Viad Corp (VVI) 2012 Q3 法說會逐字稿

Welcome to the Viad Corp. 2012 third-quarter earnings conference call. At this time, all participants are in a listen-only mode. (Operator Instructions). Today's conference is being recorded. If you have any objections, you may disconnect at this time. And now I'll turn the meeting over to Mr. Joe Diaz. Sir, you may begin.

Thank you, Gwen and thank all of you for participating on the Viad Corp. third-quarter 2012 earnings conference call. I would like to remind everybody 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 1 and 2 in the Business Group Highlights section of the earnings press release, which is available on the Viad website at 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 Viad's Marketing & Events Group and Michael Hannan, President of Viad's Travel & Recreation Group, will be available for comment during the question-and-answer session at the end of the call. With that, I would like to turn the call over to Paul Dykstra, Chairman, President and Chief Executive Officer of Viad Corp. Paul?

Thanks, Joe and thanks to all of you for participating on today's call. We appreciate your continued interest in Viad. As outlined in today's press release, we had a very strong third quarter and I want to thank all the employees of Viad for their great work during a very busy and successful quarter.

Revenue from our Marketing & Events Group increased 52% to $230.3 million, driven by better-than-anticipated revenue from non-annual events that took place during the quarter. In the US, two major non-annual shows, the International Manufacturing Technology Show and MINExpo, were significant contributors to quarterly revenue. In addition, base same show revenue was up 7% marking the ninth consecutive quarter of growth.

In our International segment, we delivered event services in more than 20 venues throughout metropolitan London for the 2012 London Summer Olympics and Paralympic Games, making a significant contribution to results for the quarter.

During the quarter, we were awarded a three-year contract to produce the National Rifle Association Annual Meetings and Exhibits beginning in 2013. The NRA Annual Meeting is a three-day major exhibition covering more than 400,000 square feet with more than 500 exhibitors and an estimated 70,000 attendees. We are pleased with this competitive takeaway and we look forward to working closely with the NRA for many years to come.

Also, during the quarter, in our International segment, we won a new contract to produce the Health Ingredients Tradeshow in Frankfurt, Germany. Our first production of this event occurs next month and continues our efforts to win targeted new shows in Continental Europe.

In our Travel & Recreation Group, revenue increased 20% during the quarter to $77.2 million. Revenue from our hospitality properties benefited from the initial peak season contributions from the recently acquired Alaska Denali Travel and the Banff International Hotel. The St. Mary Lodge & Resort and Grouse Mountain Lodge, both in their second year as part of the Travel & Recreation Group, also contributed to the increase in revenue.

Additionally, rooms that were under renovation at the Many Glacier Hotel in 2011 provided a full revenue contribution in the third quarter of 2012. Revenue for the quarter was also favorably impacted by increased passenger traffic at Brewster's attractions, including the Banff Gondola, the Columbia Icefield and the Banff Lake Cruise.

For the first nine months of 2012, Viad's consolidated revenue was up 10.4%; operating income was up 54.3%; and our operating margin was 6.1% compared to 4.4% for the first nine months of 2011.

We are very pleased with the revenue growth and performance of both business groups. We are dedicated to consistent execution on our initiatives to operate in the most cost-efficient manner, to drive organic growth and to integrate strategic acquisitions that are accretive to Viad's results.

While the results of the quarter end of the year to this point are very positive, we recognize that we need to continue to improve and drive efficiencies throughout the Company and we are confident in the direction we are heading.

Now, I am going to turn the call over to our Chief Financial Officer, Ellen Ingersoll, for a detailed review of the financial results of the quarter and our forward-looking guidance. At the conclusion of Ellen's remarks, I will provide some additional perspective and we will open the call for your questions. Ellen?

Thanks, Paul and thanks to all of you for joining our call this morning. As I cover our third-quarter results, you may want to refer to Tables 1 and 2 in the Business Group Highlights section of our earnings press release.

As Paul mentioned, we had a very strong third quarter. Income before other items was $1.01 per share, better than our prior guidance and $0.95 higher than our 2011 third-quarter income before other items of $0.06 per share. By definition, our 2012 third-quarter income before other items excludes restructuring charges of $0.02 per share, which primarily relates to the elimination of certain positions in the Marketing & Events Group.

Viad's consolidated revenue increased 42.2% to $307.5 million and segment operating income increased $28.8 million to $34.2 million. These increases reflect stronger year-over-year results across all three of our reportable segments. The Marketing & Events Group US segment posted revenue growth of $51.6 million, or 44.1% with a $16.5 million improvement in operating results. These improvements were driven by positive show rotation revenue of approximately $56 million, same show growth and continued focus on margin improvement.

As a reminder, show rotation refers to shows that occur less frequently than annually, as well as shows that shift quarters from one year to the next. Base same show revenue or revenue derived from shows that take place in the same city during the same quarter each year grew 7.3% to $49.5 million as compared to $46.2 million in the third quarter of 2011. Throughput on revenue growth during the quarter was strong at 32%, reflecting our ongoing efforts to drive operating efficiencies and to keep a tight control of our discretionary expenses.

The Marketing & Events Group International segment posted revenue growth of $29.3 million, or 76%, with a $6.5 million improvement in operating results and an operating margin of 5.1%. These increases were primarily driven by work for the 2012 London Summer Olympic and Paralympic Games, as well as positive show rotation of approximately $11 million.

Foreign exchange rate variances had an unfavorable impact on revenue of $1.6 million and a favorable impact on operating income of $69,000. The favorable impact on operating income was a result of a relatively strong US dollar during months in which our foreign operations generated operating losses.

Our Travel & Recreation Group delivered revenue growth of $12.7 million, or 19.7%, with a $5.7 million increase in operating income and an operating margin of 40.6%. The acquisitions of the Alaska Denali Travel business and the Banff International Hotel contributed $7.3 million and $3.1 million of the year-over-year revenue and operating income growth respectively. Excluding these new properties, revenue was up $5.3 million, or 8.3% and operating income was up $2.7 million, primarily reflecting availability of all rooms at Many Glacier Hotel and other organic growth, as Paul discussed earlier. Foreign exchange rate variances negatively impacted revenue and operating income.

Now I'll cover some cash flow and balance sheet items. Free cash flow increased $21.4 million to $45.2 million for the 2012 third quarter, primarily reflecting the increase in net income. Capital expenditures were $5.8 million for the 2012 quarter versus $4.5 million in the 2011 quarter. Depreciation and amortization expense was $8.6 million versus $7.6 million in the 2011 quarter and payment center restructuring reserves were approximately $1.1 million in the 2012 quarter versus $1 million in the 2011 quarter.

Our balance sheet remains strong. At September 30, 2012, Viad's cash and cash equivalents totaled $124.2 million compared to $78 million at the end of June. And our total debt at the end of September was $2.3 million with a debt to capital ratio of 0.5%.

Now I will cover our guidance for the fourth quarter and full year 2012, which 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 revenue. Show rotation is expected to have a positive impact on full-year revenue of about $16 million while exchange rate variances are expected to negatively impact revenue by about $5 million versus 2011.

Marketing & Events Group segment operating income is expected to increase by $11 million to $13 million, driven primarily by continued improvements in US segment profitability. Travel & Recreation Group full-year revenues are expected to increase by approximately 20% from 2011, driven by the acquisitions of the Banff International Hotel in March 2012, Alaska Denali Travel in September 2011 and St. Mary Lodge & Resort in June 2011, the availability of all rooms at Many Glacier Hotel following construction closures in 2011 and organic growth. Exchange rate variances are expected to negatively impact revenue by about $2 million versus 2011.

Travel & Recreation Group operating margins are expected to approximate 2011 margins of 19.8% and reflect higher SG&A expenses versus 2011, including increased performance-based incentives, as well as costs related to additional resources to support our growth strategy of refresh, build, buy.

Corporate activities expense is expected to be approximately $9 million. Our full-year cash flow from operations is expected to be between $45 million and $50 million. We expect full-year capital expenditures of approximately $38 million, which includes an estimated $12 million for construction of the Glacier Discovery Walk attraction. And depreciation and amortization expense is expected to approximate $30 million.

For the fourth quarter, we expect Viad's seasonal loss for other items to be in the range of $0.43 to $0.33 per share and this compares to the 2011 fourth-quarter loss per share of $0.27. Revenue is expected to be in the range of $196 million to $207 million as compared to $197.4 million in the 2011 quarter. We expect a segment operating loss in the range of $10.5 million to $7.5 million as compared to a loss of $7.2 million in the 2011 quarter. Additional details regarding our 2012 outlook can be found in the earnings press release. And back to you, Paul.

Thanks, Ellen. As we are now in the fourth quarter, I want to remind everyone that this is a seasonally very slow quarter for both businesses as GES tradeshow activity slows considerably due to the holiday season and at Travel & Recreation, the fourth quarter begins the off-season when many of our properties are closed.

We use this time to plan for our very busy first-quarter show schedule and to execute many of our projects at Travel & Recreation. At GES, we have been working very hard to improve our operating margins and have made good progress forecasting an improvement to approximately 2% for the 2012 full year. We have also established a strategic goal of achieving an operating margin of 5% for 2014.

As indicated in today's earnings press release, 2012 is a year that has benefited from positive non-annual show rotation. 2013 will be a year with significantly less revenue from non-annual events resulting in net negative show rotation of approximately $55 million.

Despite this headwind, we expect our Marketing & Events Group to deliver improved operating profits and are targeting a 2.5% margin for 2013. We expect to achieve this through very focused cost control and targeted business development opportunities. As we continue to build momentum in 2013, we will set the stage for strong throughput in 2014, which will also benefit from significant non-annual show revenue with net positive show rotation in the range of $60 million to $65 million.

To that end, we continue to execute against a number of margin improvement initiatives designed to, number one, more effectively manage our labor costs across our entire Marketing & Events Group; number two, reduce the physical footprint and the overhead associated with our US warehousing operation; and number three, garner price increases and focus business development efforts to attract new customers and increase our share of spend by exhibitors.

As it relates to labor costs, we are focused on driving productivity gains through rigorous and strategic preshow planning on our highest opportunity events and are seeing the benefits as measured by an improved labor to revenue ratio on a same show basis. We are also working to develop new tools to support systematized show site labor planning, measurement and benchmarking.

On the facility side, we have taken out approximately 400,000 square feet of warehouse space during the first nine months of 2012 bringing our total square footage reduction to approximately 1.1 million since the end of 2008. These facility reductions are translating into meaningful savings. As compared to 2011, our US facility costs in 2012 should be about $1.5 million lower for the full year with about $400,000 of that year-over-year savings being realized in the third quarter. And as compared to 2008, our US facility costs for the 2012 full year will be about $6 million lower.

We also continue to make progress on profitable top-line growth. Base same show revenue for the nine months increased 8.1% versus a comparable nine months last year and we've continued to leverage our leading market positions and capabilities to win new business both domestically and internationally.

We believe that the dynamics of the tradeshow and exhibition business continue to improve. As it relates directly to Viad, we have realized nine consecutive quarters of same show growth. During 2012, we have seen an increase in overall square footage and the number of exhibiting companies, which has helped drive an increase in freight weight on our shows.

In addition, the Center for Exhibition Industry Research has reported that attendance at US shows was up 4% for the first half of 2012. This leading indicator bodes well for 2013 shows and beyond.

In our Travel & Recreation Group, our hospitality properties in and around national parks in the Western United States and Canada continue to generate positive results. We continue to see perennial demand to the national parks in which we have properties. In addition, our customers are very interested in unique activities that they can engage in while they visit iconic destinations like Banff, Denali Alaska and Glacier Park. This is borne out by the solid performance of our attractions business.

In that regard, we expect that our new attraction, the Glacier Discovery Walk, will be operational by the middle of the 2013 tourism season and provide a full season contribution in 2014. We look forward to the opening date with great enthusiasm.

There are significant opportunities ahead for both of our businesses. We have excellent teams in place focused on growing their respective businesses in the most productive and efficient manner possible. The financial foundation of the Company is very strong with a solid cash position and very little debt.

In addition, the Board of Directors of Viad has made it clear that rewarding our loyal shareholders with a meaningful dividend is important as we continue to execute our strategy. We are excited about the opportunities ahead in the coming years.

With that, let's open up the call for your questions. Gwen, if you could open up the line for questions, please.

(Operator Instructions). Matt Madej, Northcoast Research.

Thank you. Thanks for taking my question. I wanted to ask a couple of questions on the Marketing & Events side of the business. If you look at pre-bookings for 2013, despite the negative show rotation that we are looking to have, do you see potential for a positive revenue growth in this segment next year? Is there potential there for that?

Good morning, Matt. Yes, we continue to see growth in shows. I think one of my comments in the prepared comments was that, for the first half of the year this year, we've seen a growth in attendance. And that is a good leading indicator for space sales for next year's show. So we have got decent visibility into 2013, probably not as good as we used to have. And we have continued to see that, if the industry expects growth, so the Center for Exhibition Industry Research expects growth of about 3% in 2013. We have been enjoying growth faster than that by some of our efforts to improve our own same show growth and year-to-date, that is about 8%. So as we look ahead to 2013, we certainly expect to continue to drive same show growth and we think the health of the industry looks good right now for continued show growth.

Great, that is very helpful. Thank you. Now, just as a follow-up, I wanted to look at the Travel & Rec business. Firstly, I was wondering if you had an update regarding the Glacier Park concession contract process and also how do you continue to view the acquisition pipeline in this business? Thanks.

Yes, the Glacier Park contract we expect -- first of all, we have that contract through 2012 and for all intents and purposes, we have it for 2013. However, we do expect that, possibly this year or early next year, we will see a prospectus and that contract will go out for bid. So we are anticipating that. Again, we have got a good relationship with parks. We have had that contract for a long time. I think we feel good about the renewal of it, but it will be a competitive bid process that we do expect to come out either sometime this year or early next year. I'm sorry, Matt, what was your second question?

My second question related to activity in the Travel & Rec space.

Sure. We continue to have a good pipeline in the Travel & Rec space. Of course, the primary place that we would look is in and around our existing properties. These are things that would have to be a good cultural fit and very much a good economic fit.

Excellent. Thank you.

Matt, I just want to clarify one thing on the GES revenue. The show growth and other revenue growth in '13 will offset some of the negative show rotation, but revenue is still likely to be down a bit.

That's helpful. Thank you.

(Operator Instructions). Steve Altebrando, Sidoti & Company.

Hi, guys, how are you?

Good morning, Steve.

Just a couple things I want to clarify. First, the 2.5% operating income for 2013, the target, is that for -- in Marketing & Events -- is that International and US combined?

That is for overall Marketing & Events, yes.

Okay. And then in terms of your guidance for 2012 for the Marketing & Events segment, the $11 million to $13 million, maybe I am mixing apples and oranges here, but you are already up to, I guess, $22 million through the first three quarters of the year. If you could help, I guess, clarify that. I know the fourth quarter will be negative.

Right, the fourth quarter is seasonally very slow and it is a projected loss for the quarter, which brings down the overall income for the year.

But I think what you had provided was, what, $3.5 million to $5.5 million negative?

Exactly.

Yes.

Okay. Well, I am just getting a higher -- the numbers don't seem to add up to me. It seems like there could be maybe upside to the full-year operating income. Is there -- maybe reflecting some conservatism in there or --?

No, with our $21.9 million year-to-date and our expected fourth quarter, we are within that band of $11 million to $13 million.

Okay. And --

The fourth quarter is pretty comparable to last year, so --.

Okay. In terms of International, anything -- if you could give any color what you are seeing, particularly in the UK, anything that would cause you some concern as you look out to 2013 just given the economic circumstances in Europe.

Yes, I think we haven't seen as robust a recovery in the UK market that we have seen certainly in the US, but we do command a very nice marketshare there. So we have continued to grow by taking more marketshare. Steve, would you comment on what you see next year for International?

Sure, thanks, Paul. I think what we see right now is the recovery isn't as fast as it is in the US in terms of same show growth, but we do see a steady trend and our opportunities in the European market are really around marketshare faster than the same show growth. I think that is our key opportunity in the International segment.

Okay, that's helpful. And then you mentioned some marketshare gains in the GES segment. Do you suspect they are coming from industry consolidation that you have seen and if that is the case, do you think there is room for further gains based on some of the consolidation we have seen in the industry?

Yes, again, let me make a comment and I will ask Steve to comment as well. I mean we are really focused in a couple areas on the revenue side. One is a very targeted approach to new show wins and I think we are seeing that in wins like the National Rifle Association where we are successfully selling our capabilities to these new shows. The other area is a continued focus on driving same show growth. So capturing additional discretionary spend on the shows that we produce. Steve, would you add to that?

Sure. Thanks, Paul. Yes, I think that there is definitely opportunity for us to continue to grow. We see new business opportunities on the horizon. We also see nine consecutive quarters of solid same show growth in the US market. And what I am most proud of or happy about is that as we get into this, there has been a lot of pricing stability in the market, which allows us to compete on our capabilities. So we are winning things because of our international footprint, because of our capabilities around operations and around our creativity and design. And those are the areas that we want to compete in and confident that we can win.

Okay, thank you. And then the last one, just touching on one of the earlier questions, I know you would be interested in acquiring likely hotel assets, but you are sitting on a lot of cash right now. If there aren't opportunities that come up near term, are there plans for potentially using that cash for alternative means, possibly share repurchases for one?

Sure, Steve. As you know, we have increased our dividend 150% to $0.10 a share per quarter. So we have done that. We really look at four things -- organic growth, acquisitions, share repurchases and dividends. So all of that is under consideration with the dividend increase being the most recent step.

Okay. Thanks, guys.

And Steve, let me clarify on the Marketing & Events operating income, the $11 million to $13 million is an improvement over the $5.2 million of last year.

Okay, I see that. That is the variance then.

Okay, sure.

Thanks, Steve.

At this time, there are no further questions.

Okay, again, I would like to thank Viad's employees for a strong third-quarter effort and I would like to thank all of you for participating on today's call. We appreciate your continuing interest in Viad and we look forward to talking with you again at the conclusion of the fourth quarter. Have a great day.

This does conclude today's conference. Thank you for attending. You may disconnect at this time.