Viad Corp (VVI) 2009 Q3 法說會逐字稿

Hello, and welcome to the Viad Corp.

2009 third quarter earnings releases conference call.

At this time all participants are in listen-only mode.

After the presentation we will conduct a question-and answer-session.

(Operator Instructions).

Today's conference is being recorded, and if you have any objections, you may disconnect at this time.

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

Carrie Long, Director, Investor Relations.

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 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.

During today's call we will be referring to tables one and two of our earnings press release, which can be found at our website at www.viad.com.

Today you will hear from Paul Dykstra, Viad's Chairman, President and CEO; Ellen Ingersoll, Viad's Chief Financial Officer; and we will also have John Jastrem, President of our Marketing and Events group; and Michael Hannan, President of our Travel and Recreation Group, available for questions during the Q&A session at the end of the call.

With that, I'll turn it over to Ellen.

Good morning everyone.

Thank you for being with us today.

Our third quarter loss before other items was $0.20 per share on revenues of $181.1 million and a segment operating loss of $2.7 million.

These results were in line with our prior guidance, but down from 2008 third quarter income before other items of $0.70 per share, revenues of $302.4 million and segment operating income of $26.1 million.

The expected declines were primarily due to recessionary pressures across all of our businesses as well as share rotation, which negatively impacted total company revenue by about $70 million.

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

At GES, third quarter revenues declined $96.7 million, including $58 million from negative show rotation.

Revenues from GES-based theme shows, which we define as shows that occur every year in the same quarter and city, declined by 25% in the third quarter as compared to 27% in the second quarter.

GES's segment operating results decreased $22.3 million to a loss of $14.4 million, driven by lower revenues, partially offset by overhead cost reduction.

Our Experiential Marketing Services segment saw revenue decline of $20.5 million, reflecting negative show rotation revenue of about $12 million from the bi-annual Farnboro Air Show, as well as reductions in client spending.

Third quarter segment operating results declined by $4.3 million to a loss of $7.9 million.

Travel and Recreation group third quarter revenues were down $4 million including $1.4 million from unfavorable currency translations.

Excluding the exchange rate impact, segment revenues were down $2.7 million or 5%, driven mainly by recessionary declines in the Long Haul group business to western Canada.

As a result of the revenue decline, third quarter segment operating income decreased $2.2 million to $19.5 million with operating margins of 42%.

We also had some unusual items during the quarter that we are excluding from our definition of income before other items.

More specifically, we had income of $0.17 per share from the favorable resolution of tax matters, non-cash impairment charges of $4.71 per share and restructuring charges of $0.12 per share related to reorganization activities.

Including these items, our third quarter net loss was $4.86 per share.

The impairment charges primarily relate to write downs of goodwill and other intangible assets in our Marketing and Events group, including $95.7 million pretax at GES and $15.7 million pretax at Becker Group.

During the third quarter, we revised our outlook for future revenues in the Marketing and Events group downward based on continued weak demand for trade show marketing services and retail holiday decor.

These industries have not yet shown signs of economic recovery, and we are now projecting a more prolonged contraction than previously anticipated.

As a result, we have performed a preliminary impairment evaluation of goodwill and other intangible assets.

Based on this preliminary evaluation, we determined that an impairment charge was necessary.

The preliminary impairment test used a discounted cash flow methodology to estimate fair value of our reporting units and intangible assets, which requires various estimates and assumptions regarding expected future cash flows, terminal values and the discount rate.

The assumptions used in our recent evaluation are based on historical experience, financial forecasts and industry trends and conditions, and reflect continued recessionary pressures on trade show marketing and retail holiday decor spending.

Different assumptions could lead to materially different results.

Our balance sheet remains strong.

At September 30, 2009, Viad's cash and cash equivalents totaled $128.5 million, up from $109.9 million at June 30, 2009.

Our total debt at the end of the quarter was $13.6 million with a debt-to-capital ratio of 3.3%.

Free cash flow for the quarter was $17.5 million versus $51.7 million in the 2008 quarter, reflecting lower income and unfavorable working capital.

Capital expenditures were $3.9 million for the 2009 quarter versus $6.5 million for the 2008 quarter.

Third quarter depreciation and amortization expense was $7.8 million versus $7.5 million in the 2008 quarter, and payments on our restructuring reserves were $3.4 million in the 2009 quarter versus $683,000 in the 2008 quarter.

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

Thanks Ellen, and good morning everyone.

These are difficult times for our industries and I'd like to start by recognizing the incredible effort from all of Viad's employees in delivering outstanding service to our customers during the quarter and delivering in line results.

For their peak season, Brewster and Glacier Park both successfully executed a strategy that focused on drawing visitors from their local and regional markets in order to help offset lower group business, holding the year-on-year revenue decline at 5% while achieving margins of 42% and strong cash flows.

Our Marketing and Events group produced successful shows for our show organizers and exhibitors, while driving operational improvements, overhead reductions and strategic transformation initiatives.

As compared to the 2008 quarter, GES reduced overhead costs by approximately $10 million and realized variable cost savings of approximately $1.5 million through its Lean Transformation Initiatives.

The variable cost savings equates to 140 basis point reduction in direct cost as a percent of revenue.

GES's Lean Initiative focus on key elements of our operation, such as manufacturing, warehouse activities and show site operation in order to increase efficiencies and deliver greater value.

In addition to decreasing our operating cost, these initiatives will also enhance the already strong customer experience, including expedited response times and more efficient exhibitor move-in and move-out at show site.

The Experiential Marketing Services segment achieved an overhead reduction of approximately $1.5 million versus the 2008 third quarter and increased its branded entertainment revenues by nearly 150% year-on-year.

While branded entertainment is a developing line of business for us, it is a bright spot in the marketing and events landscape.

Big consumer brands continue to recognize the value of face-to-face marketing in keeping their brands top of mind in a tough economic climate.

And we are establishing a reputation as a strong partner in delivering compelling branded entertainment experiences, with recent projects to promote Disney Pixar and Warner Brothers films including Up, Toy Story and Harry Potter.

Recently, Exhibit Group was awarded a 2009 American Business award for interactive multi-media and was named a finalist in six other categories.

Given the competitive intensity of the awards, it is a testimony to our continuing commitment to create innovative and impactful marketing solutions.

John Jastrem and his team have met with several show organizers to explore the innovative solutions the Marketing and Events group can bring to show brands, and organizers are reacting quite positively.

We are focused on leveraging our outstanding creative and brand marketing capabilities to offer consultative and value-added services that set Exhibit Group and GES apart from the competition, and result in higher client retention and improved margins.

This value proposition is resonating with experiential marketing and show organizer clients alike.

Exhibit Group's year-to-date new business wins are on pace with 2008.

Recently, Exhibit Group was awarded Procter & Gamble's pet care business, which include the Iams and Eukanuba brands.

Procter & Gamble chose Exhibit Group for its ability to provide a holistic integrated marketing approach for P&G's pet care trade show program.

GES signed $160 million in future business during the quarter, and its total revenue backlog for 2009 and beyond stands at more than $1 billion.

Signings during the quarter included the International Council of Shopping Centers, [E3] Photo Marketing and the American College of Cardiology.

Additionally, Melville Middle East, GES's greenfield startup, recently won Adipec 2010, which is one of the most prestigious shows in the Middle East.

This contract award not only provides a very strong anchor show for 2010, it established Melville Middle East as an aggressive and successful competitor in the UAE exhibition market.

We're also proud of the recognition GES has achieved for excellence.

Melville Exhibitions was cited as the 2009 official UK contractor of the year by the Association for Exhibition Organizers.

In addition, GES's national call center has been recognized by J.D.

Power and Associates for its outstanding customer service.

Though the general economy is beginning to show signs of improvement, the trade show industry lags macro-economic trends.

As evidenced by our strong results in 2008, we were slow to follow into the recession and we expect to lag the broader economic rebound.

As we have stated previously, visibility is more challenging than ever.

Although same show revenue declines appear to be stabilizing, exhibitor spending remains significantly lower than last year.

In addition, GES has seen fewer and smaller opportunities for short-term bookings in the fourth quarter, and is experiencing much weaker-than-expected demand for discretionary services.

In our latest forecast, we estimated year-on-year declines for holiday decor of about 30%.

However, as a result of the extreme circumstances our retail mall clients are facing, their 2009 holiday decor budgets have been reduced to a fraction of their normal spend.

We are now estimating holiday decor sales to decline by about 80% this holiday season from the $19.8 million spent last year.

While the Marketing and Events group has a strong pipeline of business opportunities for 2010 and beyond, there are fewer opportunities for discrete projects in the 2009 fourth quarter than in past years.

Clients are delaying decisions on experiential marketing projects, and we have not been able to sell as much business for the fourth quarter as we previously anticipated.

We continue to address these challenges head-on by managing costs downward to mitigate revenue declines.

GES's Lean Transformation Initiatives are beginning to yield efficiency savings, and our previously-announced strategic reorganization continues to progress well.

The Marketing and Events group has several integration efforts underway for consolidating operation and leveraging economies of scale, including the combination of graphic services, fabrication and installation and dismantling services.

We are also evaluating opportunities to rationalize the facility footprint and create efficiencies across our Marketing and Events group.

During the quarter, we consolidated and downsized our operations in Dallas, Minneapolis, Boston, Orlando, New Orleans and Toronto.

And we are in the process of reducing our Las Vegas warehouse and production facility footprint by approximately 33% through the application of lean warehousing and inventory management practices.

The reduced Las Vegas footprint will support warehousing and other needs of the Marketing and Events group, thereby facilitating the realization of synergies from the integration of the businesses.

In addition to the integration of Marketing and Events group, we are also progressing with the integration of our corporate support functions.

During the third quarter, we completed the consolidation of our human resources and legal departments, and efforts are well underway to define the framework and develop a detailed road map to consolidate IT, accounting and finance, including a shared service center that will provide transaction processing and back office support to all business units.

Reorganization activities will continue into 2010, and once fully implemented, we expect to realize aggregate savings of more than $15 million per year.

While the short-term continues to be challenging, we believe that marking events and face-to-face will continue to be low cost ways to generate and close new business, launch new products, review competitive offerings and create great attendee experiences.

We will continue to aggressively try to capture new market share and look at every aspect of our cost structure for improvement opportunities.

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

Thanks Paul.

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

As Paul discussed, we are taking a more cautious revenue outlook for the fourth quarter, and we now expect a full-year loss before other items of $0.26 to $0.16 share.

This downward revision from prior guidance is a result of continued pressures on exhibition, event and holiday decor marketing budgets.

We now expect full-year revenue to decrease by 28% to 30% including approximately $30 million from unfavorable currency translation and about $85 million from negative annual show rotation.

Excluding those two factors, the decline in revenues is expected to be roughly 20% reflecting reduced demand for marketing and tourism services due to the economic recession.

Full-year segment operating income is expected to be in the range of break-even to $3 million, driven by the decline in revenues but partially offset by overhead cost reductions of more than $40 million versus 2008.

Free cash flow for the full year is expected to be an outflow of approximately $40 million.

We expect full-year capital expenditures of $22 million to $24 million, depreciation and amortization of $28 million to $30 million and restructuring payments of approximately $9 million.

For the fourth quarter, we expect a loss per share in the range of $0.50 to $0.40 as compared to 2008 fourth quarter income before other items of $0.18 per share.

Revenue is expected to be in the range of $150 million to $165 million as compared to $205.8 million in the 2008 quarter.

We expect a segment operating loss in the range of $13.8 million to $10.8 million as compared to segment operating income of $6.3 million in the 2008 quarter.

The year-over-year declines reflect recessionary declines in trade show marketing and holiday decor spend.

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

And with that we will take your questions.

Thank you.

At this time we are ready to begin the question-and-answer session.

(Operator Instructions).

Our first question comes from John Healy with Northcoast Research.

Good morning.

Morning John.

Paul, as you look into 2010 and as the economy starts to recover, your comments were that your business will show a little bit of lag.

When you look to next year, do you believe that same-show revenue for the Company can improve when you look at a year-over-year basis?

And I guess any commentary you could provide for shows in the first quarter of next year, I know you have a few big ones, maybe how those shows are looking in terms of size and exhibitor participation levels compared to this year's show.

Sure.

John, I can't really comment on individual shows, but I'll comment on the first quarter overall.

I think last quarter we talked a little bit about that in the first quarter of 2009, we still hadn't felt kind of the full impact of the economy, I don't remember the exact number, but same-show decline was 10% or 15%, where it's running more around 25% now.

So we do expect that on a year-over-year basis, the first quarter will compare downward a little bit.

For the full year, it's really hard to say.

Visibility is as cloudy as it could be right now.

But we do think that given that the economy is starting to show some signs of recovery -- I think most people think that there will be some GDP growth this quarter and hopefully that continues -- that by the back half of the year next year, we have the opportunity to start showing some growth.

But it's really too early to say right now.

A lot of it depends I think on kind of how things shake out for the next four quarters.

Does that make sense?

That does make sense, and thank you.

And then Ellen, you highlighted a couple items, the show rotation, and the FX kind of having a magnifying impact on the declines in revenue this year.

Could you talk a little bit about how you guys see FX going into next year, and just remind us how we should think about show rotation, whether headwind or tailwind, for next year.

Sure.

FX, we're really looking at it stabilizing over the next year, so we will be updating that as the 2009 progresses before we do our 2010 plan.

But right now it looks like it's stabilizing.

As far as show rotation, it looks like we're up about $25 million in 2010, a positive.

Great.

And Ellen, does that stabilization mean that it just is going to be flat -- if you looked at where things were today to next year, just kind of flat?

No longer a headwind, or is it stabilization, meaning that the headwind is -- there's still a headwind but it's not any worse than it has been?

We're actually looking at it as -- when I say stabilizing, at the amount that it is right now.

So -- and like I said, that's something we update right before we finalize our plan.

But as of right now where the Canadian dollar is, the pound and the euro, we're looking at kind of the same -- the same rate going forward.

Okay.

And then there's some commentary in the release just about the Olympic Games in Vancouver.

How should we think about, the potential, is there a potential benefit associated with that event?

And is there anything different that we should look for you guys to do at that business unit in 2010 and maybe how it could contribute to profitability?

John, this is Paul.

I'll make a comment and I'll ask Michael Hannan to comment as well.

We have been able to secure some business, transportation and charter business utilizing our buses for the 2010 Olympics.

We certainly hope that some of the [visitorship] to western Canada will also visit our hotels and attractions up in Banff.

And probably as importantly, we think it's important for that area as far as long-term tourism trends and the exposure that western Canada will get will be very positive and could bode well for 2011 and beyond.

Michael, would you add anything to that?

No, Paul, I think you've nailed it and I think what we're doing right now is just some of the tactical things we need to do to capitalize on the PR effect that we will get from the Olympic Games.

So we're working with tour operators in our major markets in Asia and Europe and the UK.

So I think that -- but we do have some contracts on the motor coach charter as Paul said, which should provide a good boost on the transportation side of our business.

Thank you, guys.

John, we also benefit next year from the Centennial at Glacier Park.

There's been some good PR with the Ken Burns piece on the National Park System, and bookings are ahead of pace already for next year.

So we see some good positives there.

Great, thank you guys.

Thanks John.

Thank you.

(Operator Instructions).

Our next question comes from Adrian [Desantalero] with [Exain].

Hello.

Good morning everyone, this is Adrian from [Exain].

I have a couple of questions regarding your third quarter results.

First, okay, you seem to be quite cautious on the Q4.

But I remark that you have kind of upgraded the guidance from [minus 25%] in the same-store revenue growth to [minus 22%].

So what has actually changed in the business that makes you feel a bit more optimistic?

That would be my first question.

And then I think you mentioned also the UAE markets.

Can you comment on what potential of growth you see there and what's your guidance for the growth next year for this market?

And then thirdly, I think you mentioned that the trade show industry overall was kind of lagging compared to the GDP growth.

Can you tell us by how many months approximately?

Thank you very much.

Good morning Adrian.

I'll try to remember your question here.

First of all, kind of on the fourth quarter numbers both same-show and then overall revenue.

I think our comments said that we saw same-show declines stabilizing now.

So second quarter was 27%, third quarter was 25%, I think it's maybe a little bit better than that in the fourth quarter, although it's a very small quarter for us and -- but we do see that stabilizing.

Revenue is being impacted mostly because of the downward trend in short-term bookings.

We're just not seeing the opportunities, and the opportunities that we do see are much smaller than what we have ever seen before historically in the fourth quarter.

And that's driven a lot of pressure on the revenue side, both for in the year, for the year, short-term bookings as well as discretionary spend from exhibitors.

That's really that story.

Melville Middle East, we did a startup this year in Abu Dhabi in conjunction with the Abu Dhabi National Exhibition Center, and we have started to develop a nice business there as that market grows and they build the infrastructure.

Both the hotels and the convention center now are rapidly being completed.

And the Middle East is also being impacted by the economy, but long term we do see that as being a good market for us.

Atapeck is a great show win for that group for 2010.

It's still a very small piece of our business overall, but it is something that we look forward to growing with the market as they aggressively market to a lot of shows that we already service either in the UK or in the United States.

Okay, great.

And then I had a last question concerning the lagging in growth for the trade show industry.

By how many months is the trade show industry lagging versus the GDP?

I'm sorry, I forgot to answer that.

No worries.

Typically what we see is a six- to 12-month lag.

We're hoping that maybe because of the swiftness and the depth that exhibitors cut their spending, that we will see that come back a little bit faster than what we have seen in the past coming out of recessions.

But right now that's really to be determined.

My best guess is that we're probably talking about a three or four quarter lag, which would be typical coming out of other trade show downturns.

Okay, great.

Thanks a lot.

Thank you Adrian.

At this time there are no further questions.

Thanks Lori.

Just to wrap things up here, clearly the fourth quarter is going to be difficult for us, and while it remains unclear what impact the economy is going to have on our business in 2010, we are preparing for another challenging year with continued pressures on trade show and retail marketing spending.

Despite the uncertainty though, we expect to see some bright spots next year.

We talked about the 2010 Olympic Games in Vancouver and Glacier Park's 2010 bookings being ahead of schedule.

And we think we will have a strong year there in conjunction with their Centennial.

We will also continue to focus on delivering the best results possible this year and on positioning the Company for improved profitability in 2010.

We are moving quickly to carry out our strategic reorganization, and we're attacking the highest value opportunities to drive meaningful savings in 2010 and to create new and sustainable competitive advantages.

As a result of our head count reductions, facility consolidations, tight control over discretionary spending and other actions we realized year-to-date overhead cost savings of nearly $30 million at GES and more than $6 million in the Experiential Marketing Services segment as compared to 2008.

For the full year, we expect enterprise-wide overhead savings of over $40 million versus 2008.

Although it was a difficult third quarter, I'm encouraged by our operating Company's strong execution and efforts to drive cost structure improvements.

All the changes we're making are in areas that we control, and these will significantly improve our business.

We're operating in a difficult economy, but I'm firm in my belief that this is absolutely the right strategy, and it positions us for even greater growth when the economy recovers.

As we dig deep to realign our businesses to drive fundamental change, our employees have time and again demonstrated incredible dedication and professionalism, working long hours and going the extra mile for our customers.

For that I give our people a very heart felt thanks.

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

Thank you and have a great weekend.

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