Viad Corp (VVI) 2013 Q1 法說會逐字稿

Welcome to the first-quarter 2013 financial results conference call for Viad Corp. At this time, all participants are in a listen-only mode. After presentations, we will conduct a question-and-answer session.

(Operator Instructions)

This conference is being recorded. If you have any objectives, you may disconnect at this time. I would now like turn the call over to Mr. Joe Diaz. Sir, you may begin.

Thank you, Mary Ann, and thank all of you for participating on the Viad Corp first-quarter 2013 earnings conference call. I would like to remind everyone that certain statements made during this call, which are not historical facts, may constitute forward-looking statements. Additional information concerning business and other risk factors that could cause actual results to materially differ from those in the forward-looking statements can be found in Viad's annual and quarterly reports filed with the SEC. During today's call, we will refer to Tables 1 and 2 and the Business Group Highlights section of the earnings press release, which is available on the Viad website at www.viad.com.

Today, you will hear from Paul Dykstra, Viad's Chairman, President, and Chief Executive Officer; and Ellen Ingersoll, Viad's Chief Financial Officer. Additionally, Steve Moster, President of Viad's Marketing and Events Group; and Michael Hannan, President of Viad's Travel and 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?

Thank you, Joe, and thanks to all of you for participating on today's call. We appreciate your continued interest and support of the Company. We are off to a very good start in 2013. Both the Marketing and Events Group and the Travel and Recreation Group delivered solid results in the first quarter. Viad's consolidated revenue for the quarter increased 6.1% to $285.2 million, and segment operating income more than doubled to $12.8 million.

The Marketing and Events Group performed at a high level during the first quarter, generating a 5.6% increase in revenue and 67% increase in operating income. Operating margins for the Marketing and Events Group improved by 250 basis points to 6.7%. For the quarter, we were successful in driving improved flow through on our incremental revenue. These improvements were driven by our company-wide focus on driving operating efficiencies, including the efficiencies generated through our service delivery network and labor management initiatives as well as positive show rotation and continued same-show growth. Our aim has been to optimize the utilization of inventory, equipment, and labor across a streamlined network of warehousing facilities to reduce costs, operating costs, and invested capital, while continuing to enhance the service that we deliver to our clients.

Overall, we have now reduced our US facilities footprint by approximately 1.2 million square feet and have realized annualized cost savings of nearly $7 million. In addition, we continue to realize improvements in our labor-to-revenue ratio. Today, we have greater flexibility to adjust our cost structure to address the ebbs and flows of the business, with the goal of continued improvement in operating margins. Having completed a successful first quarter, GES is nearly one-third of the way to hitting its revenue goal for the year and has delivered better-than-expected operating results, driven by solid day-to-day execution and an intense focus on expense control. It is important note that these improvements were achieved at the same time they were driving record highs in our customer service scores.

As it relates to the Travel and Recreation Group, we realized strong year-over-year revenue growth of 25%, during the seasonally slow first quarter. This growth was fueled by both organic growth and a full quarter's contribution from the Banff International Hotel, which we acquired in March of 2012. Organic growth was driven by successful sales and marketing activities and favorable weather conditions, which resulted in increased passenger traffic at our Banff Gondola and higher occupancy at our Grouse Mountain Lodge. We also benefited from a concerted effort to utilize our transportation assets during the slower winter season. In that regard, Brewster generated incremental transportation revenue in the first quarter through increased charter business and a new three-year contract with the Lake Louise Ski Resort to transfer skiers in and around the Banff area.

We are pleased with the operational and financial results of our two business segments for the first quarter. The entire Viad team continues to maintain a constant focus and discipline on delivering great client service, successfully executing our strategic initiatives, and achieving our near- and long-term financial goals. I appreciate everything the team does to deliver superior results for our customers and shareholders. Let me, now, turn the call to our Chief Financial Officer, Ellen Ingersoll, for a more detailed review of the first-quarter's financial results and our forward-looking guidance. After Ellen's review, I will provide some additional background, and we will open up the call for questions. Ellen?

Thanks, Paul. As I cover our first-quarter results, you may want to refer to Tables 1 and 2 and the Business Unit Highlights section of our earnings press release. Our first-quarter income before other items was $0.42 per share, higher than our prior guidance and up from $0.12 per share in the 2012 first quarter. The growth versus 2012 and upside to guidance were primarily driven by significantly improved performance from our Marketing and Events Group and lower corporate expenses. By definition, income before other items excludes restructuring charges of $0.02 per share in the 2013 quarter and $0.07 per share in the 2012 quarter. The charges primarily relate to facility consolidations and the elimination of certain positions in the Marking and Events Group.

Viad's revenue for the quarter was $285.2 million, up 6.1%, as compared to $268.8 million in the 2012 quarter. Segment operating income more than doubled to $12.8 million, as compared to $5.5 million in the 2012 quarter. Our Marketing and Events Group's first-quarter results were higher than our prior guidance, driven by stronger-than-expected growth in certain non-annual events and base same shows, as well as strong execution by the GES team. Revenue was $276.8 million, with operating income of $18.5 million, up $14.7 million and $7.4 million, respectively, from the 2012 quarter. Operating margins improved by 250 basis points to 6.7%. These results reflect approximately $10 million in positive show rotation revenue and continued same-show growth.

The Marketing and Events Group US segment posted first-quarter revenue of $218.3 million, up $11.5 million, or 5.5%, from the 2012 first quarter. US segment operating income was $14.1 million, nearly doubling first-quarter 2012 operating income of $7.2 million. These improvements were primarily driven by positive show rotation revenue of approximately $7 million, base same-show revenue growth of 2.4%, and continued focus on driving operating efficiencies. As compared to the 2012 first quarter, we realized a reduction of facility costs of approximately $450,000 and an improvement in the labor-to-revenue ratio of more than 100 basis points on our base same shows.

International segment revenue was $60 million, up $2.3 million, or 3.9%, from the 2012 quarter. Operating income was $4.4 million, up $535,000, or 13.9%, from the 2012 quarter. These increases were primarily driven by positive show rotation revenue of approximately $3 million, partially offset by unfavorable foreign exchange rate variances, which negatively impacted revenue and operating income by approximately $1.3 million and $210,000, respectively, compared to the 2012 quarter. Our Travel and Recreation Group met the high end of our prior guidance for a seasonally slow first quarter, with $8.4 million in revenue and seasonal operating loss of $5.7 million. As compared to the 2012 first quarter, revenue was up $1.7 million, or 24.9%, while operating results declined by $108,000.

On a organic basis, excluding January and February results from the Banff International Hotel, which we acquired in March of 2012, revenue increased by $1.1 million, or 16%, and operating results improved by $25,000. The relatively flat organic operating income on higher revenue primarily reflects costs related to planned resources needed to support our Refresh-Build-Buy growth strategy and to prepare our bid for the new Glacier National Park concession contract. Foreign exchange rate variances had an unfavorable impact on revenue of approximate $100,000, with a negligible impact on operating results, as compared to the 2012 first quarter.

Now, I will cover some cash flow and balance sheet items. Free cash flow was an outflow of $15.9 million for the quarter, as compared to an outflow of $5.6 million in the 2012 first quarter, primarily reflecting changes in working capital as well as higher dividend payments and capital expenditures. Capital expenditures were $8.3 million for the 2013 quarter, versus $7.5 million in 2012 quarter. Depreciate and amortization expense was flat to the 2012 quarter at $7 million. And, payments on our restructuring reserves were approximately $1.4 million in the 2013 quarter, versus $809,000 in 2012 quarter. Our balance sheet remains strong. At March 31, 2013, Viad's cash and cash equivalents totaled $95.7 million, and our total debt at the end of quarter was $2.5 million, with a debt-to-capital ratio of 0.6%.

Now, I will cover our guidance for the second quarter and full year 2013, which reflects our best estimates based on information available at this time. Marketing and Events Group full-year revenue is expected to decrease at a low to mid single-digit rate, compared to 2012, with low to mid single-digit growth in US same-show revenues. Show rotation is expected to have a net negative impact on full-year revenue of $55 million to $60 million. Marketing and Events Group segment operating margins are expected to reach approximately 2.5%, driven primarily by continued improvements in US segment profitability. Exchange rate variances are expected to negatively impact revenue by about $7 million. Travel and Recreation Group full-year revenue is expected to increase at a mid single-digit rate from 2012. Exchange rate variances are not expected to have a meaningful impact on revenue. Travel and Recreation Group operating margins are expected to approximate 20%, up from 19.5% in 2012.

Corporate activities expense is expected to approximate $8.5 million. Our full-year cash flow from operations is expected to be between $38 million and $42 million. We expect full-year capital expenditures of approximately $40 million to $45 million, which includes an estimated $12 million to $14 million for the construction of the Glacier Skywalk attraction. Depreciation and amortization expense is expected to be between $30 million and $32 million. For the second quarter, we expect Viad's income per share to be in the range of $0.27 to $0.37, as compared to the 2012 second-quarter income before other items of $0.29 per share. Revenue is expected to be in the range of $245 million to $260 million, as compared to $246.5 million in the 2012 quarter. We expect segment operating income in the range of $10 million to $13.5 million, as compared to income of $10.5 million in the 2012 quarter. Additional details regarding our 2013 outlook can be found in earnings press release. Back to you, Paul.

Thanks, Ellen, for that review. At this point, I would like to provide some additional background on a number of first-quarter developments. In the Marketing and Events Group, we are continuing to see increased demand on the part of both show organizers and corporate brand marketers to execute their global events in a coordinated fashion with a single event provider. They are looking for a seamless flow across borders with cultural and language capabilities, graphics expertise, and operating experience in the various markets in which they choose to hold their events. At GES, we are well positioned to provide this valued service with an established and leading global network. Last year, we not only produced projects in the major trade show venues in North America and Europe, but we also produced projects in 47 different countries, including places as varied as Azerbaijan, Iceland, and New Zealand. Chances are, if there's a major exhibition venue, we have successfully delivered projects there.

We support global companies by providing the best solutions no matter what region of the world they choose activate their brands. During the quarter, we provided cross-border services for a number of clients. We continued to support Dell's global event production, with events in Las Vegas, Madrid, Kuala Lumpur, Beijing, and Tokyo. And for our event organizer client, AUSA, we provided pavilions, exhibitory, furnishings, graphics, and on-site support for US military suppliers at a major defense show in the United Arab Emirates and will so again, later this year, in Turkey. In the upcoming months, we will produce events in Brussels and Paris for US organizers, diversified in IAPA. Our proven ability to execute events on the European continent was key to winning these pieces of business. Just recently, our global capabilities also helped us win a significant new exhibition program management contract with a major pharmaceutical company.

Beginning in the second quarter, we will provide a full range of exhibition program services, including program management, design, fabrication and measurement, for all of this client's events across North America and Europe. Our relationship with United Business Media, a leading B2B exhibition and event organizer, continues to grow, as they have appointed GES to be the exclusive supplier for all of the United Kingdom and much of Europe. This is in addition to work we do for UBM in the United States. The multi-year agreement, which began this past January, includes 30 shows in 6 different countries, including shows taking place in 17 different US venues.

Since our acquisition of Melville in 2007, we have been the leading exhibitions and events producer in the UK. We have fortified that position over the years through smart investments to expand the capabilities gap between Melville and its competitors. And, we have successfully used Melville as a beachhead to provide services in other European locations and launch event contracting operations in the Middle East, Germany, and most recently, Amsterdam. I am happy to report that we have completed the transition of the Melville brand to Global Experience Specialists, or GES, creating consistent branding for our seamless global reach.

In another important recent development, GES extended its capabilities this February through the acquisition of Resource Creative Limited, a premier graphic service supplier in the UK and Europe. This comes on the heels of securing a 10-year agreement with ExCel London to supply graphics and be the preferred exhibition services supplier for all congress and event work at this premier international venue. The acquisition of Resource Creative supports our growing London graphics operation and augments our presence in Europe. Again, as organizers and exhibitors increasingly look to execute their global marketing events in a coordinated fashion, GES is well positioned to be that single point of contact.

Our leading and well-established global network allows us to provide our clients a unique value proposition for the seamless production and management of their marketing events throughout the world. We are excited about the opportunities ahead. I am also happy to report that we recently received word that GES will be ranked among the world's 50 largest agency companies, by Advertising Age magazine, for the fourth year in a row, and among the nation's largest experiential event marketing agencies in Ad Age's upcoming agency report. We are extremely proud of the recognition and many awards we receive for our outstanding creative work.

Now, I will shift gears to cover some additional highlights for the Travel and Recreation Group. On April 16, we submitted our bid for the new 16-year concession contract at Glacier National Park in Montana, where we have been the concessionaire for the last 32 years. We believe we have submitted a strong bid and are well positioned to win the new contract. This contract covers about one-half of the rooms we have at our Glacier Park operation, as well as the red bus tours that we operate in and around the park. All in, we generate about $18 million in annual revenue under the current contract. Under the new contract, the Park Service is requiring a higher level of investment in the early years to cover certain deferred maintenance items. In the short term, this will negatively impact Travel and Recreation Group operating margins by about 1 margin point. However, over the 16-year term, the contract economics are attractive.

As we have discussed on prior calls, if we are not successful in securing the new contract, we will continue to generate revenue from our owned properties, located outside the park, and we will receive $25 million in possessory interest, plus an estimated $5 million to $6 million for our personal property used at the facilities covered by the contract. Although the Park Service has not stated when they expect to reach a decision, we expect it will be sometime toward the end of this season. We will let you know when we receive official notification.

On another note relating to Glacier Park, 2013 is the centennial anniversary of our Glacier Park Lodge. Located just outside the boundaries of Glacier National Park, the lodge was built in 1913 by the Glacier Park Company, a subsidiary of the Great Northern Railway. The lodge is a very popular family destination, with a large number of repeat visitors on a annual basis. We are experiencing even higher demand this year, as loyal visitors hope to participate in our centennial celebration activities. Additionally, our Grouse Mountain Lodge, located near Glacier National Park, and our Columbia Icefield Glacier Adventure tour, located in Jasper National Park, were both chosen as the setting for the February 4 and February 5 episodes of ABC's reality television hit, The Bachelor. We are very pleased with the additional exposure to a broad new audience that The Bachelor brought to the lodge and our iconic icefield attraction. We hope the program sparked interest in potential new visitors throughout North America to experience our unique assets and the unforgettable beauty and splendor of the parks in which we operate.

Let me now provide an update on progress at the Glacier Skywalk attraction being built in Jasper National Park. Construction restarted on April 13, and we are on track for a soft opening in the September-October 2013 timeframe. This will allow us to introduce the attraction to travel industry professionals, and appropriate media, and significantly add to the anticipation and excitement leading up to our grand opening, next spring. We expect the Glacier Skywalk to be a must-see attraction that will draw visitors to the unique vistas and natural beauty of the park.

As I said at the beginning of my remarks, Viad is off to a good start in 2013. Both business segments operated efficiently and generated solid results. We are encouraged by the operating efficiencies that we have generated and the favorable impact they have had on the profitability of our Marketing and Events Group. As it relates to the Travel and Recreation Group, we are moving towards the peak season, with advanced bookings that are pacing ahead of last year. Overall, we are executing well and are hopeful that the macro economy and the industries we serve will continue to exhibit favorable trends, going forward. The entire team is focused on delivering our commitments for 2013 and beyond.

I will wrap up my comments with an update on our strategic review. On December 14, 2012, Viad announced that the Board of Directors authorized management to explore and evaluate opportunities to enhance shareholder value, including a potential separation of our Travel and Recreation and Marketing and Events business. As we discussed last quarter, this evaluation process is a priority for our Board of Directors and management team. We are investing significant resources, both internal and external, to conduct a robust review process and evaluate all opportunities to enhance shareholder value. At this stage, no definitive edition has been made. However, I can tell you that our review is progressing, and I will report back as soon as we are able to do so. Though, I want to highlight, again, that while we continue to explore alternatives, there can be no assurance that this process will result in any transaction.

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

(Operator Instructions)

Matt Madej, Northcoast Research.

Great quarter.

I was hoping you could talk about the competitive dynamics in the business, domestically? I was wondering if you could walk through some of the competitive wins and losses that you have had? And, if you have seen any increased competition or any other bidders showing up in the bidding process for shows, domestically?

Yes, I will make a couple quick comments, and then I will ask Steve Moster to comment, as well. I think one dynamic we are seeing is that we are seeing more business go out to bid a little bit more than we have seen in the past. The pricing dynamics, I think, are relatively stable, although it is a still fairly competitive marketplace out there.

Steve, would you add to that please?

Yes. Hello, Matt.

What I would say, as Paul indicated, we are seeing more business going out to bid. Domestically, we do not see, really, new bidders coming into the market, as you had asked about. We do see the industry continue to recover and is supporting price stability.

A lot of the competition for business has shifted away from pricing and towards more capabilities. As it continues to focus on that differentiation, things like creative design services, the breadth and depth of the services, and the strength of our world-wide network, we feel like we have a compelling value proposition in the marketplace.

Great, that is helpful.

And then, switching gears on the cost-realignment side. This quarter you showed pretty significant margin improvement in the Marketing and Events business. I was hoping you could give us a sense of what inning you think you are in, in terms of the cost adjustments that you are making? And, maybe, what initiatives you are currently working on today to get that to 4% margin goal by 2014?

Sure. I will comment, again, and then ask Steve to add some color as well.

We are on track for our 2.5% margin goal for 2013. I think we are very pleased with the labor-to-revenue improvements we saw in the first quarter. We are also seeing the fruits of our labor in the -- getting more efficient with our service delivery network. And as I mentioned in my comments, we have taken 1.2 million square feet of fixed costs out of the network, so we are starting to see the full benefits of that.

That being said, we do believe we still have some runway. We are probably getting into the later innings now of those initial projects, but there are still opportunities left. There are some things we are going to be doing this year on the service delivery network. On the labor side, we have got a lot of opportunities left to continue to plan better, execute to that plan, and have more real-time tools to adjust labor on a regular basis so that we can continue to become more efficient.

Steve, would you add anything to that?

Yes. I think what I would add -- again, the three primary drivers that we have are increasing the labor productivity that we have at show site, which is one of our major costs. And, as Paul had indicated, I think we are making significant progress as result of our first quarter, but I think there is still further room for us to go.

The second bucket is really around our facilities and our inventory, and how we manage that. Part of it is facility reduction and optimization of the size; and part of it is optimization of how we utilize our inventory. That is an initiative that we started several years ago, and I still believe there is room to improve that. But that's probably the area where we have made the most progress.

And then, the last, third bucket is really just managing our discretionary spend and keeping a tight look at how we spend our overhead dollars. It has been successful for us in the last couple of years. I do believe there is still runway for us to improve.

Thanks, Steve.

Got you. Thank you; that is very helpful.

Lastly, I wanted to focus a little bit on the Travel and Rec business. Thank you for the update regarding the Glacier RFP. I was hoping you would give us a sense for what you are seeing in terms of the acquisition pipeline in the Travel and Rec business?

And maybe, if you'd talk about the Going-to-the-Sun Road, this year -- any impacts from government sequestration? Are we going to see any impact for potential opening dates for the Travel and Rec attractions there? Thanks.

Okay, I hope I captured that.

Let me start with the Going-to-Sun Road. Parks is targeting June 21 to open the road. I just read something yesterday that said -- it was sort of a normal winter, so as they are beginning the plowing now, things are quite typical. The target date is the 21st, although that is subject to weather between now and then.

From a sequestration standpoint, they have, I believe, all the budget dollars to make that happen. They did not take any money out of the plowing the road budgets. So, I think we feel comfortable from that aspect.

What was the first question?

Acquisitions --

On the acquisition pipeline -- yes, we continue to have a good pipeline. There are a lot of things that we have looked at; there are a lot of things we are looking at. In some cases, we have passed where the economics did not fit what we thought were reasonable from a buyer's expectation, versus a seller's expectation. But at the same time, we do continue to see some very good opportunities going forward, to continue to make smart acquisitions, especially as it relates to Travel and Rec.

Great, that's very helpful. Thank you.

(Operator Instructions)

Steve Altebrando, Sidoti & Company.

Considering how GES performed in the quarter and the flow-through you are able to generate, do you think there could be some upside to the 2.5% operating margin target for the year?

We set the pretty aggressive goal, given the headwinds we had from our show rotation challenges that we had this year. I think we are very excited that we saw 1% improvement to our labor-to-revenue. We have targeted 50 basis points for the full year, so from that perspective, we are on track. I do believe we have got some aggressive goals in the back half of the year. We are going to work as hard as we possibly can to exceed the 2.5%, but that is certainly a commitment that we have for the rest of this year.

Okay.

In the Travel and Rec segment, you mentioned bookings being positive. Can you expand on that -- to what degree, and any color around that would be helpful?

Sure. Our booking pacing -- so the rate at which we are seeing rooms being sold at all three of our properties -- is ahead of 2012. Now, we have got limited inventory, especially as it relates to inside the Park -- rooms at Denali and Glacier -- but it is a very positive sign to see those bookings ahead of pace of last year. And, it is by a good margin.

Now, you never really know, are those because people are booking earlier? Or are those increased numbers of rooms? But either way, we think it is a very good sign for us as we look at the upcoming season. It also may give us a chance to firm up rates where we have that flexibility.

Michael, would you add any color to that?

I think you captured it well, Paul.

There is a limited amount of inventory, and we are really happy to see people booking a little bit earlier. Of course, there is still a huge walk-up business at our attractions, so there is a lot of work to be done for the summer season to hit our goals.

Okay, that's helpful.

In terms of the Glacier Park contract, are you hearing anything anecdotal? Are you aware of how many bidders there are?

No, we do not know who else who may have bid. It is something that they -- Parks -- keeps very quiet and confidential. Again, we do believe we submitted a very competitive bid. In the event that we were not to retain the contract, we do have downside protection with the possessory interest and sale of our personal property.

Okay. Then lastly, did you buy back any stock in the quarter?

No, we did not.

Okay. Thank you.

At this time, there are no other questions.

Thanks for your questions and participating on today's call.

To sum things up real quick, we are excited about the prospects for both business units and hopeful that macroeconomic environment continues to hold its upward course. And we remain committed to delivering on our margin goals of 2.5% this year and 4% in 2014 at GES. We appreciate your continuing interest in Viad, and we look forward to talking again with you, again, after the end of the next quarter.

Have a great day.

This does conclude today's conference call. You may disconnect your phones at this time.