Viad Corp (VVI) 2007 Q1 法說會逐字稿

Good day, everyone, and welcome to the Viad Corporation first-quarter 2007 conference call.

Today's call is being recorded .

Now I will turn the conference over to the Director of Investor Relations, Miss Carrie Long.

Ms.

Long, please go ahead,

Good morning and thank you for attending our conference call.

Before we begin, I would like to remind everyone certain statements made that are not historical fact 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 express permission of Viad.

During today's call we will refer to tables 1 and 2 in our earnings press release, the press release is available on our web site at www.viad.com.

And with that, my pleasure to introduce Paul Dykstra, President and CEO of Viad.

Thanks, Carrie.

Good morning, everybody.

And thanks very much for being with us today.

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

Before we discuss our first-quarter results, I would like to highlight a recent distinction that I am proud to say included our company.

Audit integrity an independent research and rating service recognized Viad Corp as one of the top 100 companies for integrity as demonstrated through accounting accuracy and transparency and highest corporate governance practices.

In identifying the top 100 companies, audit integrity reviewed U.S.

companies with a market cap greater than $100 million.

Not surprisingly, Audit Integrity's research found a significant link between strong corporate governance and integrity and a company's stock value.

Viad is a values driven company with integrity as our cornerstone.

We define the integrity value as leading by example, meeting our commitments and doing the right thing for all of our stakeholders.

Integrity is reinforced every day Viad through our always honest compliance program which has been a critical foundation of our Company since 1994.

All of our employees are required to operate with integrity and be always honest in all of their dealings.

Communication of our values is constant and consistent and we truly believe that a culture of integrity is a discernible difference in recruiting top talent, driving the best value for our customers and attracting and retaining top quality investors.

Now for our first-quarter results and again you may want to refer to tables 1 and 2 in the earnings press release.

First quarter income from continuing operations was $14.1 million or $.66 per diluted share which included a restructuring charge of $.03 per share.

This is in line with our prior guidance of $.61 to $.70 per share and up 46.7% from 2006 first quarter income before other items of $.45 per share.

First-quarter revenue was $283.7 million up $49.9 million or 21.4% from the 2006 quarter.

And segment operating income increased $7.4 million or 41.8% to $25.1 million.

These increases are the results of great performance at GES and the acquisition of Melville in February.

Overall, we are very happy with our first-quarter performance.

Now let's move on to the individual operating segment results and, again, you may want to refer to table 1 of the press release which provides revenues and operating income for each of the operating segments.

First, I will turn it over to Kevin Rabbitt to talk about GES.

Kevin?

Thanks, Paul.

We realized great performance during a very busy first quarter, and for that I want to once again start by congratulating and thanking the hard-working, dedicated employees of GES for the outstanding service they have delivered to our clients.

Revenue for the quarter was $244.9 million, up $50.8 million or 26.1% from the 2006 first quarter.

Operating income increased 43.6% or $9.8 million to $32.2 million.

These increases reflect strong organic growth and good results from the Melville acquisition.

We also saw a very strong growth in our portfolio shows with base same show growth of 10.5% in the first quarter.

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.

Our strong same show growth continues to be driven by overall growth in the industry and by the efforts of our products and services group to increase penetration and exhibitor's discretionary spending.

The International Consumer Electronics Show in early January was a success and got our year off to a very good start.

The show continues its expansion in square footage this year growing to 1.8 million net square feet and maintaining its position as the largest annual show in North America.

To put this size in perspective, at this year's show we used about 67 miles of extension cord, about 44 miles of graphic -- graphics, and 24 miles of carpet.

The night before the show opened during an eight-hour period, we installed enough carpet for about 600 average sized homes.

Successfully servicing a show of this magnitude requires considerable resources and great commitment from the entire GES team.

Our commitment to provide exceptional value to the show organizer and exhibitors have enabled us to successfully service this show for over 25 years.

Our organic growth during the quarter was also fueled by new business including the Chicago Auto Show, which spans more than 1.25 million square feet of space in Chicago's McCormick Place complex.

This year's shows represented first year of our new four year contract to service this major show.

As I mentioned earlier, the Melville acquisition was another key driver in our year-over-year growth.

Melville contributed $23 .6 million to our first-quarter revenue and realized better than expected operating profits.

During early February, Melville serviced the spring Fair in Birmingham which is UK's largest retail exhibition with 4,000 exhibitors from over 50 countries.

The Melville team by Nick Marshall continues to provide superior service to our clients while also working with our U.S.

team ensure a successful integration.

We are very happy to join forces with this U.K.

market leader.

Now I will quickly cover our revenue backlog for our North American business before commenting on our outlook for the remainder of 2007.

During the first quarter we signed nearly 80 million in future bookings.

We currently have over 60% of our remaining 2007 forecasted North American revenue under contract.

And our total revenue backlog for 2007 and beyond stands at $1 billion.

For the second quarter, we expect revenue to be in the range of $180 million to $195 million, which includes $20 million to $25 million for Melville and reflects the expectation that show rotation will negatively impact revenues by $5 million.

Operating income is expected to be in the range of $18 million to $20.5 million, which includes $500,000 to $1 million for Melville.

This guidance compares to 2006 second quarter revenue of $169.3 million and operating income of $18.4 million.

Our outlook for the 2007 full year remains unchanged.

We continue to expect strong growth in our exhibitor discretionary revenue, strong same show revenue growth and market share gains will more than offset negative show rotation of about $33 million in revenue.

At our North American operations, we expect to realize low single-digit revenue growth with improved operating margins.

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

I would like to reiterate that in 2008, rotation will be significantly in our favor, and we are expecting a banner year.

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

Positive rotation in 2008 is expected to be in excess of $45 million in revenue.

2008 shall also bring stronger profits for Melvilles as we begin to realize some traction from our initiatives to accelerate growth to drive margin expansion.

2007 should be another winning year for GES.

Underlying business is performing very well.

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

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

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

Thanks Kevin.

Now I will ask John Jastrem to comment on Exhibitgroup/Giltspur John.

Thanks, Paul.

Our revenue for the first quarter was $34.3 million comparable to 2006 first quarter revenue of $34.7 million and in line with our prior guidance.

Operating results at the time by $1.6 million to a loss of $4.7 million as a result of costs associated with initiatives to increase revenue and shareholder value in the future.

As I mentioned on the last call, we have three immediate priorities for EG.

First, we are focused on improving our sales pipeline and increasing our win rate.

Second, we are taking actions to reposition the Company as a client-focused and flexible partner that we are explosive 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 our marketing investment.

Third, we are striving to retain and attract the best talent to our team in order to serve and grow our existing clients and attract new clients, there by driving our growth.

I also mentioned that the transition to a market-driven company will take time to complete as it will require some fundamental changes to the way we operate.

We are reviewing every aspect of the business to identify opportunities to drive improved performance and enhance shareholder value.

During the quarter, we made progress on the sales side by winning new business and continuing to increase our client focus.

We are working to transition from an opportunistic sales approach to targeted sales prospecting in order to fill our sales pipeline with high-quality, high-probability opportunities.

To this end, our main emphasis thus far has been to create greater focus within the sales organization.

As I discussed on the last call, we created a vertical sales leadership team comprised of recognized industry knowledge leaders to focus on growing our revenues within key client industry segments.

To complement this team, we recently appointed Regional Vice Presidents of Sales and Service, who will focus on generating new business within their designated geographical regions.

We are also adding new tools and support to help our sales team win.

During the quarter, we rolled out sales scorecards and a sales playbook that guides the sales process from initial lead screening, to closing the sales, to fulfillment and follow-up.

We are stepping up our sales training efforts with a dedicated individual to drive this process.

This individual is also responsible for developing and maintaining additional metrics that will help us track overall progress and support our focus on winning, retaining, and growing accounts.

We still have a lot of work to do, but we are seeing positive results from our efforts thus far.

Another key to driving sales growth is our ability 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 experiential and face-to-face marketing needs.

We also made some progress in this area during the quarter.

Within our award-winning design and creative team, we have added new talent to enhance our ability to provide highly sought-after experiential and face-to-face marketing solutions.

Frank Laudo was hired as our new chief creative officer.

Frank is a leading creative and experiential marketing strategist with over 26 years of experience serving clients such as Hyatt Hotels, Sony Playstation, Toyota and Direct TV.

Frank will work closely with Anne Houghton, our Senior Vice President of Design and Creative to provide our clients with innovative marketing and experiential solutions and consistency in brand and campaign message when their marketing efforts are translated to a 3D or a face-to-face experiential environment.

We brought Steve Taylor on board to drive the development and rollout of new value-added customer-facing technology solutions including customer database and relationship management services.

These services will help our clients to be more efficient and effective in their post-show lead follow-up, there by enabling them to generate a better return on their trade show marketing spend.

These services will also provide our clients with increased customer knowledge which can be leveraged throughout the year in targeted customer communication that promote loyalty to our clients' brands.

Steve has substantial experience leading major marketing services offerings including database management and local services, customized CRM, systems design and implementation, and customer targeting services to support sales and marketing.

Much of our initial work has centered around getting the right people and the right places.

To lay the foundation upon which we will drive our strategic initiatives.

The changes I just mentioned were part of a larger realignment of the Company's organizational structure to better support our new strategic direction and client-centered focus by empowering our employees and enabling us as a company to be more flexible and responsive to our customers.

In connection with this realignment, we recorded a restructuring charge of 1.2 million related to severance.

For the second quarter, we expect revenue to be in the range of $53 million to $59 million with operating income in the range of $3 million to $4 million.

This compares to 2006 second-quarter revenue of $46.9 million and operating income of $2.7 million.

During the 2007 quarter, we expect to benefit from positive show rotation of approximately $10 million in revenue from the Paris air show which last occurred in the 2005 second quarter.

As a reminder, this positive rotation is expected to be offset in the third quarter by negative rotation, due to the foreign borrow air show which is another every other year show that last occurred in the 2006 third quarter.

For the 2007 full year, our outlook remains unchanged.

We continue to expect revenues to be comparable to 2006, with an operating loss in the range of $7.5 to $5 million.

While there is much to -- it is much too early to celebrate our successes, we are building some positive momentum, and we are more optimistic today than we were at the beginning of the year.

At the same time, the industry dynamics are still very challenging.

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

We will continue looking for additional growth and cost-saving opportunities in every aspect of the business.

We will also continue to execute on our strategy to reposition EG as a client-focused and flexible partner that offers comprehensive, innovative, value-added solutions that extend our clients' brands and enable our clients to generate a higher return on their marketing investment.

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

The transition will take some time and investment to complete, 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 experience marketing services and deliver the highest level of value and innovation to our clients.

Paul, back to you.

Thank you, John.

Now I will cover highlights for the Travel and Recreation Segment.

First quarter performance for this segment was in line with our guidance for the seasonally slow first quarter.

Revenue was $4.5 million with an operating loss of $2.4 million.

This compares to 2006 first-quarter revenue of $4.9 million and operating loss of $1.7 million.

Due to its seasonal nature, the Travel and Recreation services segment generates less than 10% of its full-year revenue during the first quarter.

As a result, our main focus during this time is on preparing for the busy summer season and controlling costs.

The fourth quarter is similarly slow.

The third quarter is the segment's strongest quarter providing roughly 55% to 65% of full-year revenue and the second quarter provides 20% to 30%.

For the second quarter, we expect revenue to be in the range of $19 million to $21 million as compared to $21.2 million in the 2006 second quarter.

We expect operating income to be in the range of $4 million to $4.5 million as compared to $4.8 million in the 2006 quarter.

We expect this segment to continue to post solid performance during 2007; however, we will face certain challenges that will hamper growth.

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 will impact the early part of the season at Glacier Park.

We are also keeping the eye on potential impact of new U.S.

passport requirements for air travel to and from Canada, which may be a deterrent for U.S.

visitation to Banth.

We are taking action to mitigate the expected impact of these events, and overall, we expect full-year segment revenue and operating income to be comparable to 2006.

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

Ellen?

Thanks, Paul.

As shown in table 2 to the earnings release, adjusted EBITDA was $28.6 million during the quarter versus to $26.1 million in the first quarter 2006.

As shown in table 2, free cash flow defined as net cash provided by operating activities minus capital expenditures and dividends was an outflow of $11.4 million for the quarter versus an outflow of $1.2 million in the 2006 first quarter.

A decrease in cash flow is due primarily to an increase in capital expenditures and due to favorable working capital in '07.

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.

On February 1, 2007, Viad completed the acquisition of Melville Exposition and Event Services Ltd, and affiliated company Corporate Technical Services Ltd.

collectively Melville.

March 31, 2007, Viad had total cash and cash equivalents of $128.6 million as compared to $178.1 million at December 31, 2006.

This decrease is due to the purchase of Melville, Share repurchases and free cash outflow for the quarter.

During the first quarter of 2007, Viad repurchased 276,300 shares of its common stock at an aggregate cost of $10.5 million.

Viad's total debt at the end of the quarter was $14.8 million with a debt-to-capital ratio of 3.3%.

Net interest income for the quarter was $1.3 million versus $1.4 million in the first quarter 2006.

Depreciation and amortization for the quarter was 5.2 million compared to last year's first quarter of 4.8 million.

The full-year 2007 forecast is approximately $22 million to $24 million.

Capital expenditures were $11.3 million for the first quarter 2007 compared to $6.1 million in the first quarter 2006.

The full-year 2007 forecast is expected to approximate $33 million to $35 million.

During the first-quarter 2007, Exhibitgroup recorded a restructuring charge of $1.2 million related to severance cost associated with a organizational realignment.

Payments on Viad's restructuring reserves were $1.2 million during the quarter versus $351,000 in the first quarter of 2006.

Full-year restructuring payments are expected to approximate $3.3 million in 2007.

2007 income tax rate for the first quarter was 39% versus 36.9% in 2006.

2006 rate reflects aggregate favorable resolution of tax matters of $1 million.

The 2006 tax rate excluding the tax matters was 41.6%.

Back to you, Paul.

Thanks, Ellen.

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

Our guidance for 2007 full-year income has been reduced by $.03 per share to reflect the costs associated with the first-quarter restructuring charge at Exhibitgroup and the full-year effect of our share repurchases.

Overall the outlook for our core operating results remain unchanged.

Full-year income is now expected to be in the range of $1.72 to $1.82 per share and this compares to 2006 income before other items of $1.75 per share.

As a reminder, this guidance reflects significant negative show rotation of about $33 million in revenue at GES and some investments in growth initiatives at Exhibitgroup.

Excluding Melville, full-year revenue and operating income are expected to be comparable to 2006.

Melville is expected to provide another $80 million to $90 million in revenue and slightly accretive to earnings in 2007.

The 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 37.2%.

For the second quarter, we expect income per diluted share to be in the range of $.68 to $.77.

And this compares to 2006 second-quarter income before other items of $.71 per share.

Revenues expect to increase by 5% to 15% from the 2006 amount of $237.4 million, largely due to the acquisition of Melville and positive show rotation at Exhibitgroup.

Segment operating income is expected to be in the range of $25.5 to $28.5 million as compared to $25.8 million in the 2006 second quarter.

As Kevin mentioned earlier this guidance includes revenue of $20 million to $25 million and operating income of $.5 million to $1million from Melville.

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

In closing, the first-quarter got us off to a great start for 2007.

GES posted terrific results fueled by very strong base same show growth of 10.5%, new client wins, and great results from the Melville acquisition.

The entire Viad team is focused on driving growth and increasing shareholder value.

The fundamentals of GES and our Travel and Recreation services businesses are very strong.

At these companies, we are focused on leveraging our strengths to accelerate growth.

At Exhibitgroup, we are focused on driving a turn around by repositioning the Company and creating new discernible differences.

We have a very talented team aligned behind Exhibitgroup's strategic growth objectives and they are working hard to drive growth and shareholder value in the future.

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

We are not ready to declare any victories yet, but we are certainly encouraged by what we are seeing so far.

Before I open the call for questions, I would like to remind you that while our growth will be temporarily restricted in 2007, by negative show rotation at GES and the costs related to growth initiatives at Exhibitgroup, we do expect to realize significant growth in 2008.

GES should have a banner year.

Several major shows that don't occur in 2007 will take place in 2008, and as a result, positive show rotation in 2008 is expected to be in excess of $45 million.

We also 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 that company.

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

We remain committed to driving growth and enhancing shareholder value.

With that we will close the formal part of the presentation.

Rufus if you could open up the questions, please.

Thank you, sir.

(OPERATOR INSTRUCTIONS) And for our first question we go to Tom Bacon with Lehman Brothers.

Good morning.

Good morning, Tom.

I was just -- I mean over the last couple of years, you obviously have had -- you have had some of the fuels, surcharges, and I would imagine that your pricing for a lot of this stuff, carpet and what have you have gone up, and I am just wondering, obviously 2008, you expect to be a big year because of that $45 million in positive show rotation, but I would imagine that -- I was just wondering if you could give us an idea of kind of what sort of magnitude those surcharges and price increases and that kind of thing might have versus what it was three years ago.

I am sure it's -- there is quite a bit there.

I will call on Kevin in a minute.

I don't know if I have an exact answer for you, Tom, but we certainly expect to continue with our ability to get some reasonable price increases in our business, and we still have the petroleum surcharge implemented.

And in general, the health of the trade show industry seems to be pretty good.

I think comments earlier that were it is continuing a solid upward trend similar to what we saw, kind of in the mid-90s.

Kevin do you want to comment on that?

I will add a little bit.

As we have talked -- I think the main surcharge you are talking about, Tom, is the petroleum surcharge that we implemented last year, the beginning of the prior year before that.

And we had stated all along that was to just partially offset the cost of these increases in petroleum-based products, being carpet, graphic substrates and (inaudible) and those types of things.

We have continued on that path and I'd say it's coming as expectations and not give you the exact number, But it's done exactly what we had though it would.

It has just partially offset those costs, and we have been working hard to work with our suppliers and try to garner -- garner some better pricing through scale as well as find ways to be more productive.

Thanks, Kevin.

And in terms of the organic growth, I mean, you are still in the '07 guidance talking about low single-digit growth for GES.

You know, but you had a pretty strong number in the first quarter.

I mean, is there something in terms of show rotation that -- over the balance of the year that makes you, want to be more conservative?

Show rotation for the first quarter was basically a push.

Where we -- where we really feel it is in the third quarter, Tom, when we have several major shows that we had last year that don't occur this year.

So the bulk of the $33 million of negative show rotation hits the third quarter, and that's -- that's -- that offsets some of the upside that we are having in the first two quarters.

Okay.

And then just in terms of the -- the Travel and Rec business, obviously you said because of the passport laws and because of the construction on the road and Glacier Park, that you expect some -- some weakness there, and I am just wondering if you are seeing any signs of that in terms of the bookings that you have had so far that would back up that assertion, I guess.

Well, at Glacier Park, we are opening a little bit later this year than we have in the past, and that's because going to Sun Road is under construction, and it is a key attraction to why people go to Glacier Park.

It cuts through the park from the west side to the east side and it is a very scenic road.

Last year, we opened up a little earlier, which meant we had more room nights.

So far our bookings at Glacier Park look very strong, and are consistent with what we saw last year even though we have less room nights overall to book.

We think that the fundamentals are still very solid there.

It is really just an issue of -- there was some late fall storms in the park last year.

And in October, there was 8 or 9 inches of rain and washed out a key chunk of the road that the park service then couldn't get at to fix until after the snow season and everything else.

It looked -- everything we know is that it is on track to be fixed.

And we expect a strong season once we can open up.

Okay.

So that construction is actually preventing them from opening the park at all?

Yeah, it doesn't prevent us, but it is a key attraction to why people go there.

So we hate to ramp up and get all kinds of headcount in there if we are not convinced we can fill up the room.

So we are being a little bit more cautious this year and just opening up a little bit later.

Okay.

And I think that's all I had for now.

Thank you.

Thanks, Tom.

For our next question we go to Troy Mastin with William Blair and Company.

Good Morning.

Thank you.

I notice there was some seasonality it appears to your same show growth in GES.

It looked like last year first half very strong.

Second half not as strong.

Here you are back up to that kind of a range.

I was wondering if there was anything with your show composition mix or maybe something seasonal that results in that pattern?

All right, Troy.

I think I will let Kevin handle that one.

Your keen observation there Troy.

I don't think there is anything inherent to the timing of when shows occur as to what is driving same show growth.

Many -- our schedule is -- is generally front-ended loaded and much heavier in the first quarter and you put more shows together and those have generally been some very strong performers.

You see strong performers across all the quarters and the full year last year was still close to the double-digit range.

We are sitting around that same spot again for the first quarter year.

So I guess there should just be some volatility in that number.

No reason to expect the first half to be stronger than the second half?

There is nothing kind of inherent to the timing.

It is just kind of what is happening in different industries across the different show mix, and, I look kind of in that same range and double-digit range feels really good about it.

Okay, and then also kind of a seasonal question as well regarding your backlog with a dip from 1.1 to 1 billion I think.

Is there anything there in particular that might be seasonally tied or should just we expect that number to be generally on an uptrend but somewhat volatile around the uptrend.

Your second piece there.

Just all a matter of when we sign business and when we renew business.

It had nothing to do with the time of year.

Just the cycle in which we get that done.

Okay.

On Melville, you mentioned stronger-than-expected operating profit.

I am curious if there's anything in particular driving this, if it had anything to do with your acquisition or if it just happened to be stronger than expected performance in that marketplace.

And then is there any additional color you might be able to add regarding your expansion plans or -- or consideration of expansion plans on to the continent with that being your base?

Troy, I think the U.K.

market, we are seeing, you know dynamics similar to what we are seeing here, and that the general health of that market is -- has gotten better over time and the shows seem to be doing fairly well.

We certainly like having Melville in the U.K.

as an opportunity to look at other geographic markets.

We are not at a stage yet where we can talk specifically about any of those, but overall, we are very pleased with how that integration has gone.

Nick Marshall, as we have said many times here, is a real solid CEO and has done a great job, I think, of working with Kevin in -- in getting the early integration done now, and then now taking it to the next level, which is some of the other growth opportunities we have with the business.

Kevin, do you have anything to add with that?

No, I think -- I think you summarized it very well.

Okay.

And then one final one if I may.

Your Cap Ex was up pretty substantially year-over-year.

Curious if you can give some perspective here on where that spending is, why was it unusually heavy in Q1.

I assume it will be heavy in Q1 versus the rest of the year.

Thanks.

Ellen, you want to --

Sure.

Cap Ex this year compared to last year is going to be a little bit higher because of some technology investments at GES.

And we also bought several tour buses at Brewster, and that was done in the first quarter.

The first quarter was unusually high, but it will -- like I said, it will be higher for the year compared to yesterday because of the buses and mostly technology investments at GES.

Thank you.

Thanks, Troy.

(OPERATOR INSTRUCTIONS) We go next to George Smith with Davenport.

Hey, good morning.

Wondering if you could talk in terms of Melville, where margins at that business stand right now versus GES, where you see them going, and how long it takes to get there.

Good morning, George.

Melville's margins in relation to GES margins, they are lower, but we do believe that some of the programs that we have been successful with in the United States are applicable to driving margin enhancement in the U.K.

model as well.

We think over the next two to three years that we can add quite a bit of value to get those margins fairly close to what we are running at GES.

And I may be asking the same question that some others have asked but differently.

The same show growth in Q1 came a bit -- came in above what you and others had looked for.

Moving through the rest of the year, are we still kind of thinking mid to high single digits or an upside bias to that?

I don't think we have been too far off where we thought they would be, and to reiterate what Kevin said earlier, we've been running in the high single digits, low double digits, but overall, we think we can maintain that -- that growth rate.

Okay, and last thing.

You know, quick mention of acquisitions at the end of your commentary.

Can you give some color about -- the nature of those, whether it's size, what things you may be looking at, and -- I guess, which segments you would be looking to expand, whether you are focused on additional travel assets, additional convention services businesses.

I guess, just general thoughts on the type of things you are looking at.

Sure.

I don't think strategy here has changed at all over the last several quarters.

Our first call to capital is for strategic acquisitions, and currently that would be first -- first of all, things related to GES's business, like Melville.

We also have some smaller opportunities in the Travel and Rec segment.

We are currently not real actively look in the Exhibitgroup segment, given where we are in repositioning that company, but we do think, you know, ultimately there could be some good opportunities there as well.

I would call our -- our current opportunities kind of small to medium-sized.

And there are things that are relatively close to our core business.

Okay.

Thanks.

Have a good day.

Thanks, George.

And we go next to Kartik Mehta with FTN Midwest.

Good morning, Paul.

Good morning, Kartik.

Question, on 2008 you talked about the revenue that could come from show rotation in excess of 45 million.

I was wondering, are there margin implications which would indicate that the incremental margins could be a lot higher on that business than what your normal margins are or this business that should be at normal margins.

I will ask Kevin to comment on this too.

It would be my impression that this would be kind of normal overall margin business.

Some of it hits in the first quarter.

A lot of it hits in the third quarter.

Kevin, is there any reason to think differently on that?

I would agree with your comment to 100%.

Most certainly be ramping up the resources in which to -- in which to produce that business at the high level of service that our clients expect of us.

Paul, is this incremental revenue of $45 million.

Would you expect GES to grow the organic, let's say mid single digits and this is incremental revenue or is this just the revenue that you would -- that you are expecting within a normal year.

With -- '07 and '08 are a little bit unique in that -- for the most part, show rotation will -- there are some ins and some outs each given year and it can hit in different quarters which obviously skews the quarters a little bit, in '07 we have a lot of shows we do every other year or every third year and '07 is a year we don't have many of those shows.

The flipside is 2008 when a numbers of those we don't have in '07 all hit in '08.

That's why '08 is unusually large.

And then starting in 2009, we get more of a normal pattern of show rotation again with some ins and outs that are going to balance out.

I mean, it is definitely an incremental revenue stream to 2007, and that's why we are kind of talking about those two years in conjunction.

What would be the impact from the show rotation on an Exhibitgroup?

You just talked about GES, but I imagine there is a lot of implication on Exhibitgroup from this as well.

There is -- some of those shows where Exhibitgroup has a presence on those shows as well.

And it is certainly a lot less of an impact with Exhibitgroup, but could provide some upside there as well.

And where -- where is Exhibitgroup in the form of break-even standpoint?

What revenue number do you have to get to now to -- I know it depends on the mix, but based on a mix that you are seeing right now, what type of revenue do you have to get to for that business to break even?

I am not sure I know the answer to that, because we are running some different models based on different construction mixes.

I think previously, we said it was somewhere around $175 million.

We think with some of the things that we have done in order to try to streamline things a little bit, it may be a bit less than that now.

And then one final question.

Cap Ex question.

I know this year will be a little bit higher than normal.

Will next year go back to what you have seen in the past?

Or are there other investments you need to make which would make 2008 Cap Ex similar to 2007?

My guess is that -- and you are a little bit ahead of us on that question, but my guess is that it probably comes down a little bit, but at this stage of the game we don't know.

Thank you, Paul.

Thanks, Kartik

With a follow-up question we return to Tom bacon with Lehman Brothers.

I just wanted to talk about some of the strategic acquisitions a little bit more.

You sound like -- you said that you had something in the pipeline, or some opportunities in the pipeline, would benefit or could possibly benefit 2008.

I mean is that -- should we expect something in the next couple of quarters?

Or is that kind of the normal flow of opportunities that you are -- you're looking at?

Well, we are -- I can't really comment specifically.

We never have and we are very cautious in commenting on that.

We do have an active pipeline in strategic acquisitions are our first call for capital as we have always said.

There are always deals we are looking at, and, of course, we are looking for something that is a good cultural fit, good strategic fit and we can get for the right price.

If we can find those three things, we will likely make some acquisitions.

If we can't, we will continue to look.

So at the same time, our second call for capital then is from time to time buying back our shares.

When you look at the -- in terms of those three metrics that you are evaluating acquisition opportunities on, what's been the biggest challenge, over the last couple of years.

I mean, is it still getting things for the right price.

Obviously there is a lot of money chasing opportunities out there.

Yeah, we are definitely seeing that, and then finding a good cultural fit with -- with our value system here is very, very important to us.

Okay.

And then maybe just a quick question for Kevin.

I was just wondering -- I think the last couple of quarters in terms of the revenue mix between the discretionary and the materials handling had kind of flattened out.

Is that trend still pretty much intact?

Or basically no trend?

Kevin?

Yeah, Tom, it is pretty much what we said last time when we talked.

Is that really not much has changed this year over last year from that standpoint.

Okay, great.

Thank you.

Thanks, Tom.

With that, ladies and gentlemen, we have no further questions on our roster.

Therefore, Mr.

Dykstra, I will turn the conference back over to you for any closing remarks.

Thanks very much, Rufus.

We will continue to do everything we possibly can do to win for our shareholders and win with integrity.

While we do that we appreciate your participation in today's conference call and we look forward to giving you an update in three months.

Thanks very much.

And ladies and gentlemen, this does conclude the Viad Corp first-quarter it 2007 conference call.

We appreciate your participation and you may disconnect at this time.