Viad Corp (VVI) 2011 Q3 法說會逐字稿

Welcome to the Viad Corp 2011 Third Quarter Earnings Release.

(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 meeting over to your host, Melinda Keels, Director, Investor Relations.

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 the Viad's Annual and Quarterly Reports filed with the SEC.

During today's call we will refer to tables 1 and 2 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 & Events Group, and 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 will turn it over to Ellen to discuss financial results.

Good morning everyone.

Thank you for being with us today.

As I cover our third quarter results you may want to refer to tables 1 and 2 of our earnings press release.

Our third quarter income before other items was $1.2 million or $0.06 per share, down from $0.23 per share in the 2010 third quarter and within our prior guidance.

Revenues for the quarter were $216.2 million, up $1 million from the 2010 quarter.

Segment operating income was $5.4 million, down $4.5 million from the 2010 quarter.

We also recorded restructuring charges of $75,000 pretax and favorable resolution of tax matters of $103,000.

Marketing & Events Group results met our prior revenue guidance and was slightly below our guidance for operating results, with revenues of $151.7 million and an operating loss of $20.2 million.

As expected, these results were below the 2010 quarter and were driven primarily by negative share rotation of approximately $29 million in revenue as compared to the 2010 quarter.

A number of major trade shows that took place in the 2010 third quarter are every other year shows that will occur again in 2012.

US segment revenues decreased $8.3 million from the 2010 quarter to $116.8 million.

The decrease in revenues was primarily due to negative share rotation revenue of $23 million, significantly offset by base same-show revenue growth of 10.9%, increased retail merchandising unit sales and higher revenue from branded entertainment projects.

US segment operating results declined by $7.5 million to a loss of $17.1 million as a result of lower revenue and higher accruals for annualized performance-based incentives versus 2010, as well as employee merit increases that did not take place in 2010 or 2009.

Additionally, our US operating results reflect margin pressures we experienced during the quarter that Paul will discuss in more detail.

International segment revenue was $38.5 million with an operating loss of $3.1 million.

These results compare to revenue of $38.1 million and an operating loss of $2 million during the 2010 quarter.

Foreign exchange rate variances had a favorable impact on revenues at $1.7 million and an unfavorable impact on operating results of $373,000 compared to the 2010 quarter.

Excluding exchange rate variances, revenues decreased $1.3 million and operating income decreased $700,000 driven primarily by a negative share rotation of approximately $6 million in revenue as well as increased employee expenses due to merit increases and wage reinstatements from the 2010 wage reductions at Melville.

Our Travel & Recreation Group had third quarter revenues of $64.5 million and an operating profit of $25.6 million, up significantly from 2010 third quarter revenue of $52 million and operating income of $21.5 million.

Foreign exchange rate variances had a favorable impact on revenue and operating income of approximately $2.5 million and $1.2 million respectively compared to the 2010 third quarter.

Excluding foreign exchange rate variances, revenue was up 19.2%, reflecting the addition of St.

Mary Lodge & Resort and Grouse Mountain Lodge as well as growth at Brewster.

The year-over-year revenue increase is partially offset by expected loss room nights at Many Glacier Hotel as well as lower occupancy at our Glacier Park property due to lower park visitation compared to the 2010 quarter.

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

Free cash flow was $23.8 million versus $23 million in the 2010 third quarter.

During the quarter we purchased Denali Backcountry Lodge and Denali Cabin for $15.3 million in cash, and we repurchased 250,760 shares of our common stock at an aggregate cost of $4.6 million.

At September 30, 2011, we have cash and cash equivalents total $104.6 million, down from $107.3 million at June 30.

And our total debt was $3.6 million with a debt to capital ratio of 0.9%.

Our capital expenditures were $4.5 million for the 2011 quarter versus $3.2 million in the 2010 quarter.

Third quarter depreciation and amortization expense was $7.6 million versus $7.3 million in the quarter and payments on our restructuring reserves were $985,000 in the 2011 quarter versus $850,000 in the 2010 quarter.

Now I will turn the call over to Paul.

Thanks Ellen.

Good morning, everyone, and thanks again for being with us today.

We had another solid quarter with earnings per share that were in line with our prior guidance.

(inaudible) 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 Travel & Recreation group realized significant growth during its busiest quarter, driven by the addition of two properties to our Glacier Park portfolio, and strong organic revenue growth at Brewster.

At Brewster we saw the strongest quarterly revenues and operating profits in the past 10 years.

Brewster's sales force sold more group business and this helped drive growth across all of its lines of business.

In addition, Brewster successfully executed a campaign to drive additional local and regional traffic.

The result was increased passenger volumes at all attractions, including a 13% increase at the gondola over the 2010 third quarter.

Occupancy at the Mount Royal hotel was up year-over-year, as was business from package tours and transportation, and the Brewster team did a great job capturing incremental spend per guest.

Glacier Park had increased revenues from the acquisition of St.

Mary Lodge & Resort and Grouse Mountain Lodge, which helped to offset the lost room nights at Many Glacier Hotel.

Last quarter we discussed the early season reduced park visitorship caused by inclement weather in the late opening of the Going-to-the-Sun Road.

But I'm happy to report that the Glacier team worked very hard to drive occupancy and revenue per available room during the September shoulder season, and this mitigated some of the early challenges.

Despite a slow start, it was very good season for Glacier Park.

Near the end of the third quarter we completed the acquisition of Denali Backcountry Lodge and Denali Cabins, which is a third addition this year to our high-margin Travel & Recreation group.

These outstanding Alaskan properties provide guests with the opportunity to experience the expansive wilderness in one of the most iconic national parks in the US, while sleeping and dining in comfort.

This acquisition complements our existing businesses by extending our experiential leisure travel services to include a property at the heart of what is a must-see destination for many travelers around the world.

The addition of the Denali properties leverages our full-service hospitality operational expertise and expands our national park footprint beyond our existing geographies.

The acquired assets, combined with our other offerings, form an integrated hospitality growth platform for us in the Alaska market.

We remain committed to expanding our hospitality and recreational attractions portfolio in and around national parks in North America.

In addition to pursuing growth through acquisitions, the Travel & Recreation team remains focused on maximizing revenue per available room at our lodging properties, capturing higher revenues per passenger at our attractions and pursuing other initiatives to optimize returns from our existing assets.

Overall our Travel & Recreation Group had a successful high season and the Group is on track to generate full-year 2011 revenues of approximately $100 million.

We are excited about the additions of St.

Mary Lodge & Resort, Grouse Mountain Lodge, and most recently the Denali properties, and we look forward to having all of Many Glacier Hotel available for 2012.

Now I will switch gears to our Marketing & Events Group.

Our Marketing & Events Group continues to benefit from improved industry conditions as compared to 2010, as well as initiatives to capture incremental revenues.

This quarter marks the 5th consecutive quarter of US-based same-show revenue growth, and in general we continue to see moderate increases in net square footage and exhibitor attendance at our shows.

As a result of the growth in our shows and the large order for retail merchandising units from one of our major retail clients, and higher branded entertainment revenues, the Marketing & Events Group was able to offset a significant portion of the $29 million in negative show rotation revenue.

While the revenue impact of negative show rotation in the US was mostly mitigated, we experience margin pressure on three events we produced in higher cost cities in the East, contributing to lower operating results.

Also, the retail merchandising units sold during the quarter, while profitable, were lower margin business than the large third quarter shows that we produced in 2010.

Just recently we were part of a multiparty settlement that will resolve a long-standing labor dispute in the city of Chicago.

We expect ratification of the settlement in the next few days.

GES has been a convention industry partner in Chicago for more than six decades and we believe this development will make it easier for all parties to produce successful exhibitions in Chicago.

We continue to focus on key initiatives including driving additional cost savings and leveraging our real line sales force to present a compelling value proposition that is focused on the customer.

This approach continues to translate into new business wins.

During the third quarter we signed approximately $130 million in future exhibition bookings.

The Marketing & Events Group total exhibition revenue backlog currently stands at more than $1.1 billion under contract for 2011 and beyond.

And we have more than half of our remaining 2011 forecasted revenue under contract.

For the past 27 years GES has been producing outstanding event experiences for the US division of Bell Helicopter.

These creative opportunities have promoted Bell's leadership in the aviation industry.

As a result of the successful long-term relationship and the breadth and depth of the GES worldwide network, Bell Helicopter's International division recently awarded all of its international programs and shows to GES.

Going forward GES will create integrated marketing programs including custom events, booth design and fabrication, and comprehensive pre- and post-show marketing campaigns for all of the events Bell Helicopter attends worldwide.

In September this year GES Canada produced Sibos 2011 at the Metro Toronto Convention Center.

The annual operations and technology conference welcomes about 7000 banking industry professionals from around the world.

Each year Sibos is hosted by a different international city.

GES Canada was awarded the contract based on its quality full service offerings, beating out a North American competitor that had previously produced the show in the United States.

Sibos was the largest event every produced by the GES Canada team.

Next month, Harry Potter the Exhibition will begin the first leg of its overseas tour.

The exhibition opens at the Powerhouse Museum in Sydney, Australia on November 19 after a great run at the Discovery Times Square Center in New York.

Earlier this month Melville produced World Skills London 2011, which is the world's largest international skills competition where young people from around the world compete in their chosen field.

This event is one of the largest that Melville has produced to date, and it is the first event held at ExCeL London that has occupied all of the nearly 1,000,000 square feet of exhibition space as well as all of the meeting and conference rooms.

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

Recently Melville became the first exhibition and event services contractor in the UK to be awarded the British Standard specification for sustainable event management systems, known as the British Standard 8901.

This certification is specific to the exhibition and event sector and incorporates environmental, social and economic core elements.

To obtain the certification Melville developed a set of benchmark measurements for waste separation, reuse, recycle and [saved] disposal of all major production materials within its UK operations.

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 talent to deepen our bench strength and help drive our future growth.

We continue to evaluate the way we deliver our services throughout the US to identify and execute actions that will improve our cost structure and reduce invested capital, while at the same time enhancing service levels for our customers.

Earlier this year we consolidated our legacy exhibit group Giltspur's New York and San Jose facilities into existing GES facilities.

And we are preparing for the consolidation and right-sizing of our two Chicago area operations, which will be combined into a single high-efficiency facility when our existing leases expire next January.

We are also finalizing plans for our San Francisco Bay Area operations that will bring our facility closer to San Francisco's Moscone Convention Center and reduce our operating costs.

Our Marketing & Events team did a great job driving additional sales to help offset the revenue gap from this quarter's significant negative show rotations, and I want to thank the team for their dedication and hard work.

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

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

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

Thank you, Paul.

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

For the fourth quarter we expect an operating loss in the range of $0.35 to $0.25 per share as compared to the 2010 fourth quarter loss before other items of $0.20 per share.

We expect lower fourth quarter operating results from both our Marketing & Events Group and Travel & Recreation Group on relatively flat revenues.

The expected declines in the Marketing & Events Group's fourth quarter operating results to reflect move costs of about $1 million related to some of the facility consolidations that Paul mentioned earlier, as well as a less profitable mix of business as compared to the 2010 fourth quarter.

The expected decline in the Travel & Recreation Group's fourth quarter operating results is due to the acquisition of three new properties earlier this year.

These properties, like the rest of our Travel & Recreation businesses, produce seasonal operating losses during the fourth quarter.

More detailed fourth quarter guidance can be found in our earnings press release.

For the full year we expect substantial improvement over 2010 with total Company revenue growth of about 10% and an increase in segment operating income of about $8 million to $12 million, reflecting stronger results from both the Marketing & Events Group and the Travel & Recreation Group.

Our guidance for Marketing & Events Group's full-year operating income is approximately $3.4 million to $6.4 million as compared to an operating loss of $5.1 million in 2010.

Marketing & Events Group full-year revenues are expected to increase by approximately 10%.

Full-year revenues for our Travel & Recreation Group are expected to approximate $100 million with operating margins of approximately 20%.

The expected decrease in Travel & Recreation Group operating margins from 22.5% in 2010 reflects high flow-through on lost room nights at Many Glacier Hotel, due to construction during the 2011 season as well as a seasonal fourth quarter operating loss from the Denali properties that we acquired in late September.

Overall we are expecting our full-year income per share before other items to be approximately 2.5 to 3 times greater than 2010.

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

We expect full-year capital expenditures of approximately $20 million to $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 now I will open the call up for questions.

Could you please open the call for questions?

(Operator Instructions).

At this time I have no questions in queue.

Okay, thank you.

Just let me make a few closing comments.

2011 has been a successful year for Viad with large year-to-date improvements in profits over 2010 and strong topline growth.

The Marketing & Events Group is expected to return to profitability this year and our high-margin Travel & Recreation Group continues to grow.

During the year we closed three acquisitions for the Travel & Recreation Group, and we have a robust acquisition pipeline.

Our balance sheet remains strong and we expect to have good operating cash flow for the year.

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

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

In closing, I would like to once again thank Viad's employees for their continued hard work and dedication as we continue to transform our Company.

And I would also like to thank our customers for their ongoing support, and I thank all of you for being with us today, and we look forward to updating you on our progress in February.

Thanks again for being with us and have a great day.

This concludes today's conference.

Thank you for participating.

You may disconnect at this time.