Viad Corp (VVI) 2006 Q4 法說會逐字稿

Good day and welcome to the Viad Corp 2006 fourth quarter and year-end earnings call. [OPERATOR INSTRUCTIONS]

I will now turn the call over to the director of investor relations, Carrie Long.

Please go ahead.

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 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 SEC.

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 1 and 2 in our earnings press release, which is available on our website at www.viad.com.

And now I'd like to introduce Paul Dykstra, CEO of Viad.

Good morning, everyone.

Thank you tor being with us today.

On today's call you will also hear from Kevin Rabbitt, President of GES Exposition Services, John Jastrem, President of Exhibitgroup/Giltspur, and Ellen Ingersoll, Viad's Chief Financial Officer.

Before we discuss our 2006 results, I want to first comment on our recent acquisition.

On February 1st we completed the acquisition of Melville Exhibition and Event Services Limited, the leading exhibition services contractor in the United Kingdom, and its affiliated company, Corporate Technical Services, an exhibition registration and database services company collectively referred to as Melville.

The acquisition of Melville is an exciting step for GES.

It gives us a leading market position in the U.S., Canada, and now the United Kingdom, and it provides a platform for the expansion of GES' base business into new international markets.

This acquisition is expected to be slightly accretive in 2007.

And as Kevin will discuss later, we have identified some opportunities to drive growth and margin expansion at Melville, which should enable us to hit a 15% return on this investment in 2009.

Melville's a well-established company and a great cultural and strategic fit for GES.

I have known Melville CEO Nick Marshall since 1999.

He's an outstanding business leader with great integrity.

We're confident that this will be a successful acquisition for our clients, employees and shareholders.

Now let's move on to 2006 results.

As Carrie mentioned as I discuss our full-year and fourth-quarter results, you may want to refer to tables 1 and 2 in the earnings press release.

Viad had a great year.

Full-year income before other items was $38.1 million or $1.75 per diluted share.

This is in line with our prior guidance of $1.72 to $1.79 per share and up 20.7% from 2005 income before other items of $1.45 per share.

Our full-year income from continuing operations was $51.3 million or $2.35 a share, which includes the following items: A favorable resolution of tax matters of $13.2 million or $0.60 a share; gains on sales of corporate assets of $2.2 million or $0.10 a share; and net impairment losses of $2.1 million or $0.10 a share.

Full-year revenue was $856 million, which was up $29.8 million or 3.6% from 2005.

Segment operating income was $67.2 million, up $3 million or 4.7% from 2005.

The growth over 2005 was driven mainly by strong growth at GES and solid performance by our Travel and Recreation Services segment.

For the fourth quarter revenue was $154.3 million, with an operating loss of $3.9 million and a loss from continuing operations of $3 million or $0.14 per share.

Our loss before other items was $3.7 million or $0.17 per share, which compares to a 2005 fourth-quarter income before other items of $0.04 per share.

As expected the decline versus the 2005 quarter was due mainly to lower revenues at Exhibitgroup.

Let's move to the individual operating segment results.

Again, you may want to refer to table 1 of the press release, which provides revenue and operating income for each of the operating segments.

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

Kevin?

Thanks, Paul. 2006 was a record revenue year for GES.

For that I want to start by congratulating and thanking the hard-working, dedicated employees of GES for the outstanding service they deliver to our clients.

Revenue for the year was $623.1 million.

This was up $55.1 million or 9.7% from 2005.

Full-year operating income was $48.1 million, up $4.5 million or 10.3%.

These results are in line with our prior guidance.

Revenue for the fourth quarter, which is a seasonally slow quarter for us, was $107.9 million with an operating loss of $2.3 million.

Base same-show growth was 9.2% for the year, stronger than the overall industry growth rates.

As a reminder, base same-show growth is a measure of growth in our shows that occur in the same city in the same quarter every year.

The GES team did a great job this year of attacking both opportunities and challenges.

We're seeing the pay off from our efforts over the past several years to continually strengthen our customer value proposition, drive service enhancements and productivity improvements through operations excellence and to increase show organizer wins and penetration into exhibiter spending.

To support these efforts we have made selective investments in technology solutions that have been highly successful in positioning GES as the clear industry leader.

Our efforts here are ongoing.

In 2007 and 2008 we'll undertake the development of a more robust technology platform that will create new discernible differences for GES.

It will enable us to provide enhanced customer service to both show organizer and exhibiting clients, improved operational efficiencies, better customer-facing solutions and better tools for planning and analysis.

We are also very excited about the new opportunities that result from our expansion into the United Kingdom market through the acquisition of Melville.

As Paul mentioned earlier, Melville is a great cultural and strategic fit for us.

Melville is the market leader in the United Kingdom, has a strong and experienced management team, a strong client base and a reputation for providing superior client service.

In addition, Melville shares our core values, has similar discernible differences and is the right company to strengthen and to build upon our international presence.

The acquisition of Melville not only provides a natural extension of our U.S. and Canadian business into the European markets, but will also serve as a potential platform for future international expansion.

We look forward to working together to provide a seamless experience for our international clients and to share best practices that will being accelerate growth, drive customer satisfaction and expand margins.

In 2007 Melville will begin to implement many of the same proven initiatives that have successfully fueled service and margin growth at GES.

We are very happy to be joining forces with this UK market leader.

Now I'll quickly cover our revenue backlog before commenting on our 2007 outlook.

During the fourth quarter we signed over $80 million in future bookings, we currently have roughly 67% of our forecasted 2007 revenue under contract, and our total revenue backlog for 2007 and beyond stands at $1.1 billion.

Our outlook for 2007 is for continued strong growth in exhibit discretionary revenue and same-show revenue.

Our success in driving this growth, along with the signing of the Chicago Auto Show, should more than offset negative show rotation of about $33 million in revenue.

As a reminder, show rotation refers to shows that occur less frequently than annually.

Some large shows only take place one every two, three or four years.

We also use the show -- use show rotation to refer to annual shows that change quarters from one year to the next.

Rotation will affect our quarterly revenue pattern in the second, third and fourth quarters.

In the second quarter we expect show rotation to negatively impact revenue by about $5 million.

In the third quarter we expect show rotation to negatively impact revenues by about $36 million, with several large shows, including IMTS and International Wood Working Fairs do not occur in 2007.

In the fourth quarter show rotation is expected to positively impact revenues by about $8 million.

I would like to reiterate that, aside from negative show rotation impact on 2007, we're expecting to drive strong growth in our annual shows and improved operating results.

In 2008 we'll be significantly -- rotation will be significantly in our favor, as we're expecting a banner year.

Several large shows that do not occur in 2007 will takes place in 2008, including CONEXPO-CON/AGG and IFPE, the International Manufacturing Technology Show, MINExpo, and the International Woodworking Machinery and Furniture Supply Fair.

The positive show rotation in 2008 is expected to be in excess of $45 million in revenue. 2008 should also bring stronger profits for Melville, as we begin to realize some transaction from our initiatives to accelerate growth and drive margin expansion.

Now let me provide more specific 2007 revenue and operating income guidance.

For 2007 full year we expect to realize low single-digit organic revenue growth.

Also on an organic basis we expect to realize an improvement in our operating margins.

In addition to organic growth, Melville is expected to provide another $80 million to $90 million in revenue and be slightly accretive to Viad's earnings in 2007.

Let me note, though, because Melville was acquired on February 1st, we will only recognize 11 months of revenues and profits from Melville in 2007.

For the first quarter we expect revenue to be in the range of $230 million to $245 million, including $20 million to $25 million for Melville.

This compares to GES 2006 first quarter revenue of $194.1 million.

First quarter operating income is expected to be in the range of $29.5 million to $32 million, including $2.5 million to $3.0 million for Melville.

This compares to GES 2006 first quarter operating income of $22.4 million.

2007 should be another winning year for GES.

Our underlying business is performing very well.

We are experience gr -- experiencing great success from our initiatives to drive revenue growth and productivity improvements, and the industry seems to be holding its upward course.

The International Consumer Electronics Show celebrated its 40th anniversary in early January and had another terrific year of square footage growth.

CES has always been a strong show for GES.

While we're not expecting growth of this magnitude from all our shows, the success of CES is a positive early indicator for the industry as we begin the new year.

And we are very excited to add Melville to our winning team.

Together GES and Melville will continue to provide quality product and services, along with best-in-class customer service at a great value to our clients.

As always the GES team is committed to winning in 2007 for all our stakeholders.

Thanks, Kevin.

Next I'll ask John Jastrem to comment on Exhibitgroup/Giltspur.

John joined Exhibitgroup three months ago and brings great experience in the broader marketing services industry.

John?

Thanks, Paul.

I'm very excited to be on board.

Exhibitgroup is a Company with great potential, and my goal is to ensure that EG realizes that potential.

The Company finished 2006 in line with prior guidance.

Full-year revenue was $153.7 million, down $30.6 million from 2005.

Operating results decreased by $4 million to a loss of $3.5 million.

This was due mainly to declines in revenue, particularly in the fourth quarter, as discussed in the last earnings call.

The industry dynamics are still very challenging.

The ability to price profitably has been, and remains a big issue because clients are very focused on measuring and maximizing their return on investment.

In addition, they want a partner who can deliver the right products and services to help them meet their objectives.

This is where I see significant opportunity for Exhibitgroup.

There are many companies who meet some of these needs to a certain extent, including EG today, but there is no clear leader that provides a full spectrum of best-in-class products and innovative and integrated marketing services.

I believe that EG can and should be the leader in this area.

My plan is to reposition EG as a face-to-face marketing services company that clearly distinguishing itself from the competition by working closely with clients and their agencies, listening to clients' objectives and needs, and then providing clients with innovative solutions to all of their face-to-face marketing needs.

This is the future direction of the industry, and EG will strive to lead the way.

Since I came on board in October of last year, I have spent considerable time meeting with our clients and employees, and assessing our current capabilities in order to chart our path forward.

Three areas, all focused on revenue growth, are key priorities for us.

We will focus on improving our sales pipeline and increasing our win rate.

We will take actions to reposition the Company as a client-focused and flexible partner that works closely with clients' advertising and marketing departments and agencies to offer comprehensive, innovative, value-added solutions that extend our clients' brands and enable our clients to generate a higher return on their marketing investment.

We will strive to retain and attract the best talent to our team in order to serve and grow our existing clients and attract new clients, thereby driving our growth.

To improve the sales pipeline and win rate, we need to adjust our go-to-market strategy, and we need to give our sales force the right tools and support to execute this strategy.

We recently hired Bill Doolittle to be our new EVP of sales.

Bill is a proven professional with over 20 years of success in building and leading national sales forces for companies such as Tinko's.

At Tinko's Bill led a significant turn-around in the commercial sales team by developing and implementing an industry-best practice sales productivity model that resulted in significant sales growth.

He also significantly improved client retention, reduced turnover within the sales force, top graded position and constructed a robust fast-start training and development program.

Bill is a great addition to the EG leadership team and is making an immediate impact, interacting with our sales team, clients, and potential clients.

We also recently made improvements in our organizational alignment of the sales force.

Four outstanding exhibit group sales executives were promoted to lead our sales and service efforts within four industry verticals.

Healthcare is one; aerospace, defense and high tech is another; consumer retail is a third; and manufacturing industrial products is the fourth.

These individuals, who are all highly-talented knowledge leaders within their respective industries, are now responsible for directing EG's resources in order to consistently and flawlessly deliver the most insightful and innovative solutions to ensure that our clients receive the highest level of return on their marketing investment.

Going forward, we will implement new training programs to say help our sales force win, and a better process for screening sales opportunities to ensure that we devote our resources to winning high-probability accounts.

We are also actively recruiting additional sales executives who share our values and have the appropriate experience and client contacts to enable us to deliver more value and innovation to a broader client base.

To support our sales team, we will initiate a focused direct marketing campaign to increase awareness among major exhibitors of EG's value proposition and ability to serve them with value-added innovative solutions.

These sales initiatives are a fundamental component of repositioning EG within the marketplace.

In addition, we will work to ensure that a customer-centric approach exists at all levels of the organization.

We will streamline our processes to improve responsiveness to our clients' needs.

We will leverage our industry expertise within the key vertical markets to provide the best products and services to our clients.

Perhaps the most exciting part of repositioning the Company is our plan to add new value-added best-in-class products and services to our current suite of offerings in order to meet the full spectrum of face-to-face marketing needs.

This will differentiate EG from the competition and drive our growth in the future.

To this end, we already are taking steps to increase our investment in new technologies to achieve the following exhibitor objectives.

One, identify, attract and engage target attendees to deepen their understanding of and loyalty to the client's brand.

Solutions in this area would include pre and post-marketing e-mail blasts, direct mail, attendee surveys, interactive technology, and experiential marketing at the show site.

Two, capture, qualify, prioritize leads for effective and efficient post-show follow-up to convert leads to sales.

This will include utilizing databases, the internet, and direct marketing communications providing enhancement to our clients' sales forces.

Solutions in this area would include EG smart leads, database management, and post-show surveys.

And, three, measure the effectiveness of the program and its return on investment to develop the optimal marketing mix for future program activities, thereby ensuring our clients' business objectives are realized.

Solutions will include EG analytics and EG marketing mix optimization and modeling.

We're also intended to pursue opportunities beyond trade show, such as experience centers and corporate events.

Some of these initiatives are immediately actionable, while others will take some time to properly roll out.

We are currently in the process of evaluating the timeframe and cost to bring these new products and services to market.

As with any company, the factor most critical to our success is our talented and dedicated employees.

To ensure that we retain and attract the best talent, we will empower our employees and provide them with the support necessary to driver results.

Every EG employee must share the client-centric and entrepreneurial approach that will define EG's culture.

They are motivated to work very hard to serve our clients and drive our growth.

It is my experience that work required to grow will be fun and very rewarding for our employees.

As our clients recognize and appreciate the value of our efforts, it will create better opportunities for our employees and it should enable us to attract new talent to the organization as we grow.

This is a very exciting time for EG, its employees and its clients.

2007 will be a year of transition.

We are entering the year with a fairly weak sales pipeline, which should improve, as we begin to implement the changes I rec -- just discussed.

However, visibility over future revenue remains poor.

And because a sales cycle can be lengthy, improvements to the pipeline may not benefit revenues until 2008.

As a result, we are guiding for full-year revenues to be comparable to 2006.

We expect full-year operating results to decline, as a result the additional costs we will incur to implement some of the growth initiatives.

This guidance range does not fully reflect the cost of all the initiatives that I discussed previously.

We will continue evaluating the timeframe and cost to implement and I will provide an update on our plan in progress during the next quarterly conference call.

Additionally, we are reviewing every aspect of the business to identify opportunities to drive improved performance and enhanced shareholder value, including cost savings opportunities and other efficiencies.

While we don't expect the initiatives to have a meaningful impact on the bottom line until 2008, we should start to see some positive momentum later this year in terms of a stronger sales pipeline and new client wins.

For the first quarter we expect revenue to be in the range of $30 million to $35 million as compared to $34.7 million in the 2006 quarter.

Operating loss is expected to be in the range of $3.5 million to $4.5 million as compared to the 2006 first quarter operating loss of $3 million.

In closing, I am very excited about the future direction of Exhibitgroup.

The transition to a market-driven company will take some time to complete, as it will require some fundamental changes to the way we operate, but in the long run we believe that this is the absolute right direction.

It is what our clients and potential clients expect from their strategic marketing partners, and no one in the industry can truly provide it today.

Our goal is to make EG the market leader in face-to-face and experiential marketing services, and to deliver the highest level of value and innovation to our clients.

Paul, back to you.

Thank you, John.

Now I'll cover highlights for the Travel and Recreation Services segment.

The Travel and Rec Services segment finished the year in line with our prior guidance, posting a fourth quarter operating loss of $1.2 million on revenue of $6.3 million.

The fourth quarter is seasonally very slow for this segment.

For the full year revenue was $79.3 million, up 7.2%, and segment operating income was $22.7 million, up 12.8% from 2005.

Our operating margins increased to 28.6% as compared to 27.2% in 2005.

Brewster and Glacier Park both performed very well in 2006.

As compared to 2005, Brewster saw growth in passenger volume at its gondola and an increase in occupancy at its Mount Royal Hotel.

Revenue from Brewster's ice field attraction were also up due to an increase in revenue per passenger.

Glacier Park realized strong occupancy at its inns and lodges and an increase in room revenue over 2005.

Our concessionaire with the National Park Service at Glacier Park has been extended through the end of 2007 and will likely be extended through 2008.

For 2007 we expect this segment to continue to post solid performance.

However, we will face certain challenges that will hamper growth in 2007.

For one, there will be major construction on going to the Sun Road, which is the very popular and scenic road through Glacier National Park.

This may impact visitorship, especially in the early part of the season at Glacier Park.

We also know that new U.S. passport requirements are being implement this had year for air travel to and from Canada, which may be a detenant for U.S. visitation to Bamp.

We're taking action to mitigate the expected impact of these events.

Overall we expect both revenue and operating income to be comparable to 2006.

For the seasonally slow first quarter, we expect revenue to be in the range of $4.5 million to $5 million, with an operating loss in the range of $2 million to $2.5 million.

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

Ellen?

Thanks, Paul.

As shown on table 2 to the earning release, adjusted EBITDA was a negative $541,000 in the fourth quarter versus positive $5.6 million in the fourth quarter of 2005.

As shown in table 1 of the earnings release, net impairment losses were $4 million for the 2006 fourth quarter.

Included in this amount is an impairment charge of $4.6 million related to the write-off of the remaining book value of the trademark asset at Exhibitgroup.

This was slightly offset by impairment recoveries of $514,000 related to assets that were damaged as the result of Hurricane Katrina.

As shone in table 2, free cash flow, defined as net cash provided by operating activities minus capital expenditures and dividends, was an out-flow of $5.4 million for the quarter versus cash in-flow of $8.5 million in the 2005 fourth quarter.

Directionally for 2007 free cash flow is expected to approximate net income plus depreciation and amortization minus capital expenditures and dividends.

For the full year 2007 our working capital is expected to have a slightly negative impact.

At December 31, 2006, Viad had total cash and cash equivalents of $178.1 million, and this compares to $152.6 million at December 31, 2005.

During 2006 Viad repurchased approximately 1.5 million shares at an aggregate cost of $49.4 million.

In the fourth quarter about 397,000 shares were purchased at an aggregate cost of $15 million.

Viad's total debt at the end of the quarter was $15 million, with a debt to capital ratio of 3.4%, and our net interest income for the quarter was $1.8 million versus $621,000 in the fourth quarter of 2005.

Depreciation and amortization for the quarter was $4.8 million and this compares to last year's fourth quarter of $5.1 million.

For the full year 2007 our forecast is approximately $20 million to $22 million.

Capital expenditures were $5.4 million in the fourth quarter of 2006 compared to $6.1 million in the fourth quarter of 2005.

The full-year 2000 forca -- 2007 forecast is approximately $31 million to $33 million. %he increase in 2007 over 2006 is primarily related to technology investments at GES, and the purchase of new tour buses by Brewster.

Payments on Viad's restructuring reserves were $132,000 during the quarter versus $551,000 in the fourth quarter of 2005.

The 2006 income tax rate for the year was 15.9% versus 29.6% in 2005.

The 2006 rate reflects aggregate favorable resolution of tax matters of $13.2 million as compared to $4.7 million in 2005.

The tax rate, excluding the tax settlement,s was 37.5% in 2006, and this is versus 38.6% in 2005.

Back to you, Paul.

Thanks, Ellen.

Before wrapping up my comments and opening up the call to questions, let me give you some guidance for the 2007 full year and our first quarter.

For full-year 2007 as you heard Kevin mention, we are facing a significant negative show rotation of about $33 million in revenue in 2007.

However, in 2008, rotation turns significantly in our favor.

After factoring in the effect of show rotation, investments in growth initiatives at EG, and the projected the strong growth in GES' underlying business, we expect full year income per share to be in the range of $1.75 to $1.85, which includes slight accretion from the acquisition of Melville.

This guidance range assumes an effective tax rate of 38% to 39%, as compared to the 2006 effective tax rate on income before other items of 38%.

On an organic basis, full-year revenue in operating income are expected to be comparable to 2006.

Melville is expected to provide another $80 million to $90 million in revenue.

In addition to the quarterly impact of show rotation that Kevin discussed earlier, please note that Exhibitgroup's quarterly revenues will also be affected by the timing of a major European air show.

This air show, which provides about $10 million in annual revenue, takes place in the second quarter of 2007 and offsets a similar size show that occurred in the third quarter of 2006.

The quarterly impact for both GES and Exhibitgroup is provided in our earnings press release.

Melville's quarterly revenue for 2007 is expected to be strongest in the first and second quarters, with seasonally lower revenues in the third and fourth quarters.

Due to seasonality, this business is expected to generate positive operating income in the first half of the year, with operating losses in the third and fourth quarters.

For the first quarter we expect income per diluted share to be in the range of $0.61 to $0.70.

This compares to 2006 first quarter income before other items of $0.45 per share.

Revenue's expected to increase by 13% to 22% from the 2006 amount of $233.8 million.

Our segment operating income is expected to increase by $5.3 million to $8.3 million from the 2006 amount of $17.7 million.

This improvement is expected to be driven mainly by strong organic revenue growth at GES and the acquisition of Melville, which is expected to add revenue at $20 million to $25 million and operating income of $2.5 million to $3 million.

Specific full-year and first quarter guidance for each of our operating segments can be fond in the earnings press release.

In closing, 2006 was another great year for Viad.

GES and the Travel and Recreation businesses performed very well, contributing to a 20.7% increase in income before other items per share, and our free cash flow more than doubled to $52.9 million.

Going forward we have a lot to be excited about.

GES is experiencing great success from their initiatives to drive revenue, growth and productivity improvements.

We expect this success to continue enabling GES to more than offset the impact of significant negative show rotation in 2007.

The successful of the acquisition of Melville is another big positive.

In 2007 we expect it to add $80 million to $90 million in revenue to GES's results, and be slightly accretive to Viad's income per share.

And the growth opportunities that Kevin discussed earlier should enable us to hit a 15% return on this acquisition by 2009.

We have a strong and active acquisition pipeline that's focused on businesses that is are close to our core.

We are currently looking at a couple of smaller deals that would be nice add-on's for our Travel and Rec businesses, as well as additional opportunities for GES.

We have a strong balance sheet that will enable us to pursue strategic acquisitions, invest in our existing business and is also return capital to our shareholders.

Clearly we have some work to do in repositioning Exhibitgroup, and I believe that we have the right leader in place with a great vision to make that happen.

The transition will take some time and investment, but the upside potential is significant.

As John mentioned, we will continue to evaluate the timeframe and costs to implemented the initiatives he laid out, and provide an update on our plans and progress during the next quarterly earnings call.

So while 2007 will have its challenges, we just have a lot of great things going on.

If we look ahead to 2008, we expect to realize significant growth.

GES should have a banner year.

Several major shows that don't occur in 2007 will take place in 2008, including CONEXPO-CON/AGG and IFPE, the International Manufacturing Technology Show, MINExpo and the International Woodworking Machinery and Furniture Supply Fair.

Positive show rotation in 2008 is expected to be in excess of $45 million, and we expect Melville to produce stronger profits, as we will have substantially completed our integration efforts and our growth initiatives begin to gain traction.

Results at Exhibitgroup should also be stronger, as we begin to realize the benefits of our work to reposition the Company.

Lastly, we have some acquisition opportunities in the pipeline that could provide more upside in 2008.

As always we're committed to winning for our shareholders.

With that, we will take questions.

Steve, if you could open up the question line, please?

Thank you. [OPERATOR INSTRUCTIONS] We'll go to Tom Bacon, Lehman Brothers.

Good morning.

Morning, Tom.

Could you maybe just give us an idea of how big the exhibition market is in the UK and what the long-term opportunity is there?

Kevin, do you want to cover that one?

Sure.

The exhibition market in the UK, just given the geographic sizes, is smaller than the States.

Don't have an exact number right in front of me, but the long-term prospect -- in the past there it's been growing a pretty similar rate to the United States.

Then as we mentioned earlier, I think there's significant room to enhance the growth at Melville, specifically, just by sharing best practices and driving products and services-type growth strategy.

I think we should be able to outpace the market pretty substantially from a growth standpoint.

Can you give us any idea of what their market share is versus their next largest competitor?

Is it a fragmented market?

Is it --

No, it's pretty similar to the States in that it's a relatively consolidated market.

They are the leading market share in the UK.

They are considerably larger than their next competitor, but don't -- not laying out the specific market share at this pont in time.

It is different by product line well, Tom, so you've got organizer work and different products and services categories, as well.

Melville's the clear leader, though.

They're substantially larger than their next largest competitor, and number one in just about every category in that market, Tom.

Okay.

And in terms of Exhibitgroup, what should we be focused on over the next year as a sign that progress is being made there?

The market that Exhibitgroup's playing in now, I would call it stable, although pricing is still very, very competitive.

We're not seeing any speed-up in the exhibit replacement cycle.

Back in the early 2000s we used to talk about that being every three years, now it's probably a little longer than every five.

Our exhibitors, as John mentioned, are really looking for us to help them get better returns from their exhibit spend dollars.

We really believe in the face-to-face market, and we think we can be a leader in that.

We're going to make sure, though, that with each quarterly conference call we give you an update, let you know how we're doing on the sales pipeline, talk about where we are with some of our technology improvements and our training enhancements, as we turn this thing into much more of a growth-oriented company.

As you know, and we've talked about in past calls, Tom, we spent an awful lot of our energy for several years taking costs out and redesigning processes.

John and his team's task now is to leverage that cost structure and really turn that energy outwardly now and growing this Company.

Is that a market -- I mean obviously you hear every day about all these companies spending more money marketing on the internet and is there -- maybe John can comment on this -- amongst the larger companies in terms of their marketing budgets, is there a secular shift away from face-to-face marketing?

I really don't think so.

I think a lot of those internet dollars are coming -- being offset against print ads and some others -- and I'll ask John to comment on it -- but we do believe in face-to-face marketing.

We do think that is still the best way to speed the sales process.

John, do you want to comment on that?

Yes, absolutely.

First of all, I think that Paul's exactly right.

Most of the internet increases in spending have really come at both media advertising, in terms of TV, as well as primarily in the print space.

There's certainly been an increase -- if you look at the overall analysis of the markets -- in the experiential and face-to-face marketing, those budgets are clearly taking share away from, again, the general advertising media, TV, print, those types of things, and our intent is to try to get in front of that shift.

You would see the shift as more towards internet and face-to-face and kind of away from print and TV?

Correct.

One last thing.

Ellen, if you could comment, does -- the CapEx guidance that you gave, does that include Melville, I'm assuming, number one?

And, number two, could you tell us what the cash balance is right now?

Right now?

No.

We don't disclose of the cash balances right now.

The CapEx budget range includes Melville.

Okay.

Great.

That's it for me.

Thank you.

Thanks, Tom.

[OPERATOR INSTRUCTIONS] We'll go to John Healy, FTN Midwest Securities.

Good morning.

Morning, John.

Quick question on the Travel and Rec business.

Sounds like in 2007 there'lll be some hurdle to say growth, but was hoping to get your perspective longer term for that business, if that's a business that should be able to return to mid to high single-digit growth or is it going to require additional investment to get it to that standpoint?

We don't really know.

We're watching the U.S. market, as I mentioned, pretty closely as some changes in the passport rules.

We want to make that sure those don't impact visitorship up there, so we're watching that pretty closely.

There are also some really nice acquisitions that we think that are relatively small but would fit nicely in and around our current properties at both Glacier and in Bamp.

And if we can make those types of investments, John, and get the same operating margins and cash flow returns that we have, I think we would look strongly at those.

Okay.

That's helpful.

On the Exhibitgroup business, obviously expecting a year in 2007 similar to this year.

From your perspective what do you think the market for exhibit spending is growing this year?

And can you help us out on any timeframe on when you might be able to exhibit growth rates, maybe more similar to the market growth?

Yes.

I think I mentioned earlier, John, that we think the market is stable.

We had a lot of cutbacks in spending for a number of years there.

We think it's stable, but overall, pricing and competition is still pretty aggressive.

It's probably a low single-digits growth right now.

We don't have great data just because the industry is mostly private, but if we compare what we see on the GES side and what we get from some of our clients, we certainly think that, by the end of this year, we're going to see substantial pickup in our pipeline.

As we invest in our sales force we should be able to definitely get to that level and our hope is to be exceeding that some time in a reasonable timeframe.

Okay, great.

And then a last question.

Going forward will Melville be reported under the GES segment or will that be a separate line on the financials?

And then just whether we are in terms of authorization for additional share buybacks?

Melville will be reported as part of GES.

They will report into Kevin as a separate division of GES.

On the share buyback side, I think we announced $2 million authorization of which we've repurchased $1.5 million against that.

Okay, great.

Thank you so much.

Thanks, John.

And we have a follow-up question, Tom Bacon, Lehman Brothers.

I just wanted to ask one more question as far as the Exhibitgroup's market.

It seems like the pricing has been very competitive there for quite some time, and I would imagine that there's a bit of excess capacity, and I guess what I'm wondering is what's it going to take in that market to maybe shake some of the that excess capacity out.

Yes, I think I'd agree with you.

There probably is some excess capacity.

When we look at the products and services that our customers are asking for, building an exhibit is only one part of the solution.

I think some of the things that John talked about are where we can have more value-add and a less pricing pressure on a go-forward basis.

Those are the things that we're trying to do now to reposition the Company.

John, would you agree with that?

Totally agree with that.

Then maybe just on the -- you mentioned that there's some potential acquisition opportunities.

Are you looking at other international markets now?

Is there op -- more opportunity there?

Given what's gone on in the U.S. market with some private equity investors, I would think that the opportunities are limited there but -- so are you looking more internationally at other markets beyond the UK?

We're looking at all our opportunities, Tom, and, again, we want things that are real good cultural fit -- and with Melville we really got that -- as well as things that we can get for the right price.

So we're keeping our options open.

We're staying relatively close to our core business but geographic expansion is definitely an option.

Okay.

Great.

Thank you.

Thank, Tom.

At this time no further questions.

Thanks, Steve.

Let me just wrap up, then.

Viad is very, very committed to growth and enhancing shareholder value. 2006 was a real strong growth year for our shareholders, and while 2007 is going to be a little bit lower on the growth side, we're going to be really, really well positioned for significant growth in 2008.

We look forward to giving you an update on our progress at the next conference call, and we're certainly winning -- committed to winning for all of our stakeholders.

Thanks very much for being with us today.

This does conclude today's conference.

Thank you for your participation.

You may now disconnect.