Viad Corp (VVI) 2013 Q4 法說會逐字稿

Welcome to the Viad Corp fourth-quarter earnings conference call. (Operator Instructions). This conference is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the conference over to Mr. Joe Diaz. Sir, you may begin.

Thank you. Good morning, and thank all of you for participating in the Viad Corp year-end 2013 earnings conference call. I'd 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'll refer to 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 CEO; and Ellen Ingersoll, Viad's Chief Financial Officer. Additionally, Steve Moster, President of Viad's marketing and events group, will be available for comment during the question-and-answer session at the end of the call.

With that, I'd like to turn the call over to Paul Dykstra. Paul?

Thanks, Joe, and I extend my appreciation to all of you for your continued interest in Viad and for participating on today's call. I'm happy to report that we realized meaningful growth and bottom-line results in 2013, despite revenue headwinds faced by the marketing and events group. Although Viad's total full-year revenue of $972.8 million was 5.1% less than in 2012, operating income increased by 9.6% to $45.9 million, and consolidated operating margins increased by 60 basis points to 4.7%.

Income before other items increased by 15.6% to $1.26 per share. All told, 2013 was a solid year for Viad as we continue to grow our business, develop innovative products and service enhancements, and operate in a more cost-efficient manner.

The marketing and events group turned in 12.2% growth in full-year operating income, which is especially impressive, given the $64 million revenue headwind we faced as a result of negative show rotation and the 2012 Summer Olympics. Heading into 2013, we set very aggressive targets for the marketing and events group to deliver operating margin improvement despite lower revenues.

The 2013 full-year operating margin came in at 2.4%, up from 2% in 2012, and just shy of our 2.5% goal for the year. I'd like to thank Steve Moster and the rest of the GES team for maintaining a sharp focus on driving operation efficiencies and delivering exceptional customer service to retain existing accounts and win new business.

Our diligent focus on enhancing operating efficiencies and improving our cost structure continues to serve us well. Our US segment realized a 100 basis point improvement in operating margin, and operating income was $11 million, nearly double the $5.6 million generated in 2012. Throughout the year, we continue to make progress in optimizing our US service delivery network, consolidating warehouse operations in the Eastern US, and establishing Atlanta as our East region depot.

We will continue to make incremental improvements in our East region, but our primary focus has now shifted to the Western US. We have already optimized a substantial portion of the West region over the past few years. However, our Las Vegas facility lease will expire in about a year, which provides an opportunity to gain additional efficiencies in that market and across the West region. We are actively evaluating facility options in the Las Vegas market.

We also made measurable progress with our labor management initiative, and were successful in more effectively managing variable labor across the broad spectrum of the events that GES managed in 2013. As part of our achieving our margin improvement goals, we set a target to reduce our labor-to-revenue ratio by 50 basis points on US base same-shows. I'm pleased to report that we exceeded this goal with a 70 basis point improvement. This follows the 50 basis point improvement achieved in 2012.

Our continued focused on business development is also paying off, with a number of key contract renewals and competitive takeaways during the year. A few recent examples include Bristol-Myers Squibb, a leading biopharmaceutical company and longtime GES customer, renewed its contract to manage more than 300 global projects annually through 2015. We are dedicated to provide Bristol-Myers Squibb the highest level of service which they have come to expect.

We also renewed Novartis, one of the world's leading pharmaceutical companies, and another long-term client. Our relationship has steadily grown across a wider platform of Novartis businesses over the course of recent years. With strong team chemistry and providing exceptional service, our contract has been extended through 2015.

After an extensive competitive review, we secured a multi-year contract to continue producing the Los Angeles Auto Show. The LA Auto Show covers more than 870,000 square feet, and features the who's who of the auto industry. The show's three industry trade grades draw more than 16,000 auto industry decision-makers and influencers, including more than 4000 media from 58 countries. Once the trade days and, the following 10 days become one of the best-attended auto shows in the world. GES will continue to provide excellent operational execution, and innovative, award-winning customer service for this exciting and influential annual event. In addition, this new contract adds cutting-edge audio/visual services to the list of solutions we will provide at the show.

Also during the year, the Professional Beauty Association extended its contract with GES to produce its flagship events through 2018. Key to this renewal was GES's new product development team and its focus on designing innovative, eco-friendly structures and tradeshow elements that also provide efficiencies in assembly and handling. The PBA will also benefit from GES's easy-to-use technologies, including GES Connect, a fully integrated, online planning tool for event organizers; and Expresso, which combines the art of a customized show experience with the science of exhibitor surveys and usage data. Our focus is to continually upgrade the look and feel of the Association's events, and we are pleased the PBA recognized this with a multi-year extension.

In addition to these most recent transactions, during the year we extended contracts with industry leaders, including Advanstar, ICSC, Penton Media, and Boehringer Ingelheim, to name a few. These are representative examples of the great work done by our sales, marketing, and service teams to extend our relationships with current customers and to win new business that bolsters our market share. Our intense business development efforts, coupled with superior customer service and leading-edge technology, are the catalysts that are attracting new business both domestically and internationally.

During the fourth quarter, we announced the launch of an in-house, full-service audio/visual services business. Audio/visual is a natural complement to our existing suite of convention and event solutions, and gives us a more compelling overall service offering. We estimate the total market for US tradeshow A/V spending is over $1 billion. Operating margins for A/V businesses can be in the range of 6% to 12%, which would be nicely accretive to GES's margins. We believe that A/V Services will play an important role in GES's future growth, and we're excited to already have some nice wins under our belt, including the LA Auto Show.

In regards to our exhibition and event production around the rest of the world, we continue to maintain a strong focus on developing our international business. Although the pricing environment remains relatively tight in Europe, we continue to make progress in building out the necessary infrastructure to better position ourselves to capture greater market share in the coming years.

Our office in Amsterdam continued to gain measurable traction by winning and producing an extensive portfolio of events for UBM Live, a leading business-to-business event organizer. During the year, the team also generated strong sales momentum that we expect will drive improved revenue and margins in 2014.

During the third quarter, GES was chosen by PennWell Corporation, a leading international exhibitions organizer, to produce contracting services for all of its events in the Middle East in 2014 and 2015, including internationally prestigious events like Avionics International and the Offshore Middle East 2015 Expo. The PennWell relationship provides GES a broad platform to expand its considerable existing presence in the rapidly growing Middle East, and now brings to 50 the number of shows GES will deliver in the United Arab Emirates.

We also had some important wins in the UK that helped to reinforce our position as the market leader. We secured a new, four-year contract with i2i Events, a leading global events group. This agreement expands the scope of our services and is likely to be the largest exhibition services contract ever signed in the UK. And we signed a 10-year agreement to be the preferred exhibition services supplier for London ExCel, a leading international exhibition and convention center in the Metro London area. We are pleased with the progress in our international business.

Overall, our marketing and events group made a lot of progress in a challenging year, with improved operating income and margins, and we expect that 2014 will yield even better results as we benefit from significant positive show rotation and we continue to aggressively manage our operating cost structure.

Before I move on to travel and recreation, I'd like to update you on a labor situation in the Chicago market. Our show site and warehouse agreements with the Chicago Teamsters Local 727 expired on December 31, 2013. Although we have entered into new agreements, we continue to work through some wage and pension issues, and the new agreements contained re-openers that are effective February 28, 2014. We are working diligently with the Teamsters to resolve the outstanding issues in a manner that will be reasonable and equitable for our employees, customers, and shareholders.

Now let's move on to travel and recreation. Our travel and recreation group delivered very strong results in 2013, with revenue growth of 3.8%, a 7.7% increase in segment operating income, and a 70 basis point improvement in operating margin. Brewster, Glacier Park, and Alaska Denali Travel all posted higher revenue and operating income as compared to 2012. These business units experienced greater visitation to our attractions, and higher occupancy rates at most of our lodges and hotels during 2013.

Brewster recovered nicely from the flooding that occurred in late June, and delivered solid growth for the full year across nearly all of its lines of business. Passenger counts were up at all of Brewster's high-margin attractions. We also benefited from a concerted effort to better utilize Brewster's transportation assets during the slower winter season. In that regard, Brewster generated incremental transportation revenue through increased charter business, and a new contract with the Lake Louise Ski Resort to transport skiers in and around the Banff area.

Glacier Park delivered a record year, with RevPAR increases across essentially all of its properties, both in-park and out-of-park. The renovations we completed in early 2013 at Grouse Mountain Lodge, combined with our sales and marketing efforts, are paying off with strong growth in revenue and profit margins at that property. St. Mary's Lodge also continued to show strong year-over-year improvement.

With a solid finish to a successful 2013, the travel and recreation group team is preparing for an exciting 2014. Cindy Ognjanov is working closely with the teams at Glacier Park and Alaska Denali Travel to ensure a smooth and efficient opening of our seasonal properties this spring, and to set us up for a successful operating season. Dave McKenna and the rest of the Brewster team are busy preparing for the grand opening of the Glacier Skywalk in May.

This project is a great example of innovation within our business, and has already won a number of architectural and engineering awards. We're seeing great interest in the media and travel industry, and I firmly believe that the Glacier Skywalk will become one of the must-see, iconic, natural attractions in North America. We are excited to unveil this amazing experience to our guests.

Let me now turn the call over to Ellen Ingersoll, Viad's Chief Financial Officer, for a more detailed review of our financial results.

Ellen?

Thanks, Paul, and thanks to all of you for joining our call this morning. As I cover our financial results, you may want to refer to tables 1 and 2 and the business group highlights section of our earnings press release. As Paul mentioned, we delivered solid operating results in 2013. Full-year segment operating income grew to $45.9 million, which is up $4 million from 2012, despite a $52.4 million year-over-year revenue decline driven by negative show rotation and revenues earned in connection with the 2012 Summer Olympics.

Full-year revenue was $972.8 million versus $1 billion in 2012. Segment operating margin increased by 60 basis points to 4.7%. From a revenue and operating income perspective, we finished 2013 in line with prior guidance. Fourth-quarter revenue of $201.8 million was in line with 2012 fourth-quarter revenue of $202.6 million, and operating results improved by $5.9 million to a loss of $2.4 million as compared to the 2012 loss of $8.4 million. This improvement primarily reflects lower performance-based incentives and continued cost structure improvements within our marketing and events US segment.

Our fourth-quarter loss before other items was $0.20 per share, which is improved from the 2012 fourth-quarter loss of $0.34 per share, and within our prior guidance range of a loss of $0.25 to $0.16 per share. For the full year, our income before other items was $1.26 per share, up from $1.09 per share in 2012. By definition, our 2013 income before other items excluded restructuring charges of $0.06 per share, and $0.13 per share in the fourth quarter and full year, respectively. These charges primarily related to facility consolidations in the marketing and events group and the elimination of certain positions to more efficiently serve the business.

Full-year income before other items also excluded a non-cash impairment charge of $0.14 per share taken during the third quarter of 2013, and favorable tax matters of $0.02 per share recorded in the fourth quarter. A reconciliation of income before other items to income from continuing operations can be found in table 2 of our earnings press release.

Now I'll discuss results for the marketing and events group, which were in line with our prior guidance. The marketing and events group US segment's fourth-quarter revenue was $134.5 million, which was in line with 2012 fourth-quarter revenues of $136 million. Revenue from base same-shows increased 3.4% for the quarter, with base same-shows representing approximately 30% of the US segment fourth-quarter revenue.

As expected, this increase was offset by some nonrecurring business in the 2012 fourth quarter, including a large holiday program rollout for a retail client, and a low-margin event that we produced in 2012 but not in 2013. US segment operating results improved $4.7 million from the 2012 quarter, to a loss of $2 million. This improvement was primarily a result of lower performance-based incentives and our continued focus on driving margin improvement.

For the full year, marketing and events US segment revenue was $628.9 million, down $47.9 million from 2012, primarily as a result of negative show rotation revenue of $54 million, partially offset by base same-show growth of 3.1%. As a reminder, we use the term show rotation to refer to shows that occur less frequently than annually, as well as shows that shift quarters from one year to the next.

Full-year US segment operating income of $11 million was nearly double 2012 operating income of $5.6 million. The improved operating results on the $47.9 million revenue drop are a result of lower performance-based incentives, the third-quarter gain on sale of our facility in New Jersey, and continued cost structure improvements.

Marketing and events group international segment revenue for the fourth quarter was $60.3 million with operating income of $3.2 million, as compared to 2012 revenue of $59.9 million and operating income of $2.7 million. Foreign exchange rate variances had an unfavorable impact on revenue and operating income of $516,000 and $51,000, respectively. Excluding foreign exchange rate variances, revenue increased by $934,000 and operating income increased by $614,000, primarily driven by positive show rotation of approximately $2 million.

Full-year international segment revenue was $229.3 million, down $10.8 million from 2012, with full-year operating income of $9.1 million as compared to $12.3 million in 2012. The declines were primarily driven by $16 million in revenue earned in 2012 in support of the Summer Olympics in London, partially offset by positive show rotation revenue of approximately $6 million. Additionally, foreign exchange rate variances had an unfavorable impact on revenue and operating income of $4.3 million and $240,000, respectively, as compared to 2012.

Results for our travel and recreation group were also in line with our prior guidance for the quarter, with $10 million in revenue and a seasonal operating loss of $3.7 million. This is improved from 2012 revenues of $9.8 million and an operating loss of $4.4 million. Foreign exchange rate variances had an unfavorable impact on revenues of $499,000 while favorably impacting operating income by $90,000.

For the full year, travel and recreation group revenue increased 3.8% to $127.9 million, and operating income increased 7.7% to $25.8 million. Foreign exchange rate variances had an unfavorable impact on revenue and operating income of $2.8 million and $790,000, respectively, as compared to 2012. Excluding unfavorable foreign exchange rate variances, revenue for the travel and recreation group grew $7.5 million, or 6%, reflecting increases at Brewster, Glacier Park, and Alaska Denali Travel.

Now I'll cover some cash flow and balance sheet items for the quarter before covering guidance for 2014. Fourth-quarter free cash flow was an outflow of $30.5 million versus an outflow of $7.4 million in 2012. For the full year, free cash flow was an outflow of $30.1 million as compared to 2012 free cash flow of $41.5 million. Please note that we have modified our definition of free cash flow to exclude dividends, as we believe this provides a better measure of cash flow available for distribution to our shareholders.

Beginning this quarter, and going forward, we are defining free cash flow as operating cash flow, less capital expenditures. The decrease in full-year free cash flow was driven by an increase in capital expenditures of $8.4 million and changes in working capital, primarily related to accounts payable, accrued compensation, and customer deposits.

Capital expenditures were $9.2 million for the 2013 fourth quarter versus $7.8 million in the 2012 quarter. Full-year capital expenditures were $36.1 million versus $27.7 million in 2012, with the increase being driven primarily by construction of the Glacier Skywalk attraction.

Depreciation and amortization expense was $6.8 million for the 2013 fourth quarter as compared to $7.2 million in 2012. Full-year depreciation and amortization expense was $28.6 million in 2013 versus $30.7 million in 2012. And payments on our restructuring reserves were approximately $1.1 million in the 2013 fourth quarter versus $1.9 million in the 2012 quarter. Full-year payments amounted to $4.8 million in 2013 versus $4.7 million in 2012.

Our balance sheet remained strong. At December 31, 2013, Viad's cash and cash equivalents totaled $45.8 million compared to $120.1 million at the end of September. The decrease in cash and cash equivalents was primarily related to a special dividend that was paid in November totaling $50.8 million, and the fourth-quarter free cash outflow. Our total debt at the end of December was $11.7 million, with a debt to capital ratio of 3.2%.

Now I'll cover our guidance for the full year and first quarter of 2014, which reflects our best estimates based on information available at this time. Marketing and events group full-year revenue is expected to increase at a high-single-digit rate from 2013, primarily as a result of positive show rotation of approximately $55 million; same-show growth and new business wins, partially offset by the loss of CES, as we have previously discussed. US-based same-show revenue is expected to increase at a low- to mid-single-digit rate. Marketing and events group segment operating margins are expected to reach approximately 4%, driven primarily by higher revenue and continued focus on margin improvement initiatives.

Travel and recreation group full-year revenue is expected to decrease by 10% to 12% from 2013, driven primarily by the termination of our concession contract at Glacier National Park, partially offset by the grand opening of the Glacier Skywalk attraction in May 2014, and organic growth. Travel and recreation group operating margins are expected to approximate 21% to 22%, up from 20.2% in 2003 and 19.5% in 2012. I think I said 2003; I meant 2013. Excuse me.

I'll also provide some additional guidance regarding the Glacier Skywalk and Glacier National Park concession contract to help you better understand the effects these two items will have on our year-over-year results. We anticipate the Glacier Skywalk will generate annual revenue in the range of $4.5 million to $5 million in its inaugural year, with operating margins of more than 50%. The Skywalk will be open seasonally from May through September, with the peak season being July and August.

As it relates to Glacier Park, we're expecting a full-year revenue decline of approximately $19 million, driven by the expiration of the concession contract, partially offset by continued organic growth at our remaining five properties. Most of this revenue impact will be felt in the third quarter, with about $3 million hitting the second quarter. We expect to see a related reduction in full-year operating income at Glacier Park in the range of $3.5 million to $4 million.

Because of the seasonal nature of the concession operations, we expect Glacier Park's third-quarter operating income to be about $6 million lower than 2013, as this is when the concession properties run at full capacity. We will then see favorable operating results during the first, second, and fourth quarters, primarily as a result of reduced overhead expenses and lower costs related to the opening and closing of the seasonal properties.

I'll make just one more quick comment on the travel and recreation group. Beginning with our 2014 financial reporting, as historical results of the Glacier National Park concession operations will be classified as discontinued operations. As today's earnings announcement is focused on 2013 results, all figures provided on the call today and in our earnings press release include the concession operations as continuing operations.

Corporate activities expense is expected to be approximately $9.5 million. Our full-year cash flow from operations is expected to be between $60 million and $65 million. We expect full-year capital expenditures of approximately $30 million to $35 million. Capital expenditures for our travel and recreation group are expected to approximate $14 million to $16 million as compared to $23.1 million in 2013. The decrease is primarily due to the completion of the Glacier Skywalk in 2013, partially offset by some planned refresh projects at Brewster.

Capital expenditures for our marketing and events group are expected to approximate $16 million to $19 million as compared to $12.6 million in 2013. The increase is primarily related to a higher level of growth capital as we increase our level of investment in innovative event products, [given] demand by our customers. Depreciation and amortization expense is expected to be between $29 million and $31 million.

For the first quarter, we expect Viad's income before other items per share to be in the range of $0.28 to $0.38 as compared to the 2013 first-quarter income before other items of $0.42 per share. Revenue is expected to be in the range of $269 million to $286 million as compared to $285.2 million in the 2013 quarter. We expect segment operating income in the range of $10.5 million to $13.5 million as compared to income of $12.8 million in the 2013 quarter. Additional details regarding our 2014 outlook can be found in the earnings press release.

And back to you, Paul.

Thanks, Ellen. Now, I'd like to provide a brief update on our strategic review. On January 24, we announced the declaration of a special dividend in the amount of $1.50 per share or approximately $30.5 million in the aggregate. This dividend is payable on February 14. This dividend follows a previous special dividend declared and paid in the 2013 fourth quarter in the amount of $2.50 per share.

As part of our strategic review process and enhancing shareholder value, the Company will have returned $4 per share in cash to shareholders in the form of special dividends, for a total return of capital of approximately $81.3 million during a three-month period. In addition, we continue to work diligently with our advisors and our Board of Directors to evaluate additional options to enhance shareholder value. We have been moving very carefully and thoughtfully through this process because we owe that to our employees, customers, and shareholders.

And we have been listening closely to feedback from our shareholders. As much as I wish I could provide a specific date to share our conclusions, I am not in a position to do so right now. That said, I believe we are close to concluding the review, and we will report back to you as soon as we can.

As Ellen indicated in her comments, looking ahead into 2014 for the marketing and events business, we expect continued growth fueled by higher revenue and margins, driven by positive show rotation and new wins, both domestically and internationally. That said, the loss of CES will affect first-quarter 2014 financial results. We expect that, with the combination of positive show rotation and new business, the operating margin for the marketing and events group will reach our 2014 goal of 4%.

In the travel and recreation group, we expect that revenue will be down because of the loss of the Glacier Park concession contract with the US Parks Service. But we expect that to be partially offset by the Glacier Skywalk coming online, and our expectation of continued organic growth. We also expect higher operating margins, in the range of 21% to 22%.

In closing, 2013 was a challenging but successful year, and we are positioned for solid growth in 2014. We continue to generate new business, operate our businesses more efficiently, and expect to generate consistent growth. Our team is excited and prepared to meet our commitments.

With that, let's open it up for questions. And, Mary Ann, if you can open up the lines, please.

(Operator Instructions). Luisa Lau, Singular Research.

Could you provide a little more specific detail in terms of the $0.02 unfavorable tax item that was recorded in the 4Q? And also any guidance in terms of the modestly higher anticipated tax rate for 2014? And then I have a question for Paul.

Sure. The $0.02 was kind of a combination of two things. We had some reversal of our VA allowance, primarily related to the valuation allowance that we took last year at the end of the year. That was part of it. And then offsetting that, to some extent, were some tax adjustments in the fourth quarter that we made, just related to our year-end audit.

Okay.

And then as far as the higher tax rate in 2014, we do expect more of a US -- more US income in the mix versus Canadian, so that that increases the tax rate a little bit.

Okay, great. Thank you. And, Paul, any more insight in terms of the leadership going forward for the T&R segment? I understand you're currently running it. Is that something that's basically going to be on hold until the strategic review is complete?

Good morning, Luisa. We have very capable leaders, with Dave McKenna running Brewster and Cindy Ognjanov handling our US parks at GPI and Alaska Denali Travel. So we have very solid leadership there, and we expect to continue on with our growth platform.

Okay. And what about weather conditions so far in 2014? Certain parts of the country have certainly experienced some extreme weather. Have you seen any sort of adverse or perhaps even positive impact from it at all?

Yes, I think the extreme weather has been fortunately more in the Northeast than in the Northwest, where we operate. So we had Grouse Mountain Lodge open in Whitefish, Montana. I think weather conditions there have been pretty reasonable. Certainly up in Banff, the weather goes up and down. Our gondola closes in January for a couple of weeks for our annual maintenance, so it's less of an impact from what we would normally see. But I think, overall, I think the weather has been fine.

Okay, thanks.

Steve Altebrando, Sidoti & Company.

How do you guys foresee the Skywalk ramping up over -- something. I'll take several years, or --.

Morning, Steve. No, we think we are positioned well to get off to a very good start in 2014. We did fan tours, and had a lot of the press and the tour groups in to see the Skywalk at the end of 2013. So, although we didn't generate any revenue, we were able to definitely begin marketing the product and selling the product. So we're expecting a good year of -- I think Ellen's comments mentioned $4.5 million to $5 million of revenue, and then expect to grow from there. So, we're very, very excited about getting that online.

Okay. And then in the GES segment, the 4% operating margin, is that -- do you view that more as guidance or as a target?

That's our absolute target that we're shooting for in 2014. Again, we have the benefit of some positive show rotation which will help our revenue, but also benefiting from our ongoing process to maximize our service delivery network, and to continue on the labor initiatives that we've had. So it's a combination of both.

Okay. And then in terms of the Glacier Park concessionaire gain, is there any -- can you provide any color on the tax implications of the gain?

And you're talking about -- on the possessory interest?

Exact -- yes.

Great. The possessory interest will be offset by any tax basis that we have on the books for the in-park assets, and then taxed at our normal US tax rates.

Okay. Is there a meaningful cost basis on that asset?

No, it's not significant.

Okay, okay. That's it. Thank you.

(Operator Instructions). At this time, there are no other questions (multiple speakers).

Well, if there are no they were questions, then -- go ahead, Mary Ann.

I was just saying there is no other questions.

Okay, thank you. I was jumping in there, too. As always, we appreciate your continued interest in Viad, and we are as dedicated as ever to growing our business, profits, and enhancing shareholder value. Thanks again for being with us today, and we look forward to talking with you again at the conclusion of the current quarter. Thank you.

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