to $150 million as compared to $119.6 million in the 2005 third quarter.

Operating income is expected to be in the range of $7 to $9 million as compared to $1.5 million in 2005.

The increases over 2005 are expected to be driven mainly by positive show rotation with expected benefit revenue by about $25 million.

For the first quarter and full year show rotation is not expected to have a meaningful impact on the revenue.

Overall for 2006, we continue to expect full year revenue to increase at the mid to high single digit rate and we expect operating margins to the approximate our 2005 margins.

We remain optimistic about our outlook for 2006.

Our efforts to drive incremental productivity improvements and profitable revenue growth are paying off.

We also continue to see growth in the exhibition event industry and strong growth in our portfolio of shows.

As always we'll continue to do a great job controlling costs where we can in order to deliver quality product and services and great customer service as terrific value to our customers, enabling us to generate strong returns for our shareholders.

The GES team remains committed to winning in 2006 for all our stakeholders.

Thanks, Kevin.

Next I'll cover Exhibitgroup/Giltspur and the Travel and Recreation Service segment before giving some guidance for the rest of 2006.

For the second quarter Exhibitgroup/Giltspur's segment operating income was $2.7 million which exceeded our prior guidance.

Second quarter revenue was $46.9 million, which was at the higher end of our prior guidance.

As compared to 2005 second quarter, revenue was down $11.6 million, primarily due to negative show rotation from a major European air show that took place during the 2005 second quarter, but takes place during the third quarter of this year.

The air show provides us with roughly $10 million in revenue each year.

Although revenue was down year-over-year, second quarter segment operating income increased by $692,000 due to an improvement in gross margin and continued reduction of fixed and summary variable costs including legal fees.

For the third quarter we expect Exhibitgroup's revenue to be in the range of $33 to $39 million as compared to $27.3 million in the 2005 third quarter.

The increase in revenue is expected to be driven by positive show rotation from the European air show that I mentioned earlier.

The air show has relatively lower profit margins than Exhibitgroup's domestic business and as a result we expect the blended gross margin to decline from the 2005 quarter.

Overall, we expect third quarter operating results to be in the range of a loss of $4.5 million to a loss of $3 million as compared to a loss of $4.2 million in the 2005 quarter.

Exhibitgroup finished 2005 on a strong note with revenue growth for the first time since 2000 and when we began 2006 we believed that at last the wind was at our backs.

And while we expected first quarter revenue to be lower than last year due to rotation out of CONEXPO-CON/AGG and the loss of two significant clients, we believed that we could replace this revenue with new wins and other increases in client spending during 2006.

To date we have not seen new revenue materialize to the extent we had initially expected.

Because of this we now believe that full year revenue will likely decline versus 2005.

However, we do still expect an increase in full year segment operating income due to lower legal costs and additional fixed and semi variable cost reductions.

We have a strong and active sales pipeline but many companies seem hesitant to pull the trigger and commit to substantial spending in 2006.

We're hopeful that corporate profits will remain strong throughout 2006 and as a result, we'll see greater spending in the fouth quarter.

But because we are can't count on the spending, the team at Exhibitgroup is work working hard to drive costs out of the business in order to maximize profits.

Exhibitgroup has tremendous potential and we're working hard to put the right pieces in motion in order to drive growth.

Finding with right leader is critical and we made good progress on that front.

We're looking for a CEO who has great leadership experience and most importantly who has the skills necessary to drive revenue growth and capitalize on the significant leverage that is exists within the business.

There are many interested and highly-qualified candidates and we're quickly narrowing the list down.

In the meantime, the Exhibitgroup team remains committed to realizing increased efficiencies, cost reductions and revenue growth in order to win for the stakeholders.

Now let me move on to the Travel and Recreation Services segment.

Travel and Recreation Services got off to a good start for its peek season.

Second quarter revenue was $21.2 million, up $3.1 million or 17% from the 2005 quarter.

Segment operating income was $4.8 million, up $609,000 from the second quarter of 2005.

As compared to the 2005 second quarter, Brewster saw growth in passenger volume at its Gondola and an increase in occupancy at its Mount Royal hotel.

At our Glacier Park business we opened for the season in May and realized a increase in the number of rooms occupied over the 2005 second quarter.

For the third quarter, we expect revenue to be in the range of $43 to $48 million as compared to $44.3 million in the 2005 third quarter.

We expect segment operating income to be in the range of $19.5, to $20.5 million, as compared to $19.1 million in the 2005 quarter.

For the full year, we expect modest improvements in both revenue and operating income and continued strong operating margins and cash flow.

I'll now ask Ellen Ingersoll discuss some financial highlights for the quarter.

Ellen?

Thanks, Paul.

As shown in table two to the earnings release, adjusted EBITDA was $30.2 million during versus $25.5 million in the second quarter of 2005.

As also shown in table two, free cash flow defined as net cash provided by operating activities minus capital expenditures and dividends was $22.8 million for the quarter versus an outflow of $9.1 million in the 2005 quarter.

The increase is due primarily to higher operating income and favorable working capital.

Directionally for 2006, free cash flows expected to approximate income from continuing operations, plus depreciation and amortization minus reconstructing payments, CapEx and dividend.

Free cash flow would also exclude gains on sales of assets.

For the full year 2006, our working capital is expected to have a positive impact.

At June 30, 2006, Viad had total cash and cash equivalent of $160.8 million.

Viad's total debt at the end of the quarter was $15.6 million, with a debt-to-capital ratio of 3.5%.

Net interest income for the quarter was $1.5 million, versus $262,000 in the second quarter of 2005. $217,000 of the 2006 second quarter amount represented net interest refunds related to prior year tax years.

Depreciation and amortization for the quarter was $5.2 million compared to last year's second quarter of $5.4 million.

The full year 2006 forecast is approximately $20 million to $22 million.

Capital expenditures were $4.3 million in the second quarter of 2006 and this compared to $7.2 million in the second quarter of 2005.

The full year 2006 forecast is approximately $20 million to $22 million.

Payments on Viad's restructuring reserves were $230,000 during the quarter versus $475,000 in the second quarter of '05.

We expect to make restructuring payments of approximately $1.4 million in 2006.

The 2006 income tax rate year-to-date was 30.1% versus 41.3% in 2005.

The 2006 rate reflects favorable tax settlements of $4.2 million during the six month period.

The 2006 year-to-date tax rate excluding tax settlements approximated 39%.

Stock option expense for the second quarter of 2006 was approximately $74,000 after tax, or less then $0.01 per share.

The impact over the next two quarters is expected to approximate $0.01 per share per quarter.

And during the second quarter of 2006, Viad repurchased 585,600 shares at an aggregate cost of $18.5 million.

Back to you, Paul.

Thanks, Ellen.

Before wrapping up my comments and opening the call to questions, let me give you some guidance for 2006 full year and for the third quarter.

We are increasing our guidance for 2006 full year income before impairment recoveries by $0.26 per share.

Please keep in mind that we do not include the results of discontinued operations in our guidance.

The increase reflects our stronger then expected second quarter performance as well as the full year affect of the second quarter share repurchases of $0.03 per share.

Partially offsetting these increases is a decreased outlook for for Exhibitgroup due to reviewed revenue expectations I discussed earlier.

We now expect full-year income per share to be in the range of $1.96 to $2.07 versus our prior guidance of $1.70 to $1.81.

This compares to 2005 income before impairment losses of $1.66 per share, which included $0.21 per share of favorable tax settlements.

The guidance range for 2006 assumes an effective tax rate of 39% for the remainder of the year.

Guidance does not reflect the impact of any future share repurchases.

We continue to expect full year revenue to increase by a mid-single digit rate from the 2005 amount of $826.3 million, and segment operating income to increase by a mid to high single digit rate from $64.2 million in 2005 due to the improved results at all of our operating companies.

Show rotation is not expected to have a meaningful impact on full year 2006 revenues.

For the third quarter, we expect income per share to be in the range of $0.55 to $0.64, this compares to the income before impairment losses of $0.44 per share in the 2005 third quarter.

Revenue is expected to increase at a mid teens to low double-digit rate from the 2005 amount of $191.1 million.

Segment operating income is expected to be in the range of $22.5 million to $26 million as compared to $16.4 million in the 2005 quarter.

The growth over 2005 is expected to be mainly driven by positive show rotation which is driving revenue of about $25 million at GES and about $10 million at Exhibitgroup.

Specific third quarter guidance for each of our operating segments was discussed earlier and can be found in the earnings press release.

In summary, GES is realizing great results from its initiatives to drive profitable revenue growth and productivity improvements.

We also continue to be very encouraged by the strong same-show growth at GES.

At Exhibitgroup, we continue to expect growth in operating income over 2005 due to cost reductions.

While we have certainly realized very good results from our past work to reduce costs at Exhibitgroup, we know that revenue growth is critical to the long term success of that business, and to creating value for our shareholders.

Let me assure you that revenue growth is where we're focused.

The Exhibitgroup team is working hard to pursue profitable revenue opportunities while continuing to look for new ways to become more productive and to reduce costs.

Overall the first half of 2006 has been very successful for Viad and we're on track to deliver growth in revenue, profits and free cash flow during 2006.

All of our companies remain focused on profitable growth by providing quality products and services to our customers at a good value, while continuing to control our costs and maximize margins.

We're committed to winning for all of our stake holders.

With that, we'll close and open it up to questions.

Operator, if you could open up the question line, please.

[OPERATOR INSTRUCTIONS]

We'll go first to Kartik Mehta with FTN Midwest Securities.

Good morning, Paul.

Good morning, Kartik.

Could you give a little bit more information on the restructuring or Exhibitgroup?

Is it more of closing additional facilities?

Is it going to maybe be one shift versus two or is it something completely different?

We didn't comment on any restructuring at Exhibitgroup.

I apologize, I meant for expenses, cutting expenses.

I didn't mean to say restructuring.

I'm sorry.

We continue to look for overhead reduction opportunities and we've been able to find additional opportunities in that business throughout the year.

We think we've been successful in taking out a little bit more fixed overhead and some semi variable overhead but that doesn't include additional plant closings, Kartik.

Paul at this point in time, potential for Exhibitgroup -- we've gone through fairly good economic times it seems like the economy might be softening.

Is it that the demand isn't there or is it that the pricing is too aggressive and you don't want to go after a certain type of business?

What do you think is the potential for Exhibitgroup and is there maybe a change you think you're noticing?

We still believe strongly, Kartik, in the potential for Exhibitgroup.

The BRFP activity we've seen has picked up a little bit I think in the last couple months but what we need to do a better job is going out and winning those RFP's and doing that at price and profitability level that's acceptable to our own business.

You know, I continue to think that we have got great upside potential there.

We are working very hard on putting sales processes in place that will help us capture that going forward.

And, of course, the new leader that we're looking for to bring into Exhibitgroup is going to bring a stronger background in that sales and marketing arena.

And keep in mind, we just had a lot of energy focused internally for a couple years there as we got processes and costs in line with the current level of business.

So I feel very, very confident that we still have good potential in that business and that's how we're looking at it.

Perfect.

Last question, Paul.

You talked about acquisitions still being the first priority for cash.

As you look at it today, is it that there's not enough opportunity?

Is it price?

Is it culture fit?

What's the biggest stumbling block right now for doing an acquisition?

Well, it is probably a little of all three, Kartik.

We're constantly building our pipeline of potential opportunities and at the same time as we evaluate opportunities we've always talked about cultural fit being the number one thing we want to make sure we have.

If we have that then we can get into things like price negotiation.

I feel, again, that we're building some momentum in that arena.

We've recently added resources here at corporate to help with that process and we think over time we're going to build a nice pipeline and be able to do some deals successfully.

Thank you very much.

Thanks, Kartik.

[OPERATOR INSTRUCTIONS] We'll hear now from Tom Bacon with Lehman Brothers.

In terms of the -- since you said you added resources at corporate, I mean, what kind of resources are you adding?

We added a Director of Corporate Development here, Tom.

Okay.

In terms of the new CEO for Exhibitgroup, any idea on timing on when you think you might be able to announce something there?

Well as I said in my comments, Tom, we've worked through a pretty good list of people, some very, very qualified candidates.

We have narrowed that list down considerably.

I'm hoping that, you know, we'll have that wrapped up in the fairly near future here.

But like anything else it is not done until it is done so -- In the meantime, I've been actively involved in Exhibitgroup and spending quite a bit of time with that team and I think that's been time well spent.

Again I wish I could give you an exact date.

I'd like to tell you it will be as quickly as we can as long as we can find the right person.

Okay.

And then, as far as GES, obviously, in the past people have been trying to lower the freight weights and everything.

Is that still a trend or is that kind of lapping out a bit?

I'll comment on it first and then ask Kevin to comment as well.

I think in the first quarter we commented on freight weight being up.

Kevin, can you comment on second quarter?

Sure.

We did comment in the first quarter that we had a slight increase in material handling.

We also said at the time we believe it is too early to tell if that was a trend.

To look at Q2, the material handling mix is in line with prior Q2 as well as in line with the overall quarter growth.

Okay.

Just, Ellen, as far as the favorable tax settlement, is that all showing up in the tax provision?

Yes.

Okay.

That should do it for me.

Thank you.

Thanks, Tom.

[OPERATOR INSTRUCTIONS]

And there are no further questions at this time.

We'll turn the call back to our presenters for closing remarks.

Thanks, thanks again, everybody, for being on our call.

As we've always said, we'll do everything possible to win for our stakeholders and especially our shareholders and we look forward to talking to you after the third quarter.

Thank you very much.

Thank you.

That concludes today's conference call.

We thank you all for your participation.

Have a great day.