Viad Corp (VVI) 2011 Q1 法說會逐字稿

Thank you for standing by.

And welcome to the Viad corporation 2011 first quarter earnings conference call.

(Operator Instructions.)I will now turn the call over to your host, Miss Melinda Keels, Director of 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 this 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 refer to tables one and two in the press release.

Our press release is available on our website at www.viad.com.

Today, 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 andRecreation Group will be available for comment during the question and answer session at the ends of the call.

And now, I will turn it over to Ellen to discuss financial results.

Good morning, everyone.

Thank you for being with us today.

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

Our first quarter income before other items was $0.49 per share up from a loss before other items of $0.02 per share in the 2010 first quarter and better than our prior guidance.

By definition, our 2011 first quarter income before other items excludes restriction charges of $0.01 per share.

Viad's revenues for the quarter were $290.1 million up $65.7 million or 29.3% from the 2010 quarter.

Segment operating income was $17.3 million, up $17.1 million from the 2010 quarter.

Our Marketing and Events Group first quarter revenues were $284.3 million, up $67.4 million from the 2010 quarter and operating income improved $19.1 million from the 2010 quarter to $21.7 million.

The growth versus 2010 reflects increases of $62.3 million or 36.8% and $3.6 million or 7.1% from the International -- or from the US, excuse me, and International segments respectively.

The increase in revenues for our US segment was primarily due to positive show rotation of $40 million, base same show growth of 13.6%, greater penetration of our discretionary exhibitor spending and increased spending by corporate clients.

US segment operating results improved by $18 million as a result of higher revenues.

International segment revenue was $54 million, up $3.6 million from 2010 and operating income was $3.8 million, up $1.1 million from 2010.

International revenues were impacted by positive show rotation of $2 million while favorable foreign exchange rate variances impacted revenues and operating income by approximately $2.2 million and $196, 000 respectively,compared to the 2010 quarter.

Additionally, international results for the first quarter of 2010 included a multi-million dollar pavilion project for the 2010 Winter Olympics and Paralympic games.

Our Travel and Recreation Group met our guidance for the seasonally slow first quarter.

Revenue was $5.8 million with an operating loss of $4.5 million as compared to $7.4 million and a loss of $2.4 million respectively in the 2010 quarter.

Additionally, foreign exchange rate variances had a favorable impact on revenues of $329,000 and unfavorable impact on operating results of $184,000 as compared to the 2010 first quarter.

Results for the first quarter of 2010 included higher revenues from transportation charter business related to 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.

Pre-cash flow was $11.9 million for the quarter up from $1.9 million in the 2010 first quarter,primarily reflecting higher net income.

Capital expenditures were $7.7 million for the 2011 quarter versus $5 million in the 2010 quarter.

First quarter depreciation and amortization expense was $7 million versus $6.8 million in the 2010 quarter and payments on our restructuring reserves were $1.6 million in the 2011 quarter versus $3.1 million in the 2010 quarter.

Our balance sheet remains strong.

At March 31, 2011, Viad's cash and cash equivalents totalled $148.4million compared to $145.8 million at year end, reflecting $10.5 million used to acquire Grouse Mountain Lodge in January, 2011.

And our total debt at the end of the quarter was $8.9 million with a debt to capital ratio of 2.2%.

Now I will turn the call over to Paul.

Thanks, Ellen.

And good morning, everyone.And thank you for being with us this morning.

As Ellen mentioned earlier, our first quarter results increased substantially year-over-year and reflect stronger than expected results from our Marketing and Events Group and in line from our Travel and Recreation Group.

The Marketing and Events Group had an extremely busy and successful first quarter with revenues of $284 million which are the highest we have posted since the first quarter of 2008.

We benefited from strong positive show rotation, which included ConExpo, [ConAg] and [IFDI], ProMat, and several other shows.

The majority of our US shows experienced growth this quarter.

US-based same-show growth was a robust 13.6% driven by improving market conditions and by our efforts to capture a greater percentage of overall exhibitor spend.

We are gaining traction from the integration of GES and during the quarter, we realigned our US sales efforts to better attack opportunities to capture new shows, new exhibiting clients, and a greater share of exhibitor services.

As part of this realignment, we created a dedicated sales team to drive greater penetration of exhibitor discretionary revenue on GES shows.

This team partners with our exhibition sales team to strategically sell to high-opportunity GES shows for targeted sales initiatives.

The teams did a great job capitalizing on the first quarter's busy show schedule and large, non-annual rotating shows.

We are proud of the success we had in garnering additional exhibitor spend during the quarter.

At the same time, we recognize that the first quarter provided more than one third of GES's expected annual revenue.

So future quarters will have less upside opportunity.

Additionally, we expect same show growth to continue throughout the year, although at a decelerating rate as year-over-year comparisons become more difficult because we began to see growth in the second half of last year.

As I discussed during our last call, we have successfully integrated lean into our culture and incorporated its processes into our day-to-day operations.

As we move forward, our very experienced GES team will continue to use lean practices to drive incremental productivity and cost structure improvements while at the same time driving success in winning, retaining and growing client revenues.

On past calls, we've talked about the strength of GES's creative capabilities and for the second year in a row, GES has been recognized by Ad Agemagazine as one of the world's Top 50 agency companies and as one of the largest US event marketing agencies.

The 2011 report appears in the publication's April 25, issue and adds credence to the quality and strength of our creative capabilities.

With our integrated structure, we are able to leverage the breadth and depth of global network to deliver exceptional exhibition event and experiential marketing solutions to clients.

This compelling value proposition and focus on the customer continues to translate into new business wins.

For example, Dell recently awarded the event production of its four day field readiness seminar to GES based on its prior experience working with us and our expertise and ability to serve as a single-source provider for the entire event.

In addition to event production, GES designed, created and installed over 35 different interactive areas as part of the event's expo to demonstrate Dell's services.

We signed more than $75 million in show contracts during the quarter, including the central Florida International Auto Show and the Society of Petroleum Engineers Drilling Conference and Exhibition.

We have more than 50% of remaining forecasted revenue under contract for 2011 and our show revenue backlog stands at $1.1 billion under contract for 2011 and beyond.

Our Branded Entertainment division is seeing great success from the April 5 opening of Harry Potter, the Exhibition, at Discovery Times Square in New York.

GES joined forces with Warner Brothers Home Entertainment Group to hold an event that celebrated both the opening of the exhibition and the home video release of Harry Potter and the Deathly Hallows, Part 1.

The event was attended by 14 members of the cast as well as two of the movie's producers.

Since the opening, the exhibition has garnered substantial media attention, including a review by the New York Times.

We have seen great attendance to date and we are looking forward to a successful run in New York.

The international segment of our Marketing and Events Group continues to perform well.

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

As previously announced, GES Canada opened a new facility in Vancouver this quarter, making it the only full-service national contractor in the growing Vancouver market.

Melville continues to win contracts for future shows in Europe and the UK.

The strength of our worldwide network and our ability to provide single-source global support led United Business Media to select Melville to produce World Routes Berlin 2011, which is an annual airline and airport networking event.

And Melville was selected as the contractor for World Skills London 2011, which is the world's largest international skills competition, where young people from around the world compete in their chosen fields.

GES Canada produced the World Skills Calgary 2009 show and we are pleased again to work with World Skills to produce this great event.

The marketing and events group had a successful first quarter and I want to think Steve Moster and his team for their incredible effort and dedication in successfully executing a very demanding show schedule.

I can't over emphasize my appreciation for the hard work and long hours that the team contributed.

Now, I will cover highlights for the Travel and Recreation Group.

The Travel and Rec Group met our expectations for its seasonally slow first quarter.

Our main focus at this time is on preparing for the busy summer season and controlling costs.

Additionally, the team has been focused on completing the integration of Grouse Mountain Lodge, which we acquired on January 5.

The addition of this property gave us an even greater share of rooms in the Glacier National Park area and a year-round presence in the market.

It will also help to offset some lost room revenues at our Many Glacier Hotel, which will be under renovation during the 2011 season.

Grouse Mountain Lodge is performing as expected thus far and should prove to be a great acquisition for our Travel and Recreation Group.

As we gear up for the busy summer tourism season, we are keeping a watchful eye on outbound tourism from Japan as we try to gauge the impact the aftermath the earthquake may have.

While a potential decrease in visitors from Japan is possible, Western Canada is very much a global tourist destination and Japanese visitors comprise less than 10% of [Brewster's] annual revenues.

The Travel and Rec team remains focused on maximizing revenue per available room at our lodging propertied, capturing higher revenues per passenger at our gondola and other attractions and pursuing other initiatives to optimize returns from our existing assets.

I want to thank Michael Hannan and his team for their hard work and dedication.

We look forward to the team's substantial contribution to operating income during the second and third quarters.

With that, I will turn the call over to Ellen, who will provide some more specific guidance for the second quarter and 2011 full year.

Thanks, Paul.

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

For the second quarter, we expect income to be in the range of $0.10 to $0.20 per share as compared to 2011 second quarter income before other items of $0.17 per share.

Revenue is expected to be in the range of $228 million to $247 million with segment operating income in the range of $5 million to $9 million.

Revenue for the Travel and Recreation Group is expected to be in the range of $23 million to $27 million with operating income in the range of $3 million to $4.5 million.

This compares to second quarter 2010 revenue of $22.4 million and operating income of $3.5 million.

Marketing and Events Group revenue is expected to be in the range of $205 million to $220 million with operating income in the range of $1.5 million to $5 million.

This compares to 2010 second quarter revenue of $195.9 million and operating income of $4.2 million.

Our guidance for relatively flat operating income on a revenue increase at GES is due primarily to the effect of foreign currency translation and changes in the mix of business within GES's international segment.

We are currently forecasting foreign exchange rate variances to favorably impact revenues by approximately $5 million with only a $450,000 favorable impact on operating income.

The international revenue mix is expected to change as a result of positive rotation from a major European air show for which our UK based, SDD business provides design and project management services to many aerospace clients.

These services, while profitable, have lower margins than Melville's exhibition contracting services which are expected to be lower during the 2011 second quarter as a result of negative show rotation versus the 2010 quarter.

For the full year, our outlook is relatively unchanged from last quarter.

We continue to expect revenue growth from both the Marketing and Events Group and Travel and Recreation Group and that the Marketing and Events Group will return to profitability.

We have increased our full year revenue guidance primarily to reflect favorable exchange rate variances.

We now expect both Marketing and Events Group and Travel and Recreation Group revenues to grow at a high single-digit rate.

While we experienced stronger than expected revenues at GES during the first quarter, visibility remains challenging particularly for short-term bookings and exhibitor discretionary revenues.

As Paul mentioned earlier, we expect that year-over-year, same show growth comparisons will become more difficult in the back half of this year.

If you recall, during 2010, we were still experiencing declines in first quarter and base same shows were relatively flat in the second quarter with growth resuming in the third quarter.

Also, we mentioned on the last quarterly conference call that we expected through-put on GES's incremental revenues to be about 20%.We are now expecting that rate to be closer to 15% for the full year reflecting revised foreign exchange rate assumptions.

Based on our current forecast, foreign exchange rate variances are expected to add about $11 million in revenue but only $600,000 in operating income relative to 2010.

Mathematically, this will result in a relatively low throughput on GES's International segment revenues.

For the US segment we expect throughput to be somewhere around the 18% reflecting merit increases and higher performance-based incentives.

Our full year cash flow from operations is expected to approximate $30 million to $35 million.

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

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

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

(Operator Instructions).

The first question is coming from John Healy, Northcoast Research.

Your line is open.

Good morning, Paul.

Good morning, John.

Question for you on the outlook for same show revenues.

I guess I'll take a step back.

I was just wondering if you could give us some qualitative comments regarding the strength you saw in the quarter on the same show revenues.

Were there any industries or types of shows that did well?

And then with that, is it more driven by exhibitors coming back to shows, or is it more driven by the amount of booth space or some other things along those lines?

Yes, John.

I think it was very, very broad-based, which was encouraging from our standpoint to see.

I think most segments were up.

I made a comment that the majority of our shows saw increased revenue.

I think the one segment we saw a little bit of softness in was more tied to government spending.

I think assome of the stimulus money is drying up.

But overall, broad-based, I think we saw it in a lot of different areas then within the broad-based recovery, a little bit better pricing environment from a price increase standpoint, greater participation from exhibitors, both in numbers and space and then we were successful in capturing more exhibitor spend during the quarter.

So I think it was a lot of factors.

We are doing, I think the right things, but I think also benefiting from some economic tailwinds here which is great.

Okay.

Great.

And then, when I think about the outlook for same show revenue, it seems like you still have a relatively easy comp in the second quarter, I'd say.

But really not looking for too much same show revenue growth, I imagine, coming in the third and fourth quarter.

Is that -- are you guys taking a pause in terms of thinking that maybe the exhibitor activity level will slow down?

Based on something you are seeing in the business or is this a conservative view and maybe we revisit it if things stay where they are three months from now?

Yes, I think we are still a bit cautionary in our outlook.

Visibility is better but it's still not like it was in 2008 as far as what we see.

We are certainly encouraged by what we saw in the first quarter.

When we get into the back half of the year, I think we've talked a little bit that we saw growth in third and fourth quarters of 2010, it makes the comparative rollover numbers a little bit more challenging as we head toward the back half of the year.

But I think we will know a lot more in another three months here and we'll continue to watch this very, very closely

Okay.

Great.

And then I was just wondering maybe if you could give us some color on what you expected for margins in the Travel and Rec business for the year.

I mean should we see those kind of -- I don't know, maybe be stable on a year-over-year basis or do you think those have a chance of showing some improvements?

John, for this year, margins are going to be down about 100 basis points and that's almost exclusively driven by the construction at the Many Glacier Hotel.

About 100 rooms are under construction.

Once we get those rooms back on line next year, that change should flip back to the normal margins.

Thank you.

Thanks, John.

(Operator Instructions.)We have no further questions at this time.

Okay.

Thank you very much for being with us today.

We continue to work very, very hardly -- very, very hard at improving our business with the first quarter behind us.

We will continue to deliver high-quality customer service and capitalize on market opportunities, and we will also continue to focus on driving efficiencies and driving down our costs.

And we look forward to updating you all in our July call.

Thanks very much.

This will conclude today's conference.

All parties may disconnect at this time.