Viad Corp (VVI) 2010 Q3 法說會逐字稿

Welcome to the Viad Corporation 2010 third-quarter earnings conference call, 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 will turn over the meeting to Ms.

Carrie Long, Director of Investor Relations.

Ms.

Long, you may begin.

Good morning and thank you for attending our conference call.

I'd like to remind you 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 today's call you'll hear from Paul Dykstra, Viad's Chairman, President and CEO, and Ellen Ingersoll, Viad's Chief Financial Officer.

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

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

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

As I cover third-quarter results you may want to refer to tables one and two of our earnings press release.

Our third-quarter income before other items was $0.23 per share, up from a loss before other items of $0.20 per share in the 2009 third quarter and better than our prior guidance.

By definition our 2010 third-quarter income before other items excludes restructuring charges of $0.01 per share and favorable resolution of tax matters of $0.01 per share.

Viad's revenues for the quarter were $215.1 million, up $34 million, or 18.8% from the 2009 quarter.

Segment operating income was $9.9 million, up $12.6 million from the 2009 quarter.

Our Marketing & Events Group third-quarter performance was within our prior guidance, with revenues of $163.2 million and an operating loss of $11.6 million.

As compared to the 2009 third quarter, total Marketing & Events Group revenues increased 21.2%, reflecting increases of $20.4 million, or 19.5%, and $5.3 million, or 16.2% from the US and international segments, respectively.

The increase in revenues from our US segment was primarily due to positive show rotation of $17 million and same-share growth of 8.6%.

US segment operating results improved by $10.1 million as result of higher revenues and overhead reductions.

Growth in the international segment was primarily the result of positive show rotation of approximately $8 million, as well as improving industry trends, partially offset by unfavorable foreign currency translation.

Foreign exchange rate variances had a negative impact of approximately $1.6 million on revenue and $50,000 on operating income compared to the 2009 quarter.

Operating income for the Marketing & Events Group increased by $10.7 million from the 2009 quarter, reflecting increased revenues, overhead reductions and productivity improvements driven by the Company's lean initiative.

Revenues from our Travel and Recreation Group of $52 million beat our prior guidance for the third quarter with an operating profit of $21.5 million.

Excluding foreign currency translation in revenues -- excluding foreign currency translation our revenues grew $4.1 million, or 8.9%, and operating income improved $1.3 million versus 2009 third quarter, primarily due to stronger demand for our tourism services, as well as our initiatives to capture incremental spend per guest.

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

Free cash flow was $23 million for the quarter versus $17.5 million in the 2009 third quarter, reflecting higher operating income and changes in working capital.

Capital expenditures were $3.2 million for the 2010 versus $3.9 million in the 2009 quarter.

Third-quarter depreciation and amortization expense was $7.3 million, down from $7.8 million in the 2009 quarter.

Payments on our restructuring reserves were $867,000 in the 2010 quarter versus $2.9 million in the 2009 quarter and we repurchased 356,300 shares during the quarter for an aggregate price of $6.3 million.

Our balance sheet remains strong.

At September 30, 2010 we have cash and cash equivalents totaled $152.1 million.

This is up from $134 million last quarter.

And our total debt at end of the quarter was $9.6 million with a debt-to-capital ratio of 2.4%.

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

Thanks, Ellen, and good morning, everyone, and thank you very much for being with us today.

Viad is fortunate to have industry-leading brands and capabilities, talented and dedicate the employees and a strong balance sheet.

These assets, along with continued investment in our businesses, give us advantages relative to many of our competitors.

As Ellen mentioned earlier, our third-quarter performance was better than our prior guidance and reflected in line results from our Marketing & Events Group and stronger-than-expected revenues from our Travel & Recreation Group.

These results were driven by improving industry trends and our continued focus on key initiatives designed to improve our cost structure, create efficiency gains and enhance our customer value proposition.

The Travel & Recreation Group's third-quarter revenues increased 8.9% on a currency-neutral basis.

Glacier Park had a record third quarter, driven partly by the centennial anniversary of Glacier National Park.

We're also seeing a nice rebound at Brewster, with stronger revenues across all tourism lines of business.

Group business has picked up this year after a considerably off year in 2009 and the uptick in groups helped drive year-to-date increase of 8.6% in passenger volume at our Columbia Icefield glacier adventure tours.

In addition, our teams at Brewster and Glacier Park have done a great job capturing incremental spend per guest.

Overall, our Travel & Recreation Group had a very successful high season and I want to thank the teams for their outstanding contribution.

Switching gears to our Marketing & Events Group we've got another story of improvement.

Earlier this year the US exhibition and event industry began to see increased show attendance, which is a leading indicator for future shows.

Last quarter our Marketing & Events Group saw US same-show revenues stabilize after seven straight quarters of decline.

This quarter I'm very happy to report same-show growth of 8.6%.

During the third quarter we saw improvement in other industry fundamentals, including general increases in net square footage, freight weight and show floor density.

It's been just over a year since we formed the Marketing & Events Group and began the integration of GES Exhibit Group and Becker Operations to create an extensive network of creative, tactical and strategic talent with unparalleled global reach.

We are realizing great success and for that I'd like to thank our employees who have time and again demonstrated incredible dedication and professionalism.

Our compelling value proposition and focus on the customer is translating into new business wins.

The strength of our worldwide network, our ability to provide single-source global support, the economic value of our services, and the benefits of our inventory management system, as well as specialized knowledge of the client's industry, earned us exhibit program contracts with two aerospace clients, General Dynamics and Lockheed Martin.

Our retail business is another bright spot.

We are seeing better demand for holiday decor from some large retail clients, including Toddman, which contracted with us to create a large-scale holiday entertainment experience at 16 of its properties across the United States for the upcoming holiday season.

Our retail business is finding new ways to help our exhibit clients extend their brands beyond the show floor into retail environments, too.

Toto wanted to work with one company that could develop an immersive show environment and translate it into a retail display program for over 1,800 dealers across the US.

Using the exhibit design it previously created for Toto, GES's design team worked to extend the brand image by creating a complete showroom display program that provides distinctive setting to showcase its high-end kitchen and bath products.

More than 100 showroom dealers will receive these displays by the end of the year, with the remaining displays rolling out during the first quarter of 2011.

Providing design direction wasn't enough for GES.

The GES team wanted to understand the market thoroughly so we worked with Toto to conduct several market research initiatives to find out what the dealers wanted in the showrooms and what customers wanted to see.

Additionally, we signed over 100 million in show contracts during the quarter, bringing our total show revenue backlog to more than $1.1 billion under contract for 2010 and beyond.

We are on target to achieve full-year overhead savings of $10 million versus 2009.

This savings is in addition to the more than $40 million reduction in overhead that took place from 2008 to 2009, and we have accomplished these reductions through actions that include consolidating facilities and combining functions, such as fabrication, graphics and creative and design.

In addition, we continue to realize efficiency gains from our lean initiatives to eliminate non value-added work by delivering sustainable productivity improvements and customer service enhancements, including increased accuracy and improved delivery time.

For the year to date, our lean initiatives have already surpassed our full-year savings goal of $10 million, which is helping to mitigate the impact of near-term pricing pressures.

As you will recall, we launched our lean program in 2009 and it has been embraced as core part of Viad's corporate culture.

The international segment of our Marketing Events Group is experiencing success, with improved fundamentals in show demand same-show growth and market share gains.

We are leveraging our leading market positions in the UK and Canada to win new business and expand our global network.

As I discussed during the last earnings call, Melville is now servicing substantially all of Emap's portfolio, which was previously split between Melville and the number-two player in the market.

And we just won a group of shows from the Clarion portfolio, another competitive takeaway from this firm.

These wins significantly fortify our position as the leading full service exhibition and event contractor in the UK.

Melville's recent expansion into the Middle East continues to progress.

During the fourth quarter this year we will be producing major shows in the United Arab Emirates for Emap, United Business Media and BMG, including BMG's major oil and gas show, Adipac.

And we are expanding our Canadian operations by opening a new facility in Vancouver during the first quarter 2011.

GES Canada will be the only the full service national service contractor in the growing Vancouver market.

With that, I'll turn it back over to Ellen to provide some more specific guidance for the 2010 fourth quarter and full year.

Thanks, Paul.

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

For the fourth quarter we expect significant improvement over the 2009 quarter.

We expect a loss before other items in the range of $0.27 per share to $0.12 per share.

This compares to the 2009 fourth quarter loss before other items of $0.35 per share.

Revenue is expected to be in the range of $170 million to $187 million, as compared to $170.2 million in the 2009 quarter, and we expect a segment operating loss in the range of $5.5 million to $500,000, as compared to a segment operating loss of $9.6 million in the 2009 quarter.

The year-over-year fourth quarter increases are expected to be driven primarily by lower Marketing & Events Group, US overhead expenses, higher holiday decor revenues and international market share gains.

For the full year, full-year income before other items is expected to be in the range of $0.11 per share to $0.26 per share, this is also up significantly from our 2009 loss before other items of $0.11 per share.

Reflecting a slight improvement in revenues and lower US overhead expenses in our Marketing & Events Group, as well as strong revenue growth in our Travel & Recreation Group.

Our full-year cash flow from operations is expected to approximate $18 million to $23 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.

(Operator Instructions).

Your first question is from John Healy of Northcoast.

Hi, good morning.

Good morning, John.

A couple questions on show rotation.

When I looked at the guide for the third quarter I anticipated you had to have about $35 million in positive show rotation and it looks like it came in closer to $25 million.

I was curious to know if there was a show that got canceled, or the size some of the shows might not have turned out to be as large as you'd originally thought?

Yes, John, the $35 million was our best guess.

There's a little bit of movement, I think, in between quarters.

One of our major equipment shows did come in with less weight than we thought, as well.

Okay, that's helpful--

There were no show cancellations, though, in there.

Okay.

And as you look to next year from a show rotation standpoint, do we expect that to be a headwind, a tailwind, or maybe netting out about no impact?

It should have a relatively insignificant impact on the year.

Okay.

And I guess when you look at the return the positive same-show revenue growth it seems a little bit stronger than maybe we would have thought six months ago.

Was curious to get your thoughts about what types of shows are doing better than maybe you had thought and maybe what sort of run rate do you think in terms of growth rate is appropriate to think about maybe for the next few quarters?

Yes.

I think third quarter was good and what we're starting to see is maybe a gradual pick up as the economy's gotten better.

We talked about being a lagging industry and I think we're seeing more -- where in 2009 where it was kind of an across-the-board reductions, in 2010 and going into 2011 I think we'll see things trend more as their industries goes like we've talked in the past.

Same-show growth for the full year we expect to be positive in the fourth quarter.

I think going into 2011 it's still a little bit difficult on the visibility side, but I think we should expect low to mid single digits of same-show growth in 2011, as well, John.

Okay, very helpful.

And then the comment you made about pricing pressure, I was hoping you could give us a little bit more color about what you're seeing there, what areas the pricing pressure is coming from and if it's stabilizing a little better or is it getting worse out there?

No, I think it's definitely stabilized and as the overall industry improves, I think the pricing environment improves, as well.

We had to work a lot with our show management clients of being a good business partner and trying to find ways to reduce costs for exhibitors and make that return on investment as strong as possible.

I do think, though, as attendance in the buyer community is good at these shows and as the demand picks up a little bit and the general economy picks up, that pricing pressure does tend to abate.

Okay, okay.

And then just final question on the share buy back, how much do you have left overall on the buy back?

We have a credit facility limitation of $10 million and so far we've purchased about $6 million -- $6.5 million, $6.3 million.

Is that credit facility limit -- is that a rolling 12 months or is that a calendar year basis?

That is through our amendment date, which is June 2011.

Great, thank --

So basically starting when we first did the purchases through June 2011.

Okay.

Great, thanks.

Thanks, John.

(Operator Instructions).

There are no further questions at this time.

Thanks.

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

We are very fortunate to have a strong balance sheet with $152 million in cash and very little debt, and I know not many of our competitors have this level of financial stability and this is a competitive advantage that is more valuable than ever in a difficult economy.

Of course, none of the successes we're experiencing would happen without the extraordinary talent of all of the Viad's employees and I'd like to, again, thank them and recognize them for their incredible efforts and contributions.

Our employees 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 a big key to our success.

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

Thank you very much.

Thank you for participating in today's conference call, you may now disconnect.