Viad Corp (VVI) 2011 Q2 法說會逐字稿

Welcome and thank you for standing by.

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

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

Today's conference is being recorded.

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And now I would like to introduce your host for today's conference, Melinda Keels, Director of Investment Relations and Corporate Communications for Viad.

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 results filed with the SEC.

During today's call, we'll 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 Ingersol, Viad's Chief Financial Officer.

Additionally Steve Moster, President of Marketing and Events Group, and Michael Hannan, President of our Travel and Recreation Group, will be available for comments and questions-and-answer session at the end of the call.

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

Thanks, Melinda.

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 $5.2 million or $0.26 per share, up from $0.17 per share in the 2010 second quarter and better than our prior guidance.

By definition, our second quarter income before other items excluded restructuring charges of $0.04 per share and $0.02 per share in the 2011 and 2010 quarters.

Including the restructuring charges, our 2011 second quarter net income was $4.5 million or $0.22 per share.

Revenues for the quarter were $238.7 million, up $20.4 million or 9.3% from the 2010 quarter.

Segment operating income was $9.9 million, up $2.1 million from the 2010 quarter.

Restructuring charges were $1.2 million pre-tax and were related to continued reorganization activities at GES.

For the Marketing and Events Group, revenue growth versus 2010 reflects increases of $5.7 million or 4%, and $10.9 million or 19.5% from the Marketing and Events Group US and international segments, respectively.

The increase in revenues from our US segment was primarily due to base same show growth of 5.8%, increases in short-term bookings and success in capturing greater exhibitor spending, partially offset by a negative share rotation of approximately $2 million.

US segment operating results improved by $2.5 million, as a result of higher revenues and strong cost control, partially offset by higher accruals for performance-based incentives versus 2010 and merit increases that did not take place in 2010 or 2009.

International segment revenue was $67 million and operating income was $6.7 million, up $118,000 from 2010.

International revenues were impacted by positive share rotation of approximately $8 million, while favorable foreign exchange rate variances impacted revenues and operating income by approximately $5.7 million and $540,000, respectively, compared to the 2010 quarter.

As expected, the relatively flat international operating income on higher revenues was primarily related to low flow through on positive foreign exchange rate variances and differences in revenue mix.

We had positive rotation from a major European air show serviced by our SDD Exhibitions unit.

The services provided for the air show, while profitable, have lower margins than Melville's exhibition contracting services, which were lower during the 2011 second quarter as a result of negative show rotation versus the 2010 quarter.

Additionally, employee expenses increased versus 2010 due in part to merit increases and wage reinstatements at Melville.

Our Travel and Recreation Group had second quarter revenues of $24 million and an operating profit of $3 million compared to revenue of $22.4 million and operating income of $3.5 million during the 2010 second quarter.

Foreign exchange rate variances had a favorable impact on revenue in operating income of approximately $1.4 million and $377,000, respectively, compared to the 2010 second quarter.

The revenue growth reflects the addition of Grouse Mountain Lodge, as well as growth at Brewster.

These increases were mostly offset by expected loss room nights at Many Glacier Hotel and lower occupancy due to poor weather at Glacier National Park.

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

Our free cash flow was an outflow of $23.3 million for the quarter versus an inflow of $6.3 million in the 2010 second quarter, primarily reflecting changes in working capital.

During the quarter, we purchased St.

Mary Lodge and Resort for $15.3 million and paid down $4.9 million in debt.

At June 30, 2011, Viad's cash and cash equivalents totaled $107.3 million, down from $148.4 million, and our total debt was $4.2 million with a debt to capital ratio of 1%.

Capital expenditures were $5.1 million for the 2011 quarter versus $3.4 million in the 2010 quarter.

Second quarter depreciation and amortization expense was $7.3 million, which is in line with the 2010 quarter.

And payments on our restructuring reserves were $947,000 in the 2011 quarter versus $2 million in the 2010 quarter.

And now I will turn the call over to Paul.

Thanks, Ellen, and good morning, everyone, and thanks for being with us.

As Ellen mentioned, we had another strong quarter with results that exceeded our prior guidance and revenue increases from both operating groups.

I would like to take a moment to recognize the effort and commitment of our people and give a resounding thank you to the team.

Our improved profits were driven primarily by the US segment of the Marketing and Events Group.

US space same show revenue growth was 5.8% and was the fourth consecutive quarter of base same show growth.

This growth is in line with our prior guidance.

We will see growth rates moderate through 2011 as comparisons to year ago quarters become more difficult due to second half 2010 growth.

We also continue to see moderate increases in net square footage, exhibitor attendance, and freight density.

Our success this quarter also reflects continued focus on key initiatives, including driving additional cost savings and leveraging our realigned sales force.

Sales realignment, we completed last quarter and our [client-centric] approach continue to payoff, and with our integrated structure, we are able to leverage the breadth and depth of our global networks to deliver exceptional exhibition, event, and experiential marketing solutions to clients.

During the quarter, we signed with the Association of Equipment Manufacturers to produce AG CONNECT Expo, which will take place in January of 2013.

This bi-annual show is part of the CONEXPO portfolio of shows and was previously produced by a competitor.

GES was awarded the contract based on our customer service and our willingness to go the extra mile to ensure a great exhibitor experience.

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

GES is very proud to have worked with Motion and Silverstein Partners to design and produce the World Trade Center Marketing Center located at 7 World Trade Center.

The 8,000 square foot marketing center is designed to introduce perspective leasing clients, special visitors, school groups, and the media to the World Trade Center project as a whole.

GES was selected to design the overall experience in conjunction with Motion, a marketing and branding company based in Los Angeles.

We helped create and produce a wide variety of interactive displays, multimedia presentations, and informational graphics to provide a comprehensive overview of this world class project.

Highlights of the World Trade Center Marketing Center include details about the architects who designed the project and the advanced technologies being used to construct the new buildings at the World Trade Center.

The international segment of our Marketing and Events Group also saw increased revenues during the quarter, benefiting from positive rotation from the Paris Air Show, which last occurred in the 2009 second quarter.

The show consisted of 2,000 international exhibitors, 140 aircraft, 338,000 visitors, and covered more than three million square feet.

During the 12 months leading up to the show, our SDD Exhibitions unit worked closely with its key clients and sister divisions as they organized and prepared for the massive event, including moving their offices to show site for the four weeks leading up to the event.

The Marketing and Events Group's international segment is garnering industry recognition.

Melville Middle East won the 2011 Association Event Organizers Service Supplier of the Year Award for its high quality planning and customer service.

This award illustrates the strength of our team in the region and its commitment to great service for our clients in Dubai and Abu Dhabi.

The Marketing and Events Group's total exhibition revenue backlog currently stands at more than $1 billion under contract for 2011 and beyond.

During the second quarter, we signed approximately $150 million in future bookings.

And consistent with last quarter, we have more than 50% of our remaining 2011 forecasted revenue under contract.

We are committed to providing compelling solutions to our clients' needs, to leveraging our network and international presence as one global team, and to performing at the highest levels of excellence at all times.

Going forward, we will continue to actively recruit and hire the best new talent to deepen our (inaudible) strength and help drive our future growth.

Now, I will switch gears to our Travel and Recreation Group.

As Ellen mentioned, second quarter results met our prior guidance for the quarter despite decreased visitation and occupancy at Glacier National Park due to inclement weather.

Heavy snow pack and cold wet weather delayed the opening of Going to Sun Road until July13th.

This was the second latest opening since the road was completed in 1933 and about three weeks later than normal.

Weather was less of a factor at Brewster, where we saw revenue growth for the quarter with increases in our package tour business, as well as greater passenger volumes at the Gondola and the Columbia ice field.

Additionally, occupancy rates at Brewster's Mount Royal Hotel increased compared to last year.

During the second quarter, we completed the acquisition of St.

Mary Lodge and Resort, which is our second in-market expansion in the Glacier National Park area this year and another important addition to our high margin Travel and Recreation Group.

This acquisition expands our inventory of higher-end rooms and is a strong strategic fit with our Glacier operation.

It compliments our current property portfolio by leveraging existing economies to scale and by rounding out our assortment of accommodation and location 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 this transaction represents successful execution against those planned.

In addition to pursuing growth through acquisitions, the Travel and Recreation Group 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.

Despite June's bad weather and a slow start, advanced bookings at Glacier Park are tracking well for the remainder of the season and our team is implementing programs to drive additional business during the September shoulder season.

We've had many successes during the first half of 2011, including US-based same show revenue growth at GES and two successful acquisitions for our Travel and Recreation Group.

The exhibition and event industry continues to improve and the GES team is working hard to drive profitable growth.

The Travel and Recreation Group has just entered its peak season and we expect that 2011 will be another year of good performance at both Brewster and Glacier Park.

We will continue looking for additional growth and cost-savings opportunities in every aspect of our business.

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

Thanks, Paul.

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

For the third quarter, we expect income to be in the range of $0.03 to $0.13 per share, as compared to 2010 third quarter income before other items of $0.23 per share.

The expected decrease is due to negative share rotation at GES.

Total revenues expected to be in the range of $200 million to $220 million, with segment operating income in the range of $4.5 million to $8.5 million.

Revenue for the Travel and Recreation Group is expected to be in the range of $61 million to $65 million, with operating income in the range of $24 million to $26 million.

This compares to third quarter 2010 revenue of $52 million and operating income of $21.5 million.

The increases are due to the acquisitions of Grouse Mountain Lodge and St.

Mary Lodge and Resort, partially offset by construction at Many Glacier Hotel.

Marketing and Events Group revenue is expect to be in the range of $140 million to $155 million, with an operating loss in the range of $20 million to $17 million.

This compares to 2010 third quarter revenue of $163.2 million and an operating loss of $11.6 million.

The decreases are due to negative share rotation and greater incentive accruals and merit increases that did not occur in 2010 or 2009.

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 expect Marketing and Events Group revenues to grow at a high single-digit rate and Travel and Recreation Groups revenues to grow at a rate of 10% to 15%.

While we experience stronger than expected revenues at GES during the first half of the year, visibility remains somewhat challenging, particularly for short-term event bookings and exhibitor revenues.

We expect through put on GES incremental revenues to be in the 15% to 20% range for the full year.

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

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

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

And now, I will open the call for questions.

Jeff can you open it up for questions, please?

Yes.

(Operator Instructions).

The first question is from John Healey, Northcoast Research.

Your line is open.

Good morning, and congrats on another good quarter, guys.

Good morning, John.

I wanted to ask you a question about the margins, Paul, in the Marketing and Events Service Group.

When you look at the margins between the US business and the international business, can you explain why there is such a big delta between those two businesses?

I wasn't sure if it was maybe costs allocated to the exhibit building side of the house or -- I was just trying to understand why those two would differ so much.

Well, in time, they should be fairly similar.

If you'll remember when we purchased Melville being the bulk of the international business, we talked about bringing their margins up somewhat consistent with what we see in the US.

The main margin difference has been kind of the impact of the recession on the US business and a little bit less so in the UK and Canadian businesses.

So my expectation and hope would be that overall we're improving margins throughout the business but have more room for improvement on the US side than on the international side.

Okay.

That helps.

And then I wanted to get your thoughts about the M&A activity that happened in the quarter with one of your large competitors.

I was curious to get your thoughts on how you think that acquisition maybe changes the GES side of the business, if it's a positive for the industry or if it's more of a competitive issue for you guys, just any color you could provide around that.

Sure.

It was announced during the third quarter that Wheelhouse Solutions had been acquired by Freeman.

It does combine two large of our competitors.

We think and know that big business combinations are always a challenge, and there could be some opportunities that are created from customers and people as you bring two big organizations together as they try to drive synergies to help pay for that acquisition.

I think overall, we're going to stay very focused on what we have been doing successfully, John, and aggressively look for those new opportunities that might come up as they go through that integration.

Great.

And then just a last question.

With the -- I know there was some rooms that were kind of being remodeled I think at Glacier the last couple months and I was just wondering if you could kind of quantify the lost revenue impact from the remodel there, and is that something you see that will be done after 2011 or we will have to continue investing some money and taking some rooms off the table in 2012?

No, Many Glacier is, if I am not mistaken, it's the biggest property that we manage for the park service within Glacier National Park.

It is a hotel that was built in the late '19s and so there was an opportunity for about half the rooms to be upgraded this year.

So that shuts down about half the rooms for the 2011 season.

That will be completed though and those rooms will be back online for 2012 and there are no plans to upgrade the other half during the year.

So we're expecting to be at full operation again within the park in 2012.

Okay.

Any thoughts on what sort of revenue impact was lost in 2011 by remodeling those rooms?

Well, Grouse Mountain and St.

Mary's is really going to make up most of the revenue impact, but there will be about 100 basis point impact on the margin because there is such a high flow through from the Many Glacier rooms.

Okay, perfect.

Thank you so much.

(Operator Instructions).

No other questions, Jeff?

At this time, there are no questions.

Okay.

With improving industry trends and the actions we have taken, our business is positioned for improved results in 2011 and beyond, and we remain focused on delivering the best results possible by capitalizing on the market opportunities that exist, continuing to drive down our costs, and delivering high quality customer service.

We're very fortunate to have industry-leading brands and capabilities and certainly talented and dedicated employees and a very strong balance sheet.

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

Just in closing, I would like to once again thank Viad's employees for their continued hard work and dedication as we look to profitably grow our business.

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

So, thanks very much.

Have a great day.

This concludes today's conference call.

You may now disconnect.