Viad Corp (VVI) 2010 Q2 法說會逐字稿

Welcome and thank you for standing by.

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

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

(Operator Instructions).

Today's conference is being recorded.

If you have any objections, you may disconnect at this time.

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

Carrie Long, Director Investor Relations of Viad Corporation.

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 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'll refer to tables one and two in our Earnings Press Release which can be found on our website at www.Viad.com.

On the call today you'll hear from Paul Dykstra, Viad Chairman, President and CEO and Ellen Ingersoll, our Chief Financial Officer.

Additionally, Michael Hannan, President of our Travel and Recreation Group will be available for comment during the question-and-answer session at the end of the call.

And now I'll turn it over to Ellen to discuss our financial results.

Good morning, everyone.

Thank you for being with us today.

As I cover our Second Quarter results, you may want to refer to tables one and two of our Earnings Press Release.

Our Second Quarter income before other items was $0.17 per share down from $0.27 per share in the 2009 Second Quarter but better than our prior guidance.

By definition, our Second Quarter income before other items excluded restructuring charges of $0.02 per share and $0.01 per share in the 2010 and 2009 quarters respectively.

Including the restructuring charges, our 2010 Second Quarter net income was $3 million or $0.15 per share.

Revenues for the quarter were $218.3 million up $4.7 million or 2.2% from the 2009 quarter.

Segment operating income was $7.7 million down $2.1 million from the 2009 quarter.

Restructuring charges were $559,000 pretax and were related to continued reorganization activities.

Our Marketing and Events Group Second Quarter performance exceeded our prior guidance with revenues of $195.9 million and operating income of $4.2 million.

As compared to the 2009 Second Quarter, the group revenues were essentially flat reflecting an increase of $3.4 million or 6.5% from the International segment which was mostly offset by a decrease of $2.8 million or 1.9% from the US segment.

Growth in the International segment was primarily the result of improving industry trends, including same show growth as well as market share gains which more than offset the impact of negative share rotation revenue of approximately $6 million.

The slight decrease in revenues from our US segment which was primarily due to reduction in spending by certain brand marketing clients, reduction in a major show tied to the retail sector and pricing pressures.

This is mostly offset by positive show rotation revenue of approximately $9 million.

Revenues from the US based same shows were essentially flat for the Second Quarter after declines of 22.5% in 2009 and 10% in the 2010 First Quarter.

Operating income for the Marketing Events Group declined by $3.3 million from the 2009 Second Quarter reflecting margin pressures and accruals for 2010 for performance based incentive versus incentive reversals in the 2009 quarter.

These factors were partially offset by overhead reductions and productivity improvements driven by the Company's Lean initiatives.

Our Travel and Recreation Group beat our prior guidance for the Second Quarter with revenues of $22.4 million and an operating profit of $3.5 million.

Excluding foreign currency translations, revenues grew $2.6 million or 14.4% and operating income improved $956,000 versus the 2009 Second Quarter primarily due to stronger than expected demand for our Tourism Services as well as our initiatives to capture incremental spend per guest.

Now I'll cover some balance sheet and cash flow items before turning the call over to Paul.

Our balance sheet remains strong.

At June 30, 2010, Viad's cashed and cash equivalence totaled $134 million this is up from $131 million last quarter and our total debt at the end of the quarter was $10.4 million with a debt to capital ratio of 2.7%.

Free cash flow is an inflow of $6.3 million for the quarter versus an outflow of $9.6 million in the 2009 second quarter reflecting changes in working capital.

Our capital expenditures were $3.4 million for the Second Quarter versus $4.2 million in the 2009 quarter.

Second Quarter depreciation and amortization expense was $7.2 million which was consistent with the 2009 quarter.

And payments on our restructuring reserves were $2 million in the 2010 quarter versus $1.1 million in the 2009 quarter.

And now I'll turn the call over to Paul.

Thanks, Ellen.

And good morning, everyone.

Thanks very much for being with us today.

As Ellen mentioned earlier, our Second Quarter results exceeded our prior guidance and reflects stronger than expected revenues from both our Marketing and Events Group and Travel and Recreation Group.

These results were driven by improving industry trends and our continued focus on key initiatives.

And before I go any further, I would like to thank our employees for their terrific efforts and contributions.

The US segment of the Marketing and Events Group is seeing market stabilization in base same show revenues which were essentially flat during the Second Quarter after seven straight quarters of recessionary declines.

While US industry declines seem to have waned, overall exhibitor spending continues to be significantly below the levels experienced in a normal economic environment.

As a result, the pricing environment remains challenging as exhibition industry suppliers compete for a greater share of a smaller pie.

We have been taking aggressive actions to mitigate the impact of pricing pressures and are targeting full year variable cost savings of nearly $10 million from Lean initiatives to eliminate non-value added work.

We launched our Lean program in 2009 and it has been embraced as a core part of Viad's Corporate culture.

Our on going Lean initiatives are delivering sustainable productivity improvements and customer service enhancements that have resulted in year-to-date savings of nearly $6 million putting us well on our way towards our full year savings goal.

We are also continuing to drive down overhead costs and expect to realize a $10 million reduction in US overhead this year versus 2009.

This savings is in addition to the more than $40 million reduction in overhead that took place from 2008 to 2009.

We have accomplished these reductions through actions that include consolidating facilities and combining functions such as fabrication, graphics, creative and design.

Our efforts to create value through additional synergies and Lean initiatives are ongoing.

As an example, we recently reviewed the operating processes of our newly consolidated graphics function and are now implementing improvements in the work flow and systems to drive greater efficiencies and qualities that will benefit internal and external clients throughout the network.

Additionally, we are sharpening our customer focus by using the combined strength of the GES network to present a compelling value proposition.

During the quarter, we signed about $100 million in new business, including a three-year contract for all of Penton Media US shows beginning from 2011.

We currently produce about one-half of Penton's portfolio and this represents a key win from our primary US competitor.

Our network of cutting edge creative, design, and branding professionals is unmatched in the industry.

Unique and innovative experiences we create result in compelling and engaging events that drive greater show attendance and increased exhibitor satisfaction.

We continue to leverage our outstanding creative and brand marketing capabilities to our consultative and value added services that set us apart from the competition.

Our creative capabilities have recently earned us some of the most prestigious awards in the industry.

The 2010 American Business Awards recognized GES with top honors in the video and film sales category for the show stopping video we created for Proctor & Gamble Pet Care titled the Art and Science of Balance.

This was used to provoke P&G Pet Care newest line of pet foods at their largest industry event.

In addition, we were recognized by Adage as one of the world's top 50 agency companies and Event Magazine a leading publication for the events industry recently listed GES as one of the top event agencies.

The value and strength of our creative capabilities continues to be recognized in new areas.

We recently completed the design and installation of the Boeing Rocket Lab at the Discovery Science Center in Santa Ana, California.

The permanent exhibit allows guest to experience a blast off simulation inside a mock Boeing Delta Rocket RS-68 booster engine surrounded by video screens, blast of fog, and state of the art sound and video effects.

The project is the first permanent exhibit ever installed in the Discovery Science Center's solar cube, which attests to the strength of our branded entertainment relationships and is illustrative of our ability to penetrate new markets and better serve our core trade show business.

The International segment of our Marketing and Events Group is also seeing successes.

As Ellen mentioned earlier, International revenues grew by 6.5% during the Second Quarter driven by same-show revenue growth as well as market share gains.

Effective April 2010, we began producing substantially all of eMaps business which was previously split between our Melville operation and the number two player in the UK.

eMap is the largest show organizer in the UK and this contract fortifies our position as the leading full-service exhibition and event contractor in the UK.

Also, as I discussed last quarter, we're driving strong growth in the Middle East with wins including the UAE show portfolios for DMG, United Business Media and MECOM Forums as well as Reid Exhibitions Arabian Travel Markets 2010.

The majority of these shows will come online for us in the 2010 Fourth Quarter.

The Marketing and Events Group total exhibition revenue backlog currently stands at more than $1 billion under contract for 2010 and beyond.

Switching gears to our Travel and Recreation Group, we've got a really great story.

As Ellen mentioned, Second Quarter revenues increased 14% on a currency neutral basis.

Passenger volumes were up across all of Brewster's attractions reflecting a rebound in group tour business to the Banff and Jasper markets.

Our glacier park operations opened on schedule during late May and experienced stronger year on year occupancy.

Advanced bookings are also tracking well ahead of last year, partly driven by the Centennial Anniversary of Glacier National Park.

The Travel and Recreational team is focused on maximizing revenue per available room at our lodging properties, capturing higher revenues per passenger at our Gondola and other attractions and pursuing other initiatives to optimize returns from our existing assets.

None of the successes we're experiencing would happen without the extraordinary talent of all of Viad's employees.

And I would like to, again, thank them for their incredible efforts and contributions.

Our employee's willingness to work together as one team embracing new and innovative approaches to managing our business while continuing to deliver great value and service to our customers is key to our success.

We are taking the right actions to fundamentally improve the Company from our cost structure to our competitive positioning in the marketplace.

And we are fortunate to have a strong balance sheet with over $134 million in cash and very little debt.

Not many of our competitors have this level of financial stability and this is a competitive advantage that is more valuable than ever in this difficult economy.

With that, I'll turn the call over to Ellen to provide some more guidance for the 2010 Third Quarter and full year.

Thanks, Paul.

Our current guidance reflects our best estimate based on information available at this time.

For the Third Quarter, we expect income before other items to be in the range of $0.05 per share to $0.20 per share as compared to the 2009 Third Quarter loss before other items of $0.20 per share.

Revenues expected to be in the range of $200 million to $220 million as compared to $181.1 million in the 2009 quarter.

We expect segment operating income to be in the range of $5.5 million to $10.5 million as compared to a loss of $2.7 million in the 2009 quarter.

The year-over-year Third Quarter increases are expected to be driven by positive share rotation of about $35 million, partially offset by reduced spending by existing brand marketer clients and modest same-show declines as well as higher expense related to performance based incentives.

For the full year, we expect revenue growth from both the Marketing and Events Group and the Travel and Recreation Group.

Marketing and Events Group revenues are expected to increase slightly from 2009 with positive show rotation of $20 million to $25 million and new business wins offsetting same-show decline.

Our Travel and Recreation Group revenues are expected to increase as a result of strong tourism demand in the more stable economic environment.

Overhead costs are expected to decrease by approximately $10 million versus 2009 and we are targeting another $10 million in variable cost savings from our Lean initiatives to offset pricing pressures in the Marketing and Events Group.

Our full year cash flow from operations is expected to approximate $13 million to $18 million.

We expect full year capital expenditures of approximately $22 million, depreciation and amortization of approximately $30 million and restructuring payments in the range of $6 million to $7 million.

Additional details regarding our 2010 outlook can be found in the earnings press release.

And with that, let's open the call up for questions.

Thank you (Operator Instructions) One moment for the first question.

Our first question comes from Mr.

John Healy of Northcoast Research.

Good morning.

Good morning, John.

Paul, I was hoping you could give us some thoughts regarding the competitive environment out there.

You talked about some pricing pressures in the business.

Is that more on the general contractor side of the business or is that more on the exhibit building side of the business and maybe if you could kind of describe if that's gotten worse or if that's remained fairly steady over the last few quarters?

Good morning, John.

It's kind of over both of those segments.

And I would say it's been pretty steady over the last couple quarters.

Typically we see as the economy improves and things start to shore up that tends to ease.

Okay.

That's helpful.

And then you kind of think about revenue growth moving into 2011.

How should we think about the incremental margins on your business when it starts to grow, the magnitude of those just as a result of all of the changes you've done in terms of operating strategy and bringing some of the businesses together?

Yes.

I mean, we're continuing to find ways to reduce our fixed cost structure.

We think it's somewhere 20, 25% incremental revenue on each dollar, incremental operating income on each dollar coming in and certainly looking for ways to continue to improve that.

Our Lean initiatives are working extremely well and we've had over half of our employees now have been trained in Lean and it's becoming very much a part of our culture and continuous improvement environment.

We're also getting good traction in selling across the legacy salesforces now and capturing the synergies and strengths of the entire organization.

So I think we feel pretty good about that.

Okay.

Great.

And then I wanted to ask the same-show revenue, trying to understand maybe how you're thinking about that kind of as we exit the year.

Is that a metric that you think can turn positive in the Fourth Quarter as you see it right now holding the economy stable from where we see today, or is it something that you think remains negative as we move into the Fourth Quarter?

I think we're cautiously optimistic that we'll see that turn positive.

Certainly the Second Quarter, I think, delivered some positive signs and same-show growth was basically flat and it was encouraging because we're seeing kind of broad-based strengthening across a lot of different segments.

I think Third and Fourth Quarter we have a little bit more heavy retail base of shows which may dampen that a little bit, especially in the Third Quarter.

But I think as we move into 2011, we feel like we're going to start to see some positive trends again.

Okay.

Great.

And then just last question , on some of those contract wins you talked about the Penton deal and the eMap deal Internationally, the first time in awhile I think you guys have called out specific contracts.

Are you seeing the business or shows kind of being bid on more of a group basis or a collective basis more so than individual shows now, or is this just a couple of big deals that you landed and you want the

Yes, I think it's the latter.

Penton is a portfolio of shows and those tend to get bid all at once.

Sometimes organizers with portfolios will split those portfolios across more than one service contractor.

In this case, both those deals were the consolidating of all of the business under one contractor.

Okay.

Great.

Thank you.

Thanks, John.

(Operator Instructions).

And now I would like to turn the call over to Mr.

Paul Dykstra.

Thanks.

Just to wrap up real quick.

With improving industry trends and the actions we've taken, we feel good that our business is positioned for improved results in 2010 and beyond.

We remain focused on the delivering the best results possible by capitalizing on the market opportunities that exist, continuing to drive down costs and delivering high quality customer service.

Viad is fortunate to have industry leading brands and capabilities, talented and dedicated employees and a very strong balance sheet.

These assets along with continued investment in our business gives us advantages relative to many of our competitors.

In closing, I would like to, once against, thank Viad's employees as we continue to transform our Company and I would also like to thank our customers for their continued loyalty and support and I thank you for being with us today and we look forward to updating you on our progress in October.

Have a terrific weekend.

Thank you.

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