Viad Corp (VVI) 2008 Q3 法說會逐字稿

Welcome to the Viad Corporation's 2008 third quarter earnings release conference call.

(OPERATOR INSTRUCTIONS) I would now like to turn the conference over to your host Ms.

Carrie Long, Director of Investor Relations.

Ma'am you may begin.

Good morning and thank you for attending our conference call.

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

Information concerning business and other risk factors that could cause actual results to material differ from those in the forward-looking statements can be found in Viad's quarterly report filed with the SEC ,this conference call may not be recorded or reproduced in transcript without the expressed written permission of Viad.

During today's call we'll refer to tables one and two in our earnings press release which can be found on our website at www.viad.com.

With that I'd like to introduce Paul Dykstra President and CEO of Viad.

Good morning everyone thanks very much for being with us today as usual on today's call all hear from Kevin Rabbitt President and CEO of GES, John Jastrem, President of Exhibitgroup and Ellen Ingersoll, Viad's Chief Financial Officer.

As we discus our third quarter results you may want to refer to tables one and two in the earnings press release.

We had a strong third quarter and for that I'd like to recognize and thank all of the dedicated people of Viad for delivering these results in a very busy time.

During the quarter we had solid execution and continued positive results from the repositioning efforts at Exhibitgroup/Giltspur.

We also benefited from positive show rotation.

As compared to the 2007 third quarter, revenue increased 32.1% to $302.4 million.

Segment operating income double to $26.1 million.

Income from continuing operations was $16.8 million or $0.81 per diluted share.

Income before other items which excludes income from favorable resolution of tax matters $14.4 million or $0.70 per share.

These results are in line with our prior guidance of $0.64 to $0.74 per share and more than double 2007 third quarter income before other items of $0.32 a share.

We have strong free cash flow of $51.7 million during the quarter of which we used $10.1 million to repurchase 328,000 shares of our common stock.

This brings our total repurchases since the first quarter of 2006 to 2.6 million shares.

At the end of the quarter our cash balances totaled $152.9 million.

Now let's move on to the individual operating segment results and 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.

First I'd like to turn it over to Kevin Rabbitt, President and CEO of GES.

Kevin?

Thanks Paul, GES had a record third quarter with revenue of $203.3 million up $51.7 million from the 2007 third quarter.

Operating income was $7.9 million as compared to an operating loss of $2.7 million in the 2007 quarter.

The significant growth was driven mainly by very strong performance in some major rotating shows.

For the quarter show rotation added $53 million to our revenues.

This number was considerably higher than the $45 million we expected due to strong exhibiter participation and great execution by the GES team.

Many of the major rotating shows during the quarter were industrial shows which is a sector that has continued to show strength.

Positive show rotation along with continued growth and exhibitor discretionary spending helped offset negative base same show growth of 11.1%.

As a reminder base same show growth is a measure of growth that occurs in the same city, the same quarter every year.

These same shows represent 31% of our total third quarter revenue.

These shows were heavily weighted toward the retail sector which has been a soft sector most of the year.

As we expected the negative base same show growth was driven primarily by two major retail shows.

Excluding these two shows the same show growth was negative 3% for the quarter reflecting modest decline across all industry sectors as a result of the economic slowdown.

In general the declines that we experienced are more the result of lower freight density as opposed to net square footage decline.

Rather than than pulling out of the show altogether, exhibitors are seeking to reduce costs by sending fewer people to staff their booths and by using lighter weight exhibitory and less product which lower shipping and drainage cost.

In terms of the size of shows and exhibitor participation we are not seeing an overall decline.

It is a bit of a mixed bag right now.

We are not seeing an increase in show cancellation but we are seeing fewer launches and short term bookings of conference and meetings.

During the third quarter we signed $185 million in future bookings including a multi year stepping with the consumer electronic show.

We currently have over 75% of our remainder 2008 forecasted revenue under contract and our total revenue backlog for 2008 and beyond stands at $1.4 billion.

For the fourth quarter we expect revenue to be in the range of $133 million to $148 million.

The decline from the 2007 fourth quarter revenue of $157.4 million is expected to be driven primarily by negative show rotation of about $10 million and the impact of lower foreign exchange rates on our UK and Canadian revenues.

Fourth quarter operating results are expect to be in the range of loss $750,000 to income of $750,000 as compared to a loss of $681,000 in the 2007 quarter.

Reflecting the benefit of our earlier initiatives to reduce overhead costs.

Given the negative base same show growth during the third quarter we have trimmed our full year outlook somewhat.

We are now expecting revenue growth of 8.5% to 10.5% with operating income growth of 12% to 15%.

The economy is clearly more challenging today than it was a year ago, and some show organizers have expressed some concern about attendance and participation at future events.

In response, we are diligently monitoring and managing our direct labor costs which are highly variable and represent roughly one third of our total cost structure.

Following the last downturn of 2001 we focused heavily on implementing operations excellence initiatives to help us manage labor and more efficiently -- and to drive productivity.

We developed a proprietary activity base labor planning model that allowed us to build a bottoms up labor call.

We codified a number best practices and rolled those out throughout our entire network.

We've also done a lot of work to variables the rest of our cost structure so we can respond faster to ebbs and flows of the trade show industry.

We've regionalized creative services which is are our design and production capabilities to capitalize on scale advantages.

We managed our equipment needs at the national level to ensure optimal usage across our network and we staff our shows from a national perspective.

In short, we believe we are well positioned to quickly scale up or down to meet future demands of the trade show industry and we believe that we are best in the industry at managing direct labor cost.

Additionally we have a diversified revenue base with our shows expanding every sector of the US economy.

We break our industry sectors down into six categories.

For 2008 industrial shows will account for 25% to 30% of our revenue.

Retail type shows will represent a similar mix, the following three sectors will each represent roughly 15% of our revenue, healthcare and education, services, and technology.

And 5% to 10% comes from hotel and food service shows.

Heading into the last economic downturn we are much more heavily weighted toward technology shows and the startup tech and dot.

com companies were great trade show spenders.

And after the dot com bubble burst in 2001 we saw both tech exhibitors and some tech shows fall by the way side.

The current market is different in that the bubble was in real estate and mortgages which are not big trade show sectors.

Clearly there are still broader reaching implications of the overall economy but the good news is that we do not have a meaningful exposure to the real estate development or banking shows.

In addition to greater industry diversification, we also have greater geographical diversification today.

With the addition of Melville in 2007 we have expanded our base of operations beyond the US and Canada and into the UK and more recently into United Arab Emirates in the Middle East.

The UAE opportunity is small today, but the market is projected to experience rapid growth over the next several years.

The region is heavily invested in developing world-class exhibit facilities surrounded by hospitality tourism and business infrastructure.

We first entered the UAE market in late 2007 with an eight year exclusive contract to provide venue services, including electrical distribution and rigging at ADNEC the Abu Dhabi National Exhibition Centre.

This has been a highly successful venture for use though it small dollars overall.

Today we announced our intention to expand our presence by creating a full service offering that leverages the innovations and capabilities we have developed across the GES worldwide network.

Expanded services will include carpet, graphics standard exhibitor packages and exhibitors discretionary services such as furniture rental and logistics.

This expansion will require small capital investment on our part and has upside potential as the market grows.

We continue to look for every opportunity to grow our business through market share gains, increased productivity and geographical expansion.

The GES team remains committed to driving growth, delivering solid results and positioning the Company for ongoing success.

We will continue to provide quality products and services along with best in class customer service at a great value to our customers.

In closing I'd like to thank the dedicated hard working employees of GES for their ongoing efforts to ensure another winning year for our Company.

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

Thanks Kevin.

Next I'll hit the highlights of our experiential marketing services segment and then ask John to discuss Exhibitgroup/Giltspur in more detail.

As a reminder, our experiential marketing segment includes Exhibitgroup/Giltspur and Becker Group.

We acquired Becker Group on January 4, 2008.

Third quarter revenue for the segment was $48.6 million with an operating loss of $3.6 million.

These results include revenues of $2.2 million and a loss of $2.7 million at Becker Group.

Becker Groups' third quarter results reflects the seasonal nature of the business which is weighted toward holiday installations during the forth quarter.

On a year-to-date basis Becker Group has generated revenues of $4 million.

During the fourth quarter we are expected revenues of $22 million to $25 million with an operating profit of $7.5 million to $8.5 million.

In the next month or so, the Becker Group team will deliver holiday environments to 109 shopping centers across the US for clients that include Taubman, Macerich, Westfield and Simon.

We also had some international projects as well.

The volume of holiday work is lower than we had originally expected as some clients reduced their holiday decor budgets in light of the current economy and credit markets.

Even though the sales are less than we expected we are still expecting substantial growth over 2007 when Becker Group provided holiday environments for 85 different properties.

That translates to a number of properties being up 28% this year.

Beginning in November, Becker's highly creative 'The Chronicles of Narnia, the Exhibition' will open at the world renowned Franklin Institute in downtown Philadelphia which is the nation's fourth largest consumer media market.

The Franklin has a history of hosting successful traveling exhibits and we are competed about our partnership on the Narnia Project.

We have also realized some good synergies between Becker Group and Exhibitgroup/Giltspur.

In addition to the Narnia exhibition, Becker also worked with Exhibitgroup to expand Macerich's highly successful Santa Tracking Station Program from nine regional shopping centers to 16 this year.

Becker was able to capitalize on EG's significant experience building high quality exhibits to further enhance the Santa Tracking Station which shows how the North American Aerospace Defence Command or NORAD follows Santa journey around the world on Christmas Eve.

Now let me get back to third quarter results.

On an organic basis in other words excluding the Becker Group acquisition, segment revenue was $46.4 million, up $19.6 million from the 2007 third quarter and segment operating results improved by $5.3 million to a loss of $909,000.

This improvement was driven primarily by positive show rotation revenue of approximately $13 million from a bi-annual European air show and new client wins at Exhibitgroup/Giltspur.

Excluding the air show, EG's revenues increased 25.9% from the 2007 quarter.

John and the Exhibitgroup team continue to do a great job and driving growth and revenue and profits.

Now I'll turn it over to John to elaborate on the great work the EG team is doing.

John can you make some comments please?

Thanks Paul.

Our success in driving top-line growth continues to be powered by our client centric approach and hard work, creativity and dedication that all employees bring to our clients every day along with our culture of continuous improvement.

We have invested significant time and energy over the past two years to elevate the level of service that we provide our clients and to reposition EG as an experienced marketing agency by adding CRM capabilities and increasing the quality and quantity of our creative and strategic thought leaders.

We have plans to continue to invest in our people, to provide them and EG the capability to deliver innovative solutions that deliver value to our clients.

The experienced marketing capability is becoming a key differentiator I for us.

Experience marketing brings a brand to life in an immersive 3D setting.

It can be more impactful than traditional forms of marketing like TV and print, and it allows targeted audiences to interact with the brand and have an experience that leaves them with the memorable and meaningful impression.

Allow me to give you a recent example of how we use our experienced marketing capabilities to win a new client through a competitive RFP.

We are up against some of our top competitors in this bid.

To differentiate ourselves we focused on the attendee experience rather than on our core capabilities of designing and building a great exhibit.

We began with a detailed discovery process to learn as much as possible about the client's brand.

Then using this intelligence our creative and marketing strategy team developed an overriding theme or a big idea for the experience.

This particular client is a software supplier to the automotive aftermarket industry and EG's theme was 'tune up your business for higher performance.

Next our creative team translated the theme into a bold graphic.

The theme and graphic were incorporated into all aspects of the attendee experience.

Including pre show direct marketing and an inbooth experience built around a service record card like the one found in your car owner's manual.

The attendees were encourage to take these cards from station to station within the exhibit to reinforce the tune up theme.

We then closed the loop by interfacing with the clients CRM systems ensuring the right information format by utilizing our CRM experts.

By bringing these ideas and capabilities to the table we were able to engage with the client at a higher level during the final RFP presentation and demonstrate additional value and measure return on the investment for our client.

We were no longer talking about just the booth structure and logistics but more on marketing strategies and how to maximize the attendee experience through all the different touch points we had developed.

The client informed us that we were selective because of our services, integrated marketing and focused on the attendee experience which really separated us from the competition.

We have been invited to bid on their annual user conference event demonstrating EG's opportunity to provide additional services to this client.

I'm especially fond of this example because it demonstrates two important facts.

One, we are successfully differentiating EG from the competition and two, once you gain a client's confidence and show them you execute flawlessly and deliver additional value, you'd be given additional opportunities to further that relationship.

I've been with EG for two years now and I'm very happy with the level of success we've realized and the momentum that we are building.

We clearly have ways a to go on the profitability side of the equation.

We need to continue the sales momentum and improvement culture to actively identify new opportunities to increase efficiency and drive down cost.

Going forward we expect the economy to present us with challenges as well as opportunities.

Many of our competitors do not have the financial strength of Viad our broad service offering, our global reach with 26 locations throughout the world, our newest being in South Korea or our network approach to servicing clients.

I believe there will be opportunities for us to gain additional market share because other service providers are going to have issues.

It's a tough market out there right now.

Clients are more and more concerned as they should be with the financial viability of their provider and EG is well positioned for success.

All the things we demonstrated to consistently serve our clients better, to invest the time of our challenging team to understand their business, and to efficiently provide effective integrated solutions are all very important as clients are going to be looking for that type of help now more than ever from a trusted advisor like EG.

Typically companies come in to the fourth quarter with opportunities for further spending.

We are not sure this additional spend will materialize this year given the state of the economy and credit markets.

Accordingly we are cautious in our outlook for the fourth quarter.

However as a close and trusted partner to our clients, we will constantly seek those opportunities and given the strong growth we realized thus far, we are confident in our ability to achieve and perhaps exceed the full year guidance that we set forth at the beginning of the year.

For the year we are expecting revenue to be in the range of $188 million to $193 million reflecting growth of 8% to 11% from 2007.

And we expect operating results in the range of a loss of $1 million to income of $500,000 which compares favorably to our prior guidance of a loss of $2 million to break even.

Going forward, we continue to work closely with our clients to identify smarter ways for them to deploy their budget dollars which includes leveraging our global network to decrease shipping cost, coordinating with our highly talented in-house installation and dismantle teams, to lower show floor costs, expanding custom rental solutions, and creating integrating marketing campaign to engage our clients customers and prospects before, during and after trade shows and events.

All at a lower cost per touch point there by delivering measurable value to our clients.

These efforts should help us manage in the current economic climate and potentially capture greater share of our client's marketing spend there by mitigating the impact that any reduction in clients budget may have on our results.

I would like to thank the entire EG team for its efforts to date and reiterate our commitment to delivering for our shareholders.

In closing we have a lot of positive momentum as demonstrated by our revenue growth.

We are cognizant of the market conditions and are proactively and aggressively taking steps to ensure that EG continues to gain market share and produces the best results possible.

Paul back to you.

Thank you John.

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

The Travel and Recreation Services agreement had a solid third quarter revenue was $50.5 million with operating income of $21.7 million and operating margins of 43%.

These results are in line with the 2007 third quarter despite a softer economy and higher travel cost.

At Brewster, passenger volumes were affected by international travel.

However Glacier Park realized a healthy increase in room revenue over the 2007 third quarter as a result of strong demand from US travelers who opted to vacation closer to home.

The year is essentially complete for the travel and recreation segment.

Glacier Park is now closed for the season and Brewster is seasonally very slow during the fourth quarter.

Overall 2008 is on track to be another good year for both Brewster and Glacier.

For for full year we expect revenue to be $86.5 million to $87.5 million, with operating income in the range of $21.5 million to $22.5 million.

I'll now ask Ellen Ingersoll, Viad's Chief Financial Officer to discuss some financial highlights for the quarter.

Ellen?

Thank you Paul.

As shown in table two to the earnings release, adjusted EBITDA was $31 million during the quarter versus $16.7 million in the third quarter of 2007.

Also shown in table two pre cash flow defined as net cash provided by activities minus capital expenditures and dividends was $51.7 million for the quarter versus $30.8 million in the 2007 quarter.

Directional for 2008 free cash flow is expected to approximate net income plus depreciation and amortization minus capital expenditures and dividends and including the effects of working capital.

For the full year 2008 our working capital is expected to have a negative impact.

At September 30, 2008, Viad had total cash and cash equivalence of $152.9 million.

This compares to $111.6 million at June 30, 2008.

Our total debt at the end of the quarter was $12.9 million with a debt to capital ratio of 2.5%.

Net interest income for the quarter was $379,000 versus $1.1 million in the third quarter 2007.

Our depreciation and amortization expense for the quarter was $7.5 million compared to last year's third quarter of $6 million.

The full year 2008 forecast is approximately $27 million to $29 million.

Capital expenditures were $6.5 million for the third quarter of 2008 compared to $5.6 million in the third quarter of 2007.

The full year 2008 forecast is approximately $38 million to $40 million.

Payments on our restructuring reserves were $688,000 during the quarter versus $1.1 million in the third quarter of 2007.

For the full year 2008, restructuring payments are expected to approximate $1.9 million.

And in the 2008 income tax rate year to date was 32.3% versus 34.5% in 2007.

The 2008 and 2007 rates reflect aggregate favorable resolution of tax matters of $3.2 million and $1.9 million respectively.

The 2008 and 2007 tax rates excluding the favorable resolution of tax matters were 36.8% and 37.5% respectively.

And back to you Paul.

Thanks Ellen.

Before wrapping up my comments and opening the call to questions, let me discuss our guidance for the 2008 fourth quarter and full year.

For the fourth quarter we expect income per diluted share to be in the range of $0.01 to $0.11.

This compares to 2007 fourth quarter income before other items of $0.02 per share.

The upside relative to 2007 is due primarily to the Becker Group acquisition.

Becker Group is expected to generate fourth quarter operating income of $7.5 million to $8.5 million.

Partially offsetting the incremental income from Becker Group, is a lower fourth quarter revenue outlook for Exhibitgroup/Giltspur due to some shifting of revenue into earlier quarters this year and the expectation that we won't benefit from the end of year budget flush as we have in the past couple of years.

And we are also expecting higher taxes in the 2008 fourth quarter relative to the 2007 quarter.

For the 2008 full year we expect income before other items to be in the range of $2.12 to $2.22 which continues to reflect double digit growth over 2007.

Regrettably this range is lower than our prior guidance of $2.17 to $2.32.

The decrease is driven mainly by reduce fourth quarter outlook for Becker Group as a result of reductions and holiday decor shopping centers.

Several of the holiday programs Becker Group had in its sales pipeline were postponed or reduced, in light of the economic slow down and tight credit markets.

As a result we lowered Becker Group's operating income range by $1.5 million on the low end and $2 million on the high end which equates to about $0.045 to $0.06.

The additional decrease to the high end of our prior guidance range reflects a narrowing of the range based on better visibility over full year results.

Specifically we are expecting less upside and results from the travel and recreation services and GES, partially offset by a slightly better outlook for EG based on its strong year to date revenue growth.

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

In closing, we are still on track to realize double digit earnings growth in 2008 despite a challenging economy.

Although we are seeing signs of the economic slowdown impacting trade show attendance and to a lesser degree exhibitor participation, GES and Exhibitgroup/Giltspur have both realized strong growth this year.

We are staying close to our clients and working with them to maximize the return on their trade show marketing spend.

Looking back over the last 35 years the trade show industry has proven to be resilient with a long history of steady growth.

While recessionary periods have resulted in temporary slowdown the industry has always recovered and resumed its upward trend.

Becker Group is heading into its busy holiday season.

While, some of its clients have reduce their holiday decor budgets this year, we still expect Becker Group to realize a substantial profit in the fourth quarter.

As Becker Group is gearing up, our Travel and Recreation Services segment is heading into its seasonally slow period.

Brewster and Glacier Park are focused on cost control in order to preserve the strong results they have realized this year.

In the current economic environment, we are focused not only on the controlling costs but also on identifying and capitalizing a new opportunity for each of our businesses.

Our strong balance sheet, long term customer contract, leading market positions, and talented employees are a great advantage in uncertain times like this.

We will continue to pursue strategic acquisitions, selectively invest in our existing businesses and return capital to our shareholders.

As always we remain committed to driving growth and enhancing shareholder value, with that we will close and open it up for questions.

Dawn, if you could open the question line please.

Thank you.

(OPERATOR INSTRUCTIONS) Our first question comes from John Healy with FTN Midwest Securities.

Good morning.

Good morning.

A question on the GES business.

Looking at same show revenue growth.

Paul, I was hoping to get your thoughts on how you might see that trending a little bit for fourth quarter and maybe your thoughts on -- I know it's early, but how we should think about same show revenue growth based on the economy today and heading into 2009?

Any color you can provide would be a great help.

I'll take a shot at it and then I'll ask Kevin to comment to John.

We are forecasting same show revenue growth in the fourth quarter to probably be around flat.

We don't have as much heavy retail shows and we don't have the flip side of that which was some of the rotating industrial shows that perform very well.

As we go into the fourth quarter, that is how we are looking at it right now.

Kevin, do you want to make a comment on that?

Sure.

I would agree with your comments on the fourth quarter and looking into next year, it's really too early to tell.

There's a lot of uncertainty out there.

We've been spending a lot of time with our clients and understanding what they are expecting in their shows moving forward.

Certainly wouldn't expect the high same show growth that we have seen over last year, but I still see a lot of opportunity from a price and services perspective and believe in the overall face to face marketing industry.

So I think there's a lot of factors we need to take into account and we will have more sense of that as we get closer to next year.

I guess taking a step back and looking at the last economic downturn I thought you did a great job about how the Company is different.

Can you maybe talk about how same show revenue performed in the prior slowdown?

I'll give you the best of my recollection, John.

We had much more exposure to tech back then, and there was a lot of dot com spending in just about all the shows we did and I think we saw a good drop off of that but the rest of the business held up and bounced back fairly quickly.

I think this time it's a little bit different in that we didn't have the same level of financial crisis the last time around, and I think there was still a good rallying cry going on both as the country and to get people to get out and spend.

It's a little different to tell.

Kevin, do you have any more color on that?

I would go with the same thing as you on the best of my recollection.

I would go back to the trade show that shows the industry trends.

We had a little bit of down in that 2001, 2002 perspective, and it started showing positive around 2003, but that gives you a general direction.

If you take that all the way back to the '70s you have a steady positive trend.

Anything we saw was relatively short lived and then moved positive rather quickly.

And at that time John, we had not yet formed the product and services division.

We put that in place in '03, '04 time frame which started to put focus on the exhibitor discretionary spend and we believe to continue that there's continued opportunity there.

I guess if we look at the last downturn you have the product and services division now.

You don't have the exposure to technology as you did in the past.

In an environment as we see today, do you think it's possible that next year we could have at least flat or maybe slightly positive same show revenue growth, or is that too early to make that conclusion even?

I hate to speculate right now.

As Kevin mentioned we are spending a lot of time with our clients getting to understand their views on their shows, and another thing to keep in mind here is that lot of the business we do are with the associations and the associations have to have annual meetings and the trade shows are a big part of their revenue stream.

We have great customers driving whatever they can do to continue show growth and things like this in this economic market and we are trying to be a good partner to them to help them in that process.

Okay.

Fair enough.

Last question, if you look at your shows that have taken place in the first quarter of 2009 and I know you have some big shows occurring, have you seen from your association partners, have you seen much change in plans for those shows?

Have you seen exhibitor list contract a little bit?

Are you still seeing exhibitors adding the the shows?

Any color you can provide on the big shows if you are seeing any change in the outlook for those shows yet?

I think it's really mix again by industry.

If I look across those big shows, some are showing some decline, some showing flat and some showing positive in these early stages but as I outlined in my comment the square footage hasn't necessarily been the big driver.

What we won't have as much visibility is a general participation, how much freight and product do they bring to the show and how many people do they send to the show.

That is why you are spending a lot of time with the clients and understanding what they are seeing from their budget is important but the short answer is a mixed bag what people are predicting at this point in time.

Great.

The last comment I would probably make is that the last time around I think we showed a good ability to flex down quickly in our cost structure, and we did I think a pretty good job adjusting the business accordingly and we certainly continue to believe that we have a strong ability to do that regardless of what happens here.

I guess if I can follow up on that.

You talked about the ability to change the cost structure, GES.

That business were to show, I don't know, this is my idea, 5% decline in same show revenue growth next year, how fast can you change the cost structure and maybe what would be the margin improvement -- impact if you saw that kind of decline in base show revenue?

In Kevin;s comments he talked about a third of the cost is straight variable labor, and that's the casual union labor that we have on our shows.

A significant chunk on top of that and I don't have in front of me, is variable too.

I don't know right off the top of my head what the margin hit is.

Depends on how fast and which shows and what month that it hits because of the ups and downs we have in the volume of business on a monthly basis.

Kevin, do you have any color to add to that?

I would reiterate what you said.

The variable labor piece is about a third of the cost structure.

That we can ramp-up and down quickly.

The other portions of the cost structure take more time, but still have the ability to ramp then.

From a margin perspective they generally remain relatively the same and similar just ramping up and down with the revenue and whatever time period that takes but again the variable piece takes a lot less time.

The other piece John is we have continued to build economy to scale and Kevin talked about regionalizing our creative services.

That allows us to spread out a base of fixed cost over a bigger area and easier to leverage that, and then national equipment planning as well as national staffing.

We've done a lot of those things to regionalize and rationalize our cost to smooth things out over peaks and valleys in the system.

Thank you.

Next question comes from Troy Mastin with William Blair & Company.

Good morning.

Good morning.

I want to understand a little bit more about the growth trends and the experience on the marketing side of the business.

Can you give us perspective on Becker's performance last year to help us figure that out?

Hang on one second here.

As I mentioned the number of properties is up 28%.

I don't have the exact revenues in front of me but it's up substantially in the fourth quarter of this year too.

It's not up as much as we thought it was going to be due to late cancellations and postponements of some fairly significant project with some of our mall developer clients.

Okay.

Maybe I can probably back into this number but if you have it at hand it would be helpful the revenue you are expecting from Exhibitgroup in the fourth quarter?

I guess you said $22 million for the contribution from Becker.

Is that correct?

Yeah.

It's $33.8 million to $38.8 million.

For EG stand-alone.

Okay.

And last year it was $50 million?

Yes.

Okay.

And so maybe you can quantify for us how much of that is from business that has been pulled earlier in the year versus what you see a lack of budget flush or other hold backs spend?

We can get an idea what the trajectory looks like on a go-forward basis into 2009.

I'll have John comment on that.

We are certainly getting in front of the economic curve.

We did a good job this year and we have nice orders for kiosk business that might have been in last year's fourth quarter and a couple of other things.

John do you want to comment on that?

What we are talking about is due to timing.

In addition to that many of our healthcare clients had higher spent with us, thus leaving us less in the budget for the fourth quarter.

We also had a shift of kiosk revenue and some international revenues into earlier quarters.

So most of it tends to be timing and that's why we are looking at and emphasize the full year numbers to really get a handle on the revenue growth which was pretty strong.

Our guidance does not include revenue.

As we mentioned from the typical end of the year, orders that come on short notice because we believe the companies are -- not be as aggressive this year and using up their remaining budgeting dollars.

So given the state of the economy, we are trying to take a conservative look but we are also out pushing and building out our relationships to demonstrate to our clients that the more they can spend if we can generate results that would be good results for them.

If you compare last year how much of that short term project base budget flush you got versus what your expecting this year, what is the delta approximately?

It was probably around a few million.

Okay.

And you said in the past that you think at least as it relates to Exhibitgroup that you can turn the corner on a profitability on a full year basis in 2009, maybe you can do it even sooner, but you still feel like that can be the case in 2009?

Yeah.

We are still trying to get there for 2008, Troy, and I know John and the GE team is doing everything possible and we certainly have our sites set on that for '09 as well.

Okay.

Good.

A question on GES.

It looks like the implications for fourth quarter growth is maybe the mid single digits and I want to confirm if that is what you would agree on eliminating the show rotation basis and also on the minus $11.1 million same show growth in the quarter, to me this feels like an overall negative representation of the state of the business.

Is there another way that you might look at the growth in the third quarter that might be representative of what is going on in the business?

We tried to be conservative in the calculation and again we define that as shows that occur each year in the same quarter in the same city.

That gives us the best representative year-over-year account.

It was a little over 30% of our revenue for this quarter.

It may be a little hard on ourselves because we did factor in the terrific growth we saw in our non-annual business and things that moved from city to city, but we haven't found a good way to calculate that and make it consistent and understandable.

So we stuck with our other calculation but our non--annual business performed well as Kevin mentioned and it was both from an exhibitor participation, but also very good execution by the GES team.

Can you give us any idea of the early outlook for your significant show in the first quarter that you are servicing, consumer electronic show and if you feel like that is a good indicator for how the rest of the year might go?

Yeah.

I don't know.

I'll have Kevin comment to.

I don't know where we are on the planning of that show.

We own eight event -- it occurs in the second week of January.

We are strong and they tend to have a pretty good rebookings during that show for the following year.

My guess is there's some adjustments being made given the current economy but that has been a strong show for many years.

Kevin do you want to comment?

Yeah.

Troy, from the standpoint of that show, from what we know to date, there are a lot of moving parts.

Square footage looks very similar, maybe up, maybe slightly down depending on last few months sales.

The big question is what I laid out earlier is around overall participation and density, and that we won't know until we get closer to the move in.

Okay.

I also want to ask about Melville.

The UK economy seems to be slowing more rapidly than others and if you can give us an update on how Melville's performing and if this would be an indicator of how things would go in the US.

Melville is a good acquisition, integrated well.

We've been able to capture the productivity gains by exporting some of the successful things we've done in the US there.

I think again I'll ask Kevin to comment, but the economy there seems to be somewhat similar to some of the challenges we are seeing here.

Kevin do you want to comment?

From a trend perspective, Troy, from what's happening in different sectors, looks very similar to the US.

The retail sector has struggled the most but some of the other sectors have performed better.

I feel a lot of parallel sin terms of how the trade show industry is performing across the two areas.

Is the growth there similar to what you are seeing in the US as well?

It would be similar trends from that standpoint too.

On the oil prices coming down, I wonder if you've done any estimates calculations in terms of what the current price of oil could do to your business in 2009 versus 2008 if you determine that it can give you a certain amount of revenue, certain amount of cost production versus 2008, any estimates along those lines?

The trend on oil prices are good to us.

It takes a while for some of those things to cycle through and the commodity prices that we buy, but we see it when refueling our fleet.

Kevin do we have any quantification of that?

It's similar as I've said last time.

We have been able to offset those and make those relatively negligible and I don't anticipate the down adding a great deal of benefit either, although it would add some benefit.

So it's something we've been able to manage.

We treat it as a variable cost and something that does take sometime on the supplier side to drive lower costs into their product production.

Okay.

Good.

Thanks.

And on share buy backs, you were active in the quarter.

I'm curious if you have any plans to slow down or accelerate your share repurchase activity.

Yeah.

I think we believe our stocks is under value like most of the market does.

We've always executed our authorization with a disciplined approach.

But we don't comment Troy, on when we are or are not buying.

But it's fair to say you haven't suspended your buy-back program?

No, we have not.

And we have a strong balance.

We have terrific cash flow for the quarter and ended up with very nice net cash position.

Okay.

Good.

And finally if you can talk about currencies probably most relevance to the travel and rec segment how that may have impacted your guidance, some thoughts looking into 2009, and if it's relevant enough to mention it as it relates to Melville, I would appreciate that as well.

I would have Ellen comment on that.

With Melville in the UK and the Canadian operations for both GES and Brewster is where our foreign exchange issues come from.

Troy, the fourth quarter really is Melville impact.

GES revenue can be impacted by $5.5 million in the fourth quarter.

On the Op income line, quite a bit less, about $200,000.

The travel and rec business is done for the quarter so there isn't a huge impact versus prior year it's about a negative $700,000 on the revenue line, break even on the Op income line.

So it will be a negative $5.5 million on the revenue line on a year-over-year basis?

For the fourth quarter.

Negligible on the bottom line a couple hundred thousand.

And based on where rates are today, can you give us an approximation of what kind of an effect you would expect in '09 from currency?

I don't have the total effect for '09, but obviously if rates stay where they are today they will be in effect since most of the year the rates were high.

Since they just started coming down they will have an effect in '09, I dont have that quantified.

Okay.

Thank you.

The flip side is with the stronger US dollar versus the Canadian dollar hopefully that would help tourism, US going to Canada, because as we enjoy higher FX exchange rate, it did impact I think making it more expensive for the US to travel into Canada.

So hopefully there's some positive pickup there too.

Thanks Troy.

Thank you.

(OPERATOR INSTRUCTIONS) Our next question comes from Clint Fendley with Davenport Group.

Good morning.

Good morning.

A question here on Becker.

I wonder if you can help me understand.

With the properties up by 28%, how are we looking at the best a break-even or slight operating loss for the year with Becker here?

Are you giving up pricing or is there a mix shift in the kind of work that you are doing in light of the property increase here?

No.

We made some investments in the growth of Becker, and we felt very good about the pipeline and a lot of things happened very recently with the most recent kind of things that has happened definitely impacted our developer client.

We still believe very strongly in the fundamental reasons of acquiring Becker Group.

I think it's playing out.

We are seeing synergy between Becker, Exhibitgroup and GES.

We have not seen these types of challenges before from that marketplace in the time that we've been in the business and we still feel very good about things going forward in '09 in our growth opportunities with Becker.

So as you talk to the leaders there and they look back historically -- how is that business typically fared during recessionary period?

It seems quite surprising that they would be cutting back this significantly on the declaration and all during the holiday period.

You hit the nail on the head there.

We have not seen it.

I think it's the magnitude of what's happened with the economy and the credit markets quite frankly because some of these issues were financing issues too.

We have not seen that in the 15, 20 years going back, certainly not to this level, because holiday spending is important to the retail mall and it's consumer shoppers in drawing those people in.

Similar to drawing people into your booth at a trade show.

So we have seen reduced spending in some cases and postponed or cancelled spending in others.

The postponed stuff we are doing everything possible to get back and wrapped up tightly as we can as we head into '09.

Okay.

Thank you.

Thanks.

I show no further questions at this time and I will now turn the conference over to the speakers for closing comments.

In closing again we had a terrific third quarter.

We have a little bit of economic headwinds that we are dealing with heading into the fourth quarter, but we have a very, very strong balance sheet, terrific cash flow, terrific people, and you can count on Viad and its operating subsidiaries and their teams to make the adjustments necessary that we need to, as we aggressively look into the future here to make sure that our business is sized correctly and we look forward to talking to you again in three months thanks very much.

Thank you for participating in today's conference.

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