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Operator
Welcome, and thank you for standing by.
At this time, all participants are in a listen-only mode.
After the presentation, we will conduct a question-and-answer session.
(Operator Instructions) This conference is being recorded.
I would now like to turn the call over to Melinda Keels, Investor Relations.
Ma'am, you may begin.
- Director - IR
Good morning, and thank you for attending our conference call.
I would 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 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 & 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.
Now I will turn it over to Ellen to discuss financial results.
- CFO
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 $0.12 per share, better than our prior guidance but down from $0.49 per share in the 2011 first quarter, primarily due to negative share rotation.
By definition, income before other items excludes restructuring charges of $0.07 per share in the 2012 quarter, and $0.01 per share in the 2011 quarter.
The charges are primarily related to facility consolidations and the elimination of certain positions in the Marketing & Events Group.
Viad's revenues for the quarter were $268.8 million as compared to $290.1 million in the 2011 quarter.
Segment operating income was $5.5 million as compared to $17.3 million in the 2011 quarter.
Our Marketing & Events Group's first quarter revenue was $262 million as compared to $284.3 million in the 2011 quarter, and operating income was $11.1 million as compared to $21.7 million in the 2011 quarter.
The expected declines in the 2011 quarter reflects $47 million in negative share rotation revenue.
US segment revenue for the quarter was $206.9 million, with operating income of $7.2 million.
The declines from the 2011 quarter were primarily related to negative share rotation revenue of $45 million, partially offset by base same-show revenue growth of 9.3%, and increased exhibitor spending.
International segment revenue was $57.8 million, up $3.8 million from 2011, and operating income was $3.9 million, up $72,000 from 2011.
The revenue increase was primarily driven by increased demand and new show wins in Canada, partially offset by negative show rotation revenue of approximately $2 million.
Unfavorable foreign exchange rate variances impacted revenues and operating income by approximately $1 million and $96,000, respectively, compared to 2011.
Our Travel & Recreation Group met the high end of our prior guidance for a seasonally slow first quarter.
Revenue was $6.7 million, with an operating loss of $5.6 million, as compared to revenue of $5.8 million and a loss of $4.5 million in the 2011 quarter.
The revenue increase was primarily due to organic growth at Brewster and the acquisition of the Banff International Hotel during March.
The operating income decline versus the 2011 quarter reflects seasonal operating losses at the Denali properties in St.
Mary Lodge and Resort, which were acquired later in 2011.
Additionally, foreign exchange rate variances had an unfavorable impact on revenue of approximately $106,000, and favorable impact on operating income of approximately $43,000, as compared to the 2011 first quarter.
Now I will cover some cash flow and balance sheet items before turning the call over to Paul.
Pre-cash flow with an outflow of $5.6 million for the quarter, as compared to inflow of $11.9 million in the 2011 first quarter, primarily reflecting lower net income and changes in working capital.
Capital expenditures were $7.5 million for the 2012 quarter versus $7.7 million in the 2011 quarter.
Depreciation and amortization expense was flat to the 2011 quarter at $7 million, and payments on our restructuring reserves were approximately $800,0000 in the 2012 quarter, versus $1.6 million in the 2011 quarter.
Our balance sheet remains strong.
At March 31, 2012, Viad's cash and cash equivalents totalled $71.6 million, compared to $100.4 million at year-end, reflecting $23.6 million used to acquire the Banff International Hotel.
Our total debt at the end of the quarter was $2.9 million, with a debt-to-capital ratio of 0.7%.
Now I will turn the call over to Paul.
- Chairman, President, CEO
Thanks, Ellen.
Good morning, everyone, and thank you for being with us.
We had a strong start to the year, thanks to solid performance from both of our operating groups.
As Ellen mentioned, we were successful in driving better-than-expected revenue, which enabled us to post segment operating results at the high end of our prior guidance.
The Marketing & Events Group had a solid first quarter, with strong US-based same-show revenue growth.
Many shows saw increased exhibitor participation, and we successfully captured additional exhibitor spending with solid execution and great customer service.
On past calls, we have talked about the strength of GES's creative capabilities.
For the third year in a row, GES has been recognized by Ad Age magazine as one of the world's top 50 agency companies and as one of the largest US event marketing agencies.
The 2012 report, which will appear in the publication's April 30 issue, adds credence to the quality and strength of our creative capabilities.
Our compelling value proposition and focus on the customer continues to translate into new business wins.
During the quarter, GES won Metso's exhibit business for Mine Expo International 2012.
Metso is a global technology and service supplier to businesses in the industrial sector.
We won the account due to our familiarity with the industry, the breadth and depth of our services and our compelling design.
Which includes five interactive kiosks, a super-sized eight-foot replica iPad that will introduce a new app, a two-story hospitality area, and private conference rooms.
In addition, GES is very proud to have been selected by Bruce Mau Design to fabricate and install new lobby environments for General Electric in support of its GE Works campaign.
During the first quarter, GES completed permanent installations in eight GE locations across the US, and one in Germany.
We were selected based on our experience in fabricating top-quality permanent installations, our global reach, and the strength of our team.
We anticipate extending this partnership to rollout the new lobby environments at additional GE locations in the future.
GES also produced new exhibits for IDEXX Laboratories, a leader in pet healthcare.
IDEXX was looking for a new partner to create an entire attendee experience, which included designing and producing three new exhibits, as well as integrated marketing and measurement services.
We won the program based on our compelling creative designs and our ability to create and deliver a fully integrated program.
The new program debuted during the first quarter with a best-of-show win, and GES will manage their program at other industry shows throughout the year.
In February, GES produced a brand new show called MODEX for the Material Handling Industry of America, which has been a GES client for more than 25 years.
We have successfully serviced various events for Material Handling over the years, including ProMat.
We are honored to have been selected as their partner for the launch of MODEX, which spanned 180,000 square-feet, featured 586 exhibitors, and welcomed nearly 20,000 visitors from 96 countries.
MODEX will take place in even years, while ProMat will continue to take place in odd years.
Our branded entertainment operation continues to experience success.
Harry Potter, the exhibition, ended its run at the Powerhouse Museum in Australia earlier this month, garnering the exhibition's highest average daily attendance of more than 2,600 visitors per day.
The exhibition is on its way to Singapore's ArtScience Museum at the Marina Bay Sands Resort, where it will open on June 2nd.
The international segment of our Marketing & Events Group is also experiencing success.
We are leveraging our leading market positions to win new business and expand our global market share.
During the first quarter, GES Canada experienced improved fundamentals in show demand in same-show growth.
In addition, the team won multiple Vancouver shows from competitors during the quarter.
GES Canada opened its Vancouver facility during the first quarter of 2011 and is the only full-service, national contractor in this growing market.
The strength of our worldwide network and our ability to provide single-source global support is resulting in continuing wins for Melville in Europe and the Middle East.
Melville was again selected as the contractor for several rotating shows it previously produced in other geographies.
The International Association of Amusement Parks and Attractions awarded us its 2012 European Attractions Show in Berlin, based on our success producing last year's show in London.
Melville was also selected as the contractor for WorldSkills UK, the skills show, based on our previous success producing WorldSkills London 2011 and WorldSkills Calgary in 2009.
United Business Media selected Melville as the contractor for World Routes 2012 in Abu Dhabi after we successfully produced the annual Airline and Airport networking event in Berlin in 2011.
We are pleased to again work with these esteemed show organizers to produce these great events.
Later this summer we will service a number of clients at the 2012 Olympic and Paralympic Games in London, providing a variety of contracting and design and build services across the city.
We have been successful in winning the lion's share of the contracting business for various Olympic venues, and we continue to pursue other opportunities related to the event.
We signed more than $55 million in show contracts in the US during the quarter, and we have approximately 60% of our remaining forecasted revenue under contract for 2012.
Our show revenue backlog remains strong at about $1.1 billion under contract for 2012 and beyond.
We expect our success in winning and retaining business as well as continued industry improvements to translate into solid revenue growth for this year.
In addition to top line expansion, we are keenly focused on driving more of that incremental revenue to the bottom line, and reducing the amount of invested capital in our business to boost returns on invested capital at GES.
One of our major current initiatives is aimed at both reducing operating costs as well as invested capital, by improving the efficiency and performance of our US service delivery network.
Specifically, we are rationalizing our facilities inventories and equipment in order to meet the demand patterns of our business in the most cost-effective manner, while maintaining or improving our high service levels.
Over the past several months, we consolidated or down sized 10 facilities in six US markets.
Most recently, we re-structured our retail line of business and fully integrated it into the rest of the US operating network.
By doing this, we eliminated significant facility and operating expenses and are better able to leverage the strengths and resources of the broader network.
Our efforts to improve the efficiency and performance of our US service delivery network are ongoing.
We are also intensely focused on continuous improvement in labor management, which has long been a priority for our organization.
As a service business, our single largest cost is labor.
Fortunately, a large portion of our labor is variable and incurred only as we produce shows, so we can flex up and down based on the volume of business.
Much of this variable labor is governed by collective bargaining agreements and during the past few years, we have been affected by contractual labor rates that were negotiating during much stronger economic times.
Our recent contract renewals reflect increases that are in line with the realities of the current economy.
In addition to more reasonable labor rate increases, we are also reviewing our labor management practices and tools to help drive additional labor productivity gains.
We had a good start and a solid -- a good quarter of a solid start to the year, and I want to thank Steve Moster and his GES team for a successful first quarter, for their relentless focus on delivering increased returns and increased value for our customers.
Now I will cover highlights for the Travel & Recreation Group.
The Travel & Recreation Group made important progress against its Refresh, Build and Buy strategic growth initiatives, all while posting solid organic growth during a seasonally slow period.
During the quarter, we continued refreshing key assets, including upgrading guest rooms, public spaces, and guest amenities at Grouse Mountain Lodge, and improving the efficiency of the service areas of St.
Mary Lodge and Resort.
From a build perspective, Brewster received regulatory approvals to construct a new high-margin attraction in Jasper National Park.
The Glacier Discovery Walk will be located directly off the ice field's parkway, adjacent to our existing Ice Explorer attraction.
We expect construction of the Glacier Discovery Walk to begin this summer, with a Grand Opening in the 2013 season.
Finally, from a buy perspective, we completed the acquisition of the Banff International Hotel, a 162-room property located in the heart of Banff, Alberta.
The Banff International is a natural fit with our existing hospitality, attraction, travel planning and transportation assets that builds upon the strong foundation we have established in Banff.
The property features full service accommodations, including a restaurant and recreation facilities, and is within walking distance of restaurants, museums and shopping.
The acquisition increases our shares of the finite number of rooms available within Banff National Park, where federal regulations restrict any increase in room supply.
It also enhances our ability to serve as tour operator and independent traveler needs, and gives us direct access to additional visitors to cross-sell our high-margin attractions.
We are excited to offer this new product to our valued customer base and look forward to serving our customer needs with an expanded portfolio of high-quality experiential products and services.
I want to thank Michael Hannan and the Travel & Recreation team for their passion and dedication to delivering a great guest experience and driving profitable growth.
I am very excited about our progress and as I look ahead, I see tremendous opportunity.
We are feeling some economic tailwinds in executing well.
We expect 2012 full-year results to substantially improve over 2011, and we will see strong growth in profits from both the Marketing & Events Group and the Travel & Recreation Group.
We expect the Marketing & Events Group to benefit from continued industry growth and the cost-structure improvements we made during the past few years.
Although first quarter results were below prior year due to show rotation, we expect significant positive show rotation in the third quarter and continued same-show growth to drive full-year revenue growth.
We remain focused on continuing to increase efficiencies and drive down costs to ensure our revenue gains translate into meaningful bottom-line improvement.
Our Travel & Recreation Group will benefit from a full-year of ownership of the Denali properties and the Banff international Hotel acquisition.
Additionally, the rooms that were closed for renovation at Many Glacier Hotel in 2011 will be back online for 2012.
Glacier National Park has had an unusually mild winter.
This bodes well for an earlier opening of the Going-to-the-Sun Road than we had in 2011.
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 it's Refresh, Build and Buy strategy to increase shareholder returns.
With that, I will turn the call back over to Ellen to provide some more specific guidance for 2012 full-year and for our second quarter.
- CFO
Thanks, Paul.
Our current guidance reflects our best estimates based on information available at this time.
Marketing & Events Group full-year revenues are expected to grow at a single-digit rate compared to 2011, with mid single-digit growth in US same-show revenues.
Show rotation is not expected to have a meaningful impact on full-year revenue.
Marketing & Event Group's segment operating income is expected to increase by $6 million to $8 million, driven primarily by continued improvements in the US segment profitability.
Travel & Rec Group full-year revenue is expected to increase by approximately 20% from 2011.
This is up from our prior guidance of 15%, primarily due to the acquisition of the Banff International Hotel.
The revenue increase versus 2011 also reflects the acquisitions of the Denali Backcountry Lodge and Denali Cabins, acquired in September 2011; and Saint Mary Lodge and Resort, acquired in June 2011; the availability of all rooms at Many Glacier Hotel following construction closures in 2011; and organic growth.
Travel & Recreation Group operating margins are expected to be comparable to 2011 margins of 19.8%.
Corporate activities expense is expected to be approximately $9.5 million.
This is up from our prior guidance of $8 million, primarily due to costs related to the amendment and restatement of our shareholder rights plan, as well as higher legal costs related to employee benefits associated with previously divested operations.
Our full-year cash flow from operations is expected to approximate $45 million.
We expect full-year capital expenditures of approximately $45 million, which includes an estimated $15 million for construction of the Glacier Discovery Walk attraction.
Depreciation and amortization expense is expected to approximate $30 million.
For the second quarter, we expect income before other items per share to be in the range of $0.08 to $0.19, as compared to $0.26 per share in the 2011 quarter.
Revenue is expected to be in the range of $235 million to $250 million, as compared to $238.7 million in the 2011 quarter.
We expect segment operating income to be in the range of $6 million to $9.5 million, as compared to $9.9 million in the 2011 quarter.
Additionally, corporate activities expense is expected to be approximately $1.5 million greater than the 2011 quarter, primarily reflecting higher expenses as previously discussed in our full-year guidance.
Additional details regarding our 2012 outlook can be found in the earnings press release.
And with that, let's open the call up for questions.
- Chairman, President, CEO
Mary Ann, can you open up the lines, please?
Operator
(Operator instructions)
John Healy, Northcoast Research.
- Analyst
Thank you.
Paul, I wanted to ask a little bit about the Travel & Recreation business.
With a couple of things you have coming in with the numbers this year, with the rooms that came back online and the acquisition, what is the core business that you had the last year?
What is the growth rate of that business for this year, if you can try to isolate that?
- Chairman, President, CEO
I will give you some estimates.
We do have organic growth built in this year, so the properties that were online last year, year-over-year, this year we're expecting mid-single-digits growth.
When you add back in Many Glacier Hotel coming back online, that takes it into the upper-single-digits organic growth for the year.
- Analyst
Okay, great.
That's very helpful.
And then I wanted to ask about the commentary you made in the comments this morning about the incremental pickup in the corporate expense -- I think $1.5 million or so.
Is that something that would stay in the numbers for next year, or is this a one-time item?
- Chairman, President, CEO
One-time item in both cases.
- Analyst
Okay, perfect.
And then, I wanted to ask -- as you talk about labor rates, I appreciate the color on that.
Can you talk to how long this process might take for you guys to recover some of the margins?
And how meaningful do you think that could be as you start the anniversary of those contracts and begin to get the current dynamics of the market priced into those rates?
- Chairman, President, CEO
Sure, I will make a comment, and then I'll ask Steve to add some color, too.
Contracts that were signed in 2007 and 2008 -- we had 3-year deals, and, in some cases a 4-year deal that were rolling off in '10 and '11.
Those that were signed in '07 and '08 were signed in clearly much better economic times, and the rate increases were probably not in line with what we saw in the economy in 2009 and 2010.
I think the good news is, now, with contracts that have come up for renegotiation since the beginning of 2011, we're seeing much more reasonable rate increases.
Often times no increase in year one, and then very reasonable increases over the three-year period.
So that's substantially better than those contracts that were signed three or four years ago.
Now, the trick is, again, in still what is a fairly competitive environment from a pricing standpoint, but we do feel like we have price increases now that are more reflective, are starting to come back a little bit as the market firms.
Which gives us an opportunity to have price increases greater than our labor rate increases.
It's going to be a little bit of a slow process, but we are starting to see some improvement this year, and I expect that improvement will carry over into the next couple of years, as well.
Steve, is there anything you would add to that?
- President, Marketing and Events Group
No, I would just add that the agreements that we have reached reflect the economic times now.
And we also have a focus on improving the efficiency at which we manage the labor at show site, which has a direct impact, as well.
- Analyst
Okay, great.
And then just one final question -- you talked about the Discovery Walk.
How should we think about the investment you guys are making into getting that attraction up and running?
Is that primarily due to P&L this year?
Or what sort of CapEx investment are you making, and does that carry forward into next year?
- Chairman, President, CEO
The bulk of CapEx for that investment will hit this year and it will hit in the form of capital expenditures on our books.
It is a construction project.
It will be about $15 million incremental CapEx this year, John.
And probably $1 million or $2 million next year to finish it up.
So we are hoping to have this thing open and online.
It's a tremendous win for us, because it is not easy to get things approved inside a national park, and Michael and his team have worked very hard.
Michael, would you add anything to that?
- President, Travel & Recreation Group
No, I think you covered it well, Paul.
We are obviously quite excited about this.
It's one of our very high-margin businesses in the attractions line.
Getting something like this inside a national park on a long-term lease basis is really, we believe, something quite valuable, as has been shown in the businesses that we currently operate within the national park.
And I don't think an attraction of this magnitude has been approved in 40 or 50 years in the national parks.
- Analyst
Great.
Thank you.
Operator
(Operator instructions)
Carter Newbold of Rutabaga Capital.
- Analyst
Good morning.
Staying a little bit on the same theme, I am just wondering if you could speak broadly across the Refresh, Build and Buy capital that you are putting to work in the Travel & Rec business -- how you think about the risk profile of each of those activities?
What kind of expected returns are you demanding for a dollar of capital to flow out?
I don't want you to give away too much, but if you are willing to talk about and you can say anything more about the Glacier Discovery Walk.
You said very high margins, but how should we think about returns on capital on something like that?
- Chairman, President, CEO
These are all very high return-on-capital businesses and high-margin businesses.
So the hotels that we are buying -- we are gaining hard assets.
And we're getting them in places where, like the Banff International, within the national park, the Canadian federal government regulates any building and it's very restrictive.
So there is very good quality of those assets.
From a risk profile, the things that we are buying are very much right in our wheelhouse and things that we already do, and are fairly easy for us to bolt on.
The Glacier Discovery Walk, I would say, just because of the nature of construction projects, it's probably got a little higher risk profile.
But we believe very strongly that, given that it is adjacent to our Icefield operation, we can leverage some existing infrastructure.
I don't remember the number of cars that drive through the parkway there, but it is tremendous.
We think we can capture more visitors there and really drive significant incremental profits through the Glacier Discovery Walk, as well as through our Icefield operations.
Michael, would you add anything to that?
- President, Travel & Recreation Group
I think you've covered it, Paul.
I'd just reiterate that we have a very significant operation at the Columbia Icefield with our Ice Explorer Tour product that is used by -- there's a million people that travel down that highway a year.
And a lot of tour operators utilize our products.
So the ability to bundle a package and create some excitement with this product we think will be tremendously exciting.
The message we are getting from the markets where we are active around the world, when people come and visit this destination, is they would like to see this thing up as quickly as possible.
Some people were trying to put it into their brochures already, and we had let them know that it is not quite ready yet.
So we are very excited about this opportunity.
- Analyst
I'm not sure I want to hear the answer to this question out loud, but did you face significant environmental opposition to the proposal?
- President, Travel & Recreation Group
There were some organized efforts, yes.
There actually was an online petition that gathered almost 200,000 signatures.
Of course, the online petition didn't represent the facts faithfully, and I think the government in Canada are focused on economic growth and benefits, and doing things in environmentally responsible ways.
So we went over and above and beyond the call of duty to make sure that all the environmental aspects of this project were looked at in detail.
We studied things like the goat population in the area and we did some mitigation work with Parks Canada.
And I think our relationship with Parks Canada allowed us to get this approved -- and the quality of the project.
- Analyst
Okay.
Ellen and Paul, just a question.
And I have asked similar questions in the past, but -- just the way you think about the capital structure of the overall business.
I could be wrong in the singular, but I don't think I am wrong broadly speaking.
There are very few public companies that are owners of primary travel and recreation assets that are unlevered.
I think you guys are extraordinary in that regard.
How do you think about what an ideal capital structure is, particularly as you are pouring more capital into that business?
And over what time frame, if that capital structure is significantly different than what you are carrying today, would you hope to get there?
- CFO
Yes.
We definitely don't have an ideal capital structure.
Over the last, probably, three years, we have had a significant focus on the Travel & Rec business in particular.
We have a very full acquisition pipeline.
We are buying properties as we see the opportunities coming about.
Our cash is now down to $70 million.
We do have a credit agreement where we have a minimum cash balance of $50 million.
So it won't be long now with our robust pipeline that we probably will be dipping into our revolver.
And then, obviously, after that we will be looking at other debt alternatives down the road.
But we do see that happening sooner rather than later now, which is obviously different for our company.
We haven't had a significant amount of debt in years.
- Analyst
Okay.
And then again, repeating a prior question -- is share of purchase on the table, versus the other possible expenditures on capital, as a source of value creation?
- Chairman, President, CEO
It's always on the table, but it has always been a lower priority for us after strategic acquisitions.
When we look at where we are on our cash balances, and based on what Ellen was just talking about, it is probably unlikely in the near-term.
- Analyst
Should we infer from that, that you think the returns on the external acquisition activity that you're doing are higher than buying back your own stock?
- Chairman, President, CEO
Yes, I think we're really looking at driving growth.
- Analyst
Okay, thanks.
Operator
And at this time there are no other questions.
- Chairman, President, CEO
Okay.
I want to thank you all for being with us again today.
First quarter got us off to a solid start for the year and we are focused on driving continued growth in revenues and profits in 2012.
We will continue to deliver high-quality customer service and capitalize on our market opportunities, while also increasing efficiencies and driving down costs.
I am very excited about the year, and we look forward to updating you on our progress in July.
Goodbye.
Operator
This does conclude today's conference call.
You may disconnect your phones at this time.