Viad Corp (VVI) 2010 Q4 法說會逐字稿

Welcome and thank you for standing by.

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

Today's conference is being recorded.

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

Now I will turn the meeting over to Ms.

Carrie Long.

Ma'am, you may begin.

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

I 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 our annual any quarterly reports filed with the SEC.

During today's call, we will be referring to tables one and two of the earnings press release, which is available on our website, at www.Viad.com.

On today's call, you will hear from Paul Dykstra, Viad's Chairman, President and CEO, and Ellen Ingersoll, Viad's Chief Financial Officer.Additionally, Steve Moster, President of our Marketing and Events Group, and 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.

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 fourth quarter and full-year results, you may want to refer to Tables 1 and 2 of our earnings press release.

Viad's fourth-quarter loss before other items was $0.20, which is an improvement of $0.15 per share from the 2009 fourth quarter, and in-line with our prior guidance.

By definition, income before other items excludes restructuring charges, the resolution of tax matters, and non-cash impairment charges.

A reconciliation of income before items to income from continuing operations can be found in table two of our earnings press release.

Viad's revenues for the fourth quarter improved $16.8 million or 9.9% from the 2009 fourth quarter revenues of $170.2 million.

Our fourth-quarter segment operating results improved by $6.5 million to a loss of $3.1 million for the quarter.

For the full year, income before other items was $0.19 per share, up $0.30 per share from 2009.

Full-year revenues were $844.8 million, up $39 million, or 4.8% from 2009.

Our full-year segment operating income was $14.8 million, up $10.6 million over 2009.

Now, let me discuss some results from the Marketing and Events Group.

Our Marketing and Events Group's fourth quarter performance was line with our prior guidance, with revenues of $180.5 million and an operating loss of $370,000.

Full-year revenues were $756.5 million, up $26 million over 2009, and full-year segment operating results improved $7.7 million to a loss of $5.1 million.

The Marketing and Events Group US segment's fourth-quarter operating results improved $6.3 million on a $9.3 million revenue increase.

These increases were primarily driven by same-show revenue growth of 16.6%, and a new holiday program installation for a leading shopping center client, partially offset by negative show rotation revenue of $5 million.

For the full year, US segment operating results improved $6.9 million, reflecting overhead reductions of approximately $10 million, partially offset by accruals for performance-based incentives, which were not significant in 2009.

US segment full-year revenues were up $2.5 million, reflecting positive show rotation of approximate $15 million, mostly offset by reductions in brand marketer spending and a base same-show revenue decline of 1% for the year.

As a reminder, the full-year base same-show revenue decline was driven by the first quarter decline of 10%, while second-quarter same show revenues were essentially flat, and we experienced growth in both the third and fourth quarters.

The Marketing and Events Group international segment realized a fourth-quarter revenue increase of $9.3 million, with an operating income increase of $576,000.

Full-year international segment revenue increased $25.1 million, or 14.6%, with an $862,000 increase in operating income.

The improvements over 2009 reflect market share gains and positive share rotation of $4 million in the fourth quarter and $3 million for the full year, partially offset by higher accruals for performance-based incentives and the reinstatement of full wages after a temporary reduction in 2009.

In addition, foreign exchange rate variances had a favorable impact on full-year revenue and operating income of approximately $4.3 million and $500,000 respectively.

Now, I'll cover the results for the Travel and Recreation Group before moving on to cash flows and the balance sheet.

The Travel and Recreation Group's results net the high end of our prior guidance for the seasonally-slow fourth quarter, with $6.5 million in revenue and operating loss of $2.7 million.

For the full year, Travel & Recreation Group revenues were $88.3 million, up $13 million from 2009, and operating income increased $2.8 million to $19.9 million.

Operating margins were 22.5%.Excluding foreign currency translation, revenues grew $8.6 million or 11.4%, and operating income increased $2.3 million versus 2009.

These increases reflect initiatives to capture incremental spend per guest, as well as improved tourism demand, that was partly related to the Centennial Anniversary of Glacier National Park, and the 2010 Winter Olympics and Paralympic Games.

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

Fourth-quarter free cash flow was an outflow of $8.2 million in 2010, versus an outflow of $11.3 million in 2009.

For the full year, free cash flow was positive $23 million, which reflects an improvement of nearly $54 million compared to the 2009 full year.

Improvements in free cash flow were driven primarily by changes in working capital, and also by higher segment operating income and lower capital expenditures.

Capital expenditures were $5.4 million for the quarter, versus $2.6 million in the 2009 quarter.

Fourth quarter depreciation and amortization expense was $6.9 million in both 2010 and 2009.

Payments on our restructuring reserves were $852,000 for the fourth quarter, versus $2.1 million in the 2009 quarter.

During 2010, we repurchased a total of 356,300 shares, for an aggregate price of $6.3 million.

Our balance sheet remains strong.

At December 31, 2010, we had cash and cash equivalents totaling $145.8 million, and our total debt at the end of the year was $9.1 million, with a debt-to-capital ratio of 2.3%.

Now, I will turn the call over to Paul.

Thanks, Ellen.

Good morning everyone, and thanks for being with us.

As Ellen mentioned, we finished 2010 in line with our prior guidance and we achieved significant year-over-year improvement, driven by increased demand in the industries we serve and strong execution by our employees throughout the year.

For that, I would like to recognize and thank Viad's talented and dedicated employees for their terrific effort and contributions.

Our ability to work as one team, driving new and innovative approaches to managing our business, while continuing to deliver enhanced value and great service to our customers is key to Viad's success.

The Travel and Recreation Group delivered great result this year, with double-digit revenue growth and strong operating margins.

Brewster rebounded nicely in all lines of business, benefiting from increased demand from tour groups and increased transportation business from the 2010 Winter Olympic and Paralympic Games.

Glacier Park had its best year ever, with record revenues and operating profits.

2010 was the Centennial Anniversary of Glacier National Park, and the team was able to capitalize on this milestone by driving occupancy and winning new group business for the September shoulder season.

In addition to the volume increases, we did a great job capturing incremental spend per guest.

Our Travel & Recreation Group had a very successful year and I want to thank Michael Hannan and the entire team for their outstanding contributions.

Earlier this month, we announced the acquisition of Grouse Mountain Lodge, 145-room four-season resort hotel, located in Whitefish, Montana, which is in close proximity to Glacier National Park and Whitefish Mountain Resort.

This terrific property is a great addition to our high-margin, high-return on invested capital Travel and Recreation business, and it is a strong strategic fit with our Glacier Park operation.

This acquisition expands our leading share of rooms in the market, leverages existing economies of scale and enables us to offer our guests a wider range of accommodation options in the Glacier National Park area.

We are committed to expanding our hospitality and recreational attractions portfolio, in and around national parks in North America, and the acquisition of Grouse Mountain Lodge represents successful execution against those plans.

Moving on to our Marketing and Events Group, we got a another story of better year-over-year results.

First off, I'm excited to report that our US segment had fourth-quarter base same-show revenue growth of 16.6%, representing the second consecutive quarter of domestic growth.

The strong growth rate was driven in part by a strong performance of a major fourth-quarter auto show, and without this show, US-based same-show revenues were still up a healthy 5.4% for the quarter.

During 2010, we remained focused on key initiatives, including driving improvements in productivity, cost structure and customer service.

We reduced full-year overhead costs by approximately $10 million from 2009, and we successfully integrated lean processes into our day-to-day operations, which helped offset pricing pressures through more efficient operating processes.

Lean is now ingrained in our culture, and will support our ongoing efforts to drive additional productivity and service wins.

On past calls, we've talked about the strength of GES' creative design and call center capabilities, and during 2010, we were recognized by several prestigious groups.The American Business Awards recognized GES' domestic and international design work with multiple Stevie awards.

GES also received awards from two major trade show industry associations, recognizing its design talent.

In addition, JD Power & Associates recently certified GES' national service center for the third consecutive year.

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

We continued to leverage our outstanding creative and brand marketing capabilities, to offer value-add ed services that set us apart from the competition.

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

Fidelity Investments recently awarded its private event and exhibit business to GES based, on our expertise and our ability to serve as a single-source provider for all of its events and exhibit needs.

This win represents a takeaway from two competitors that previously split the business.

We also won a new exhibition program from K2M.

This Virginia-based medical technology manufacturer awarded GES its entire domestic exhibit program, and also asked us to create its new global brand image, as well as a large-scale international exhibit, which successfully launched in December.

Additionally, after GES' long standing client, Schering-Plough, merged with Merck, we were able to win incremental business from Merck, including their international divisions of rheumatology, women's healthcare, and dermatology.

This win was accomplished by leveraging our status as a proven client partner, and the strength of our worldwide network.

During the quarter, we also completed a large-scale holiday entertainment installation for a prominent shopping center client, at 16 of its properties across the United States.

Additionally, the US segment signed approximately $80 million in new and renewal trade show contracts during the quarter.

Our Marketing and Events Group international segment also had success during the year, leveraging our leading market positions and the strength in GES worldwide network to make meaningful gains in revenue market share.

In 2010, Melville secured substantially all of eMaps' business, taking significant share from the number two player in the UK market.

Melville Middle East also saw strong growth, winning and successfully producing several major United Emirate shows for clients that include eMap, United Business Media and DMG.

And recently, Melville Middle East was awarded the contract for the International Defense Exhibition conference, or IDEX, which is the largest defense show in the Middle East.

This show takes place at the Abu Dhabi National Exhibition Center during the first quarter, and is another great win.

The Marketing and Events Group had a successful year and I want to thank Steve Moster and the entire Marketing and Events Team for their hard work and dedication.

Overall 2010 was a challenging but successful year for all of Viad's businesses.

We are proud of our accomplishments, driving improved profits in a challenging economic environment, and with two straight quarters of same-show growth, it finally feels that we have the wind blowing at our backs, again.Looking ahead to 2011, we expect the Marketing and Events Group to benefit from the industry's improvement that begin in 2010, with continued growth in US shows and international market share gains.

Our total trade show revenue backlog for 2011 and beyond stands at more than $1.1 billion, and we have more than 50% of our total Marketing and Events Group 2011 forecasted revenues under contract.

More importantly, we expect the Marketing and Events Group to return to profitability in 2011, as a result of continued industry growth, positive show rotation and the cost-structure improvements that we've made over the last two years.

For the Travel and Recreation Group, we expect 2011 to be another strong year.

The entire Travel and Rec team remains focused on executing on initiatives to enhance the guest experience and capture additional spend per guest.

In addition, we have increased our share of rooms in the Glacier National Park area through the acquisition of Grouse Mountain Lodge.

This new addition gives us year-round presence in the market, and offsets some lost room revenues at our Many Glacier Hotel, which will be under construction during the 2011 season.

Now, I'll ask Ellen to provide some more specific guidance for the 2011 full-year and first quarter.

Ellen?

Thanks, Paul.

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

Marketing and Events Group full-year revenues are expected to grow at a mid-single digit rate compared to 2010, with positive show rotation of about $10 million.

US same-show revenues are expected to grow at a mid-single digit rate.

Marketing and Events Group segment operating results are expected to return to a profitable level, driven by increased revenues, partially offset by higher performance-based incentives, as well as merit increases that did not occur in 2009 and 2010.

Travel and Recreation Group full-year revenues are expected to increase low single digit rate from 2010.

Operating margins are expected to decrease slightly as a result of the construction at Many Glacier Hotel.

About one-half of the total rooms at that property will be unavailable this season, resulting in the loss of some high throughput revenue rooms.

While the acquisition of Grouse Mountain Lodge will help to offset the revenue loss, it will have a lower operating income flow-through than the volume declines at Many Glacier Hotel.

Corporate activities expense it expected to approximate $7 million.

Our full-year cash flow from operations is expected to approximate $25 million to $30 million.

We expect full-year capital expenditures of approximately $25 million, and depreciation and amortization of approximately $30 million.

For the first quarter, we expect income before other items to be in the range of $0.25 to $0.40 per share, as compared to the 2010 first-quarter loss before other items of $0.02 per share.

Revenue is expected to be in the range of $265 million to $280 million, as compared to $224.4 million in the 2010 quarter.

We expect segment operating income to be in the range of $10 million to $15 million, as compared to $199,000 in the 2010 quarter.

The year-over-year first quarter increases are expected to be driven primarily by a positive show rotation of approximately $35 million, and expected increases in trade show marketing spend, including continued same-show growth, in international market share gains.

Additional details regarding our 2011 outlook can be found in the earnings press release.

With that, let's open the call for questions.

Thank you.

(Operator Instructions).

One moment, please.

Our first question comes from John Healy with Northcoast Research.

Your line is open.

Good morning, Paul and Ellen.

Question for you, Paul, on same-show revenue growth.

I was hoping you can give us some color, if you have any, that you can lend to us on how you expect that to play out in the year?

Are there some shows that you are expecting better growth in from an industry vertical, compared to others, and maybe how you expect the quarters to play out?

Is it stronger in the first half and moderate in the back half?

Curious as to your thoughts?

Good morning John, hope you are staying warm up there.

The same-show growth will be a little bit stronger, we think, in the first half of the year.

A little bit less in the second half of the year, but continuing to grow, as the industry improved in the comparative numbers year-over-year, we see a little bit slowing of the growth.

Overall, we anticipate good consistent growth.

In general, we see a lot more shows in total, with growth versus shows without growth, that we kind of saw through the recession, and see that as another very positive sign, indicating that the general industry is continuing to improve.

Of course, as we have always said, shows go as their underlying industries go, and I think again, the industries, in general, with the economy picking up, are we seeing underlying industries do better, which is creating broader growth overall.

I guess I'd call on Steve Moster, Steve, if you have anything to add there?

Thanks, Paul.

Again, I believe that we will see stronger growth in the first half of 2011, as compared to the back half of 2011.

Again, continued growth across all of the segments and the shows that we're in.

Got you.

Perfect, thanks.

And then, Ellen, I was wondering if you can talk about the incremental margins that you expect on the Marketing and Events services side of the business.

I know you guys have said in the past, I think you said 20% to 30%-type incremental margins on revenue.

Do you think it's still likely that those type of incremental margin ranges hold true in 2011, or is there an investment that need to be made, that maybe we're at the low end or a bit below that, this year?

Yes, throughput should be about 20% for the full year, but there is variability throughout the quarters.

Some quarters are higher, and some quarters are lower, and we'll be giving guidance on a quarter-by-quarter basis this following quarter.

But overall, about 20%.

Got you.

And then, last question, the cash on the balance sheet, you guys continued to have a nice war chest there.

I was curious to get your thoughts, if you're feeling a little bit more acquisitive these days, or if you're going to be a little bit more active on the buyback side, or anything to think about as we follow 2011?

John.

I think we'll continue on a kind of the consistent path we've had.

We do like the strength of our balance sheet, and it does give us some good opportunities for strategic acquisitions that we have continued to focus in and around the North American national parks, and the acquisition of Grouse Mountain Lodge is a perfect example, I think, of what we trying to do there.

We've been less-focused on the Marketing And Events side as we waited for the economy and the industry to improve, but there could be opportunities there as well.

Certainly, our first for capital is still the investments in organic growth and strategic acquisitions.

Probably a little bit less so right now on the share repurchase side, but that is something we look at regularly.

Got you.

Congratulations on a great year.

Thanks a lot, John.

(Operator Instructions).

One moment, please.Currently, there are no other questions.

Thanks, Amy.Let me just make two closing comments, and I really appreciate everybody being with us today.And with 2010 behind us now, we are really focusing our energies squarely on driving continued growth in revenue and profits in 2011.

We'll continue to deliver high-quality customer service and capitalize on the market opportunities, while also increasing our efficiencies and driving down our costs.

Look forward to updating you again on our call in April, thank you again, and good-bye.

Thank you for your participation, you may disconnect at this time.