Viad Corp (VVI) 2009 Q2 法說會逐字稿

Welcome to the Viad Corporation 2009 second quarter earnings release conference call.

(Operator Instructions).

I would now like to turn the call over to Ms.

Carrie Long, Director-Investor Relations.

Ma'am, you may begin.

Good morning, and thank you for attending our conference call.

I would like to remind everyone that certain statements made during the call which are not historical facts may constitute forward-looking statements.

Additional information concerning business and other risk factors that could cause 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.

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.

Today you will hear from Paul Dykstra, Chairman, President and CEO of Viad; Ellen Ingersoll, Viad's Chief Financial Officer; and the following executives will be available for comment during the Q&A session at the end of the call: John Jastrem, President and CEO of the Marketing and Events Group; and Michael Hannan, President and CEO of the Travel and Recreation Group.

Kevin Rabbitt, President of GES, was supposed to join us this morning; but as of about two hours ago just welcomed a new baby.

And with that, I would like to turn it over to Ellen Ingersoll to discuss financial results.

Thank you.

Good morning, everyone, and thank you for being with us today.

Our second quarter income per share was $0.26 on revenues of 213.6 million and segment operating income of 9.8 million.

These results were in line with our prior guidance, but down from 2008 second quarter income before other items of $0.59, revenues of 277.2 million and segment operating income of 21.1 million.

The expected declines were primarily due to recessionary pressure across all of our businesses and unfavorable currency translation, which negatively impacted total Company revenues by about 13 million.

We were able to partially offset the revenue declines through ongoing cost reduction measures, which Paul will discuss in more detail in a few minutes.

At GES, second quarter revenues declined 55.2 million, including 7.1 million from unfavorable currency translation.

Excluding the currency impact, GES revenues were down 48.1 million or 25.6% reflecting negative share rotation of about 12 million in revenue and continued recessionary declines in exhibitor spending.

Revenues from GES's base same shows, which we define as shows that occur every year in the same quarter and city, declined by 27% in the second quarter.

GES's segment operating income decreased 9.1 million to 4.8 million, driven by lower revenues, partially offset by overhead cost reductions.

Our Experiential Marketing Services segments saw a revenue decline of 2.8 million, including 4.1 million from unfavorable currency translation.

Excluding the currency impact, Experiential Marketing Services revenue were up 1.3 million or 2%, reflecting positive share rotation revenue of about 12 million from the Paris Air Show, mostly offset by recessionary reductions in client spending.

Second quarter operating income was 2.7 million for the segment, up 753,000 from the 2008 quarter.

The improved operating results he reflect strong throughput on branded entertainment projects, including the new Harry Potter exhibition, as well as reductions in overhead expenses across the segment.

Travel and Recreation Group second quarter revenues were down 5.6 million, including 1.9 million from unfavorable currency translation.

Excluding the currency impact, segment revenues were down 3.7 million or 15.6%, driven mainly by recessionary declines in long haul group business to Western Canada.

As a result of the revenue decline, second quarter segment operating income decreased 2.9 million to 2.3 million.

Our balance sheet remains strong.

At June 30, our cash and cash equivalent totaled 109.9 million as compared to 108.2 million at March 31.

Our total debt at the end of the quarter was 13.9 million, with a debt to capital ratio of 2.8%.

During the quarter, we had free cash outflow of 9.6 million versus an inflow of 68,000 in the 2008 second quarter.

The decrease was primarily due to changes in working capital driven by the timing of trade share activity and lower net income, and this was partially offset by lower capital expenditures.

Capital expenditures were 4.2 million in the 2009 quarter versus 13.5 million in the 2008 quarter.

Second quarter depreciation and amortization expense was 7.2 million in both 2009 and 2008.

Payments on our restructuring reserves were $1 million in the 2009 quarter versus $485,000 in the 2008 quarter.

Now I'll turn the call over to Paul, who will elaborate on the performance of our business, as well as key initiatives.

Thanks, Ellen, and good morning, everyone.

These are difficult times for our industries, and I would like to start by acknowledging the incredible effort from all of Viad's employees in delivering outstanding service to our customers.

Amidst uncertainty and cost cutting, our employees have time and again demonstrated great dedication and professionalism.

For that, I give our people a heartfelt thanks.

This recession has had more severe impact on trade shows than previous recessions.

As a result, organizers have had to work even harder to attract attendees, as marketing and travel budgets have been reduced.

Exhibitors are also under pressure to make smaller marketing budgets stretch farther than ever before, and they're looking for maximum impact from every dollar as they work to attract buyers and attendees.

Major trade shows continue to take place, but they've decreased in overall size as exhibitors pull back on spending by reducing the size of their exhibit and cutting back on the amount of product and materials they're sending to the show floor.

We are addressing these challenges head on.

We've been proactively working to identify effective ways for show organizers and exhibitor clients alike to achieve the highest return on their trade show investment, whether a custom rental solution for an exhibitor, driving pre-show traffic through pre-show marketing efforts, or finding new ways to stretch our clients' budgets, we're committed to helping our clients realize successful events.

Our willingness to work with our clients and go the extra mile during these tough times is evidenced by the more than 110 million in future bookings GES signed during the second quarter, which brings our show revenue backlog for the rest of 2009 and beyond to more than $1 billion.

We're also winning more new business in our Experiential Marketing Services segment.

So far this year, we have secured more new business than we had at the same time last year, reflecting both a better win rate, as well as higher value accounts.

The recession has also impacted the tourism industry, causing lower occupancy rates at hotels and fewer visitors at attractions.

We are seeing the greatest declines in group tours, particularly from long haul markets such as Japan, Australia and New Zealand.

The independent traveler segment is also down, but holding up much better than groups; though independent travelers tend to make more last minute travel decisions.

We are focusing our sales and marketing efforts to drive volume from local and regional independent travelers.

We're also carefully managing controllable costs to maintain strong operating margins from the Travel and Recreation Group.

As I've stated on past calls, we've approached the current downturn as an opportunity to reexamine our businesses and reinvest our operations to become a more efficient and integrated organization.

We have taken actions to reduce Company-wide overhead costs by more than 35 million; and we're a attacking variable cost with lean six sigma initiatives at GES, which we expect will drive incremental savings of more than 10 million in 2010.

Additionally, we recently announced a reorganization of our business to enhance shareholder value by better leveraging the talent and resources across our Companies to create new competitive advantages and drive additional economies of scale.

We expect to realize full run rate savings of more than 10 to 15 million from the reorganization within the next year or so.

Through the reorganization, we will create a strategically aligned organization capable of changing the shape of the competitive landscape in the industries we serve.

Our newly-formed Marketing and Events Group will enable us to apply the strong branding and marketing expertise of Exhibitgroup/Giltspur and Becker Group to GES's topnotch official contracting services to form an organization poised to revolutionalize the trade show industry by producing compelling and engaging experiences that drive more successful events by achieving greater show attendance and increased exhibitor satisfaction.

For Exhibitgroup's clients, this new structure will provide seamless and efficient execution at GES events, including coordinated move-ins and priority access to show site labor teams.

All clients of GES, Exhibitgroup and Becker Group will benefit from an extensive network of creative, tactical and strategic talent with unparalleled global reach.

It is the shared interest between show organizers, exhibitors and attendees that drives the economics of the industry and presents a unique opportunity for Viad to better leverage the talents and expertise of GES and Exhibitgroup/Giltspur by bringing them together into one business unit.

By integrating GES and EG and its affiliated brands, the Marketing and Events Group offers strategic marketing and branding capabilities that are unmatched by competitors and will drive increased market share gains over the long-term.

Our newly-formed Travel and Recreation Group will leverage the combined talents and resources of Brewster and Glacier Park to create synergies and economies of scale between the two companies.

Guests will continue to receive outstanding service, with an even greater focus on creating memorable and rich national park experiences.

To help drive the transformation, I've asked John Jastrem, President and CEO of Exhibitgroup, to lead Viad's Marketing and Events Group; and Michael Hannan, President and CEO of Brewster, to lead the Travel and Recreation Group.

Both individuals have demonstrated exemplary performance within the Viad organization and are uniquely qualified to drive growth in their respective organizations.

John's strong background in marketing services, combined with his experience running a wide variety of companies in various industries, makes him a natural fit to run our Marketing and Events group.

During his tenure at Omnicom, John led two separate efforts to reorganize Omnicom's subsidiaries -- The Marketing Arm and Rapp Collins Worldwide -- into successful integrated agencies by aligning operations, upgrading existing capabilities and developing new product and service offerings.

John also has extensive experience in sales growth, client satisfaction, employee recruitment and development, growth-oriented strategic planning and acquisitions and divestitures; and he's done a great job during his tenure at EG elevating the level and quality of service and driving market share gains.

We are confident that John's marketing experience and leadership will enable Viad's Marketing and Events Group to bring innovation and new relevancy to the exhibition and events industry.

Michael Hannan has a rich history in the travel and leisure, with extensive experience in Canadian and international markets.

Prior to joining Brewster, he served as President of Abercrombie and Kent, a division of Intrawest, which is leader in the development of experiential destination resorts.

In addition, Michael has a strong background in growth strategy, mergers and acquisitions, marketing and finance.

He has been very effective running Brewster and upholding its longstanding reputation for first-rate service and in driving innovation.

Now I'll turn it back over to Ellen to cover guidance.

Thanks, Paul.

As we discussed last quarter, our visibility of our future revenues is more challenging than ever in this environment.

Our current guidance for 2009 reflects our best estimates based on information available at this time.

We now expect full year income per share to be in the range of $0.25 to $0.50, reflecting a downward revision from our prior guidance.

This revision is a result of continued recessionary pressures on exhibition and event marketing budgets, which caused us to reduce our full year revenue outlook for the Marketing and Events Group.

We are holding our prior full year guidance for the Travel and Recreation Group.

We now expect full year revenue to decrease by 25 to 30%, including roughly 35 million from unfavorable currency translation and about 85 million from negative annual show rotation.

Excluding those two factors, the decline in revenue is expected to be roughly 14 to 18%, reflecting reduced demand from marketing and tourism services due to the economic recession, partially offset by market share gains.

Full year segment operating income is expected to decrease by 70 to 80%, driven by the decline in revenues, partially offset by overhead cost reductions of more than 35 million versus 2008.

Free cash flow for the full year is expected to be an outflow of 15 to 20 million.

We expect full year capital expenditures of 24 to 26 million, depreciation and amortization of 28 to 30 million, and restructuring payments of approximately 3.6 million.

This guidance includes year-to-date restructuring charges of $0.09 per share.

As we begin implementing changes to our organizational structure and processes, additional charges will arise.

Future restructuring charges are not reflected in our current 2009 guidance.

For the third quarter, we expect a loss per share in the range of $0.12 to $0.27 as compared to 2008 third quarter income before other items of $0.70 per share.

Revenue is expected to be in the range of 160 to 180 million as compared to 302.4 million in the 2008 quarter.

We expect segment operating loss in the range of 500,000 to 5.5 million as compared to segment operating income of 26.1 million in the 2008 quarter.

The year-over-year declines are expected to be driven primarily by revenue declines of about 73 million due to negative show rotation, approximately 7 million due to unfavorable currency translation, and expected recessionary declines in trade show marketing spend in tourism.

Additional details regarding our full year and third quarter outlook, including guidance for our reportable segments, can be found in the earnings press release.

And with that, we'll take your questions.

Tonya, can you open it up to questions, please?

Thank you.

(Operator Instructions).

Our first question, John Healy with North Coast Research.

Your line is open.

Hi.

Good morning.

Good morning, John.

A question for you, Paul, just on GES.

With the guidance of same show revenue being down 25%, the first half of the year I thought you guys were down 20 in the first quarter and a little bit higher this quarter.

Against the easier comps, if we take that and look at that trend going into 2010, is it safe to assume that we might still see negative same show growth even if the economic environment stabilized today in the first half of next year for GES?

Is that a realistic assumption to make at this point?

Yes, John.

I think it's possible, because the first quarter shows this year haven't probably realized the full economic impact yet, and we do lag the economy a little bit.

Right now as Ellen mentioned, visibility is really, really tough.

But that is a possibility.

Okay.

No, that's helpful.

And when you look at that same show metric, could you give us a little bit more color on kind of what the real driving factors are?

If it's just a reduction in the number of exhibitors that show, is it more square footage declines or drayage rates coming down, or price competition even on rates.

Just trying to understand the key drivers to the declines right now, and maybe if they're changing at all.

No.

I think we're seeing the same types of drivers that we've seen earlier in the year.

It comes in the square footage declines, and then also freight weight density declines.

And so we're seeing the product and materials and the exhibitry that the exhibitors send in decline a little bit more than we're seeing from the actual square footage, and that shows up in kind of freight density calculation that we look at.

Those are really the two main drivers, I think, as we look at what is causing the decline in same show revenues.

Exhibitors are watching their spend very tightly.

I think the discretionary types of things they buy because their booths are smaller are also down this year as well.

Okay, great.

And then from a modeling standpoint, the corporate activities line declined pretty significantly on a year-over-year basis, as kind of well as sequentially.

Was there some timing factor there, or is that kind of where the cost reduction efforts are showing up?

And how should we think about that line item moving in the back half of this year?

Sure, John.

Partly due to lower comp expense year-over-year, and we also had some corporate development expenses in 2008.

We do expect the back half of the year to be more in the million and a half range per quarter.

Okay.

Thank you very much.

Thanks, John.

(Operator Instructions).

There are no further questions.

Okay.

Thank you, Tonya.

In closing, thank you very much for being with us this morning.

Our base business remains sound despite the economic headwinds we currently face.

We believe the current trends are basically cyclical in nature and not structural as they relate to our industries or to Viad.

And while we anticipate the exhibition and event industry will continue to see declines in 2009, the industry has a long history of steady growth.

It has always emerged from recessions and resumed its upward trajectory.

We do not expect the recovery from this recession to be any different.

Exhibitions and events are still a vital and cost-effective means of transacting business, launching new products and connecting with customers.

We're confident that we'll manage through this challenging time and that we will emerge in an even stronger competitive position.

We're taking the right actions.

Our strategic reorganization will enable us to produce stronger financial results as we streamline our businesses and create a stronger platform to drive market share gains by providing integrated and innovative services to our customers.

We are fortunate to be making these changes from a position of strength.

We have industry leading brands and capabilities, talented and dedicated employees and a strong balance sheet.

These assets, along with our ability to invest in our businesses, are key advantages to us relative to many of our competitors.

Again, I thank you for being with us today, and we look forward to updating you on our progress in October.

Thank you.

That conclude's today's conference call.

All lines may disconnect.

Once again, that concludes today's conference call.

All lines may disconnect.