Viad Corp (VVI) 2014 Q4 法說會逐字稿

Welcome, and thank you for standing by to the Viad Corp fourth-quarter earnings conference call. (Operator Instructions). Today's conference is also being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the meeting over to Mr. Joe Diaz. You may begin.

Thank you, and good morning to all of you participating in the Viad Corp year-end 2014 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 Viad.com. Today you will hear from Steve Moster, Viad's President and Chief Executive Officer; and Ellen Ingersoll, Viad's Chief Financial Officer.

With that, I'd like to turn the call over to Steve Moster. Steve?

Thanks, Joe, and good morning, everybody. I'd like to thank you all for joining us on the call today. As many of you know, this is my first call as CEO of the Company. I'm excited to lead the Company going forward, and I appreciate the confidence that the Board has placed in me. We have a solid growth strategy in place; we have the right people to execute the strategy; and I believe there are many opportunities to grow and improve our business groups in the coming years.

Both of our business groups finished 2014 in line with our prior guidance, and delivered solid results during the fourth quarter. For the year, we delivered significant growth in revenue and operating income. GES's full-year operating income increased $11.6 million, with revenue new growth of 11.8%. Travel and recreation group operating income increased $6.3 million, with revenue growth of 11.1%. And Viad's income per share, before other items, grew by 38.3% to $1.59 versus $1.15 in 2013.

At GES, we're making significant progress against our strategy to become the preferred, global, full-service provider for live events. GES has a long and strong history providing efficient contracting in exhibit design, construction, and program management services to the exhibition market. And we proudly hold leading positions in the US, Canada, UK, and the Middle East. This continues to be the cornerstone of our business and remains incredibly important.

We also see great opportunity to expand into new lines of business; extend our prominence into additional categories of live events, including conferences, corporate events, and consumer events. This is happening through the launch of new products, entry into new markets, and expansion into new geographies. In late 2013, we launched an in-house audiovisual services team, which quickly gained market share in the US. Following this, we acquired Blitz Communications in September 2014, which gave us in-house audiovisual services in Europe.

In the fourth quarter, we created an additional platform for live events by bringing together several firms with revenue-generating technology solutions that, together, create a wealth of event data. More specifically, we acquired onPeak and Travel Planners, the leading event accommodation companies; and N200, Europe's leading event registration company. And we also formed a partnership with [Cadmium CD], an award-winning conference technology company, to create an exclusive content management solution for event organizers and speakers.

As we execute against our strategy, our focus is on adding new products and services that are essential to the live event market and that also support our core contracting business. We want to acquire leading players with products designed to meet the current and future needs of our clients, and we're focused on areas that can bring an immediate cross-sell opportunity. The live events industry, and our clients, value our strategy and have responded well to our focus on being a full-service provider to live events. And we're having success expanding within new service lines and across geographies.

A great example of this is our new global agreement with Tarsus, a leading global event organizer, that now includes all of its events across the US, UK, Europe, and the United Arab Emirates. Another leading organizer, UBM EMEA, has signed on to use our new registration business and our audiovisual services for its UK-based events.

We're also extending our reach within events here in the United States. A couple key examples include the LA Auto Show and the Western Veterinary Conference, where we've added audiovisual services to our scope of work. And we're winning new corporate event business, including [Tableau's] conference for 2015 and 2016.

Our travel and recreation business also continues to make significant progress, growing and optimizing our asset base and through our Refresh-Build-Buy initiatives. This past year marked the launch of our Glacier Skywalk attraction in Jasper National park. The Skywalk exceeded our expectations in terms of passenger visitation, and has won many awards for its innovative design and environmentally sound architecture, including the Canadian Design-Build Institute's Award of Excellence and the Canadian Consulting Engineers' Award of Excellence. We're also honored that the Skywalk was recently highlighted in Architectural Digest's February issue.

On the buy side of our strategy, we completed the acquisition of the West Glacier properties, which are situated in prime locations near the West entrance of Glacier National Park. This is a great bolt-on acquisition that gives us additional scale in the Glacier market. And I'm happy to report that we had a strong first year of operation at West Glacier.

As we drive growth through our Refresh-Build-Buy initiatives we're focused on higher-return opportunities to optimize our existing assets and to add scale. When thinking about acquisition opportunities, we will give first priority to the current geographic locations where we can maximize economies of scale and scope. As we consider new geographies, we're looking for meaningful scale and market share in other iconic, natural destinations with perennial demand, preferably with a combination of attractions and hotels.

As we head into 2015, we feel strong about the tourism market for two main reasons: number one, the strengthening dollar and lower gasoline prices should drive increased US tourism spend. And number two, the cruise line industry is adding another ship to the Alaska route, which should drive more overnight guests to Denali. We believe these factors will drive additional visitation to the national parks.

For GES, the exhibition industry is forecasted to continue its low-single-digit growth in 2015. The favorable industry trends should help us drive same-show growth in the mid-single-digits. Growth in our core business, combined with new revenue from new services, should more than offset negative show rotation of about $75 million in revenue.

Overall, we're expecting strong underlying performance of both businesses in 2015. However, this will be masked somewhat by unfavorable currency translation, as the dollar has strengthened against other currencies.

Looking further ahead into 2016, we expect a much stronger year. At GES, we expect revenues to exceed $1 billion, and we expect operating margins to reach or exceed 5%. There will be three primary drivers of this growth. Number one, we have positive show rotation that's likely to be somewhere in the range of $50 million to $60 million in revenue, with high throughput to operating income; number two, the growth of our core business and newly acquired businesses; and, three, our continued focus on labor management and overhead costs.

The travel and recreation group should have another year of single-digit organic revenue growth in 2016, with margin expansion, as we continue to optimize our assets and enhance our guest experience. We also remain active on the acquisition front, which could bolster growth even more.

And now I'd like to turn the call over to our CFO, Ellen Ingersoll, for some additional color on the financials. After that, we'll open up the call for your questions.

Ellen?

Thanks, Steve. As Steve mentioned, from an operational perspective, we finished the year in line with our prior guidance, and up significantly from 2013. We did, however, incur acquisition transaction-related costs of approximately $0.08 per share. Including these costs, our fourth-quarter loss before other items per share was $0.25 versus our guidance for a loss of $0.30 to $0.20.

Our segment operating results for the quarter came in a bit better than guidance, as we under-spent our forecasted acquisition integration costs by about $1.3 million at GES. Notwithstanding that savings, both business groups were in line with guidance, and delivered stronger year-on-year operating results during the quarter.

Organic revenue growth at GES was 4.6% for the quarter, which excludes the effect of acquisitions and currency translation. This growth was driven mainly by US-based same-show revenue growth of 17.4% and higher revenue from corporate clients, partially offset by a negative show rotation of approximately $6 million. For the year, organic revenue growth was 9.3% or $78.4 million, driven primarily by positive show rotation of approximately $65 million, US-based same-show growth of 6.4%, and new business wins that more than offset the loss of the International Consumer Electronics Show.

The acquisitions of onPeak, Travel Planners, Blitz, and N200 added revenue of $14.8 million for the quarter and $16.7 million for the year, with an aggregate operating loss of about $540,000 for the quarter and about $70,000 for the year. The operating loss was driven by integration costs and intangible amortization of about $800,000 and $1.7 million, respectively, which were incurred mostly in the fourth quarter. Currency translation had a favorable effect on GES's full-year revenue and operating income of about $4.4 million and $250,000, respectively. For the fourth quarter, it had a negative effect on revenue of approximately $2.1 million, with a negligible impact to operating income.

GES's full-year operating margin improved by 100 basis points versus 2013, primarily driven by higher revenue, partially offset by the non-recurring $4.8 million gain on sale facility in 2013, and higher performance-based incentives. Additionally, as previously discussed, the acquisitions provided $16.7 million in revenue at a slight operating loss.

For the travel and recreation group, organic revenue growth was 1.3% for the seasonally slow fourth quarter, which excludes the effect of the acquisitions of Glacier Skywalk and currency translation. For the year, organic revenue growth was 6% or $6.5 million, driven primarily by higher passenger volumes at Brewster's attractions and improved RevPAR, especially within the Banff market.

The acquisition of the West Glacier properties and the new Glacier Skywalk attraction added revenue of about $345,000 for the quarter and $10.3 million for the year. The operating income contribution was negligible for the fourth quarter, and approximately $5.5 million for the year. As expected, operating margins for the Skywalk exceeded 50%.

Currency translations had an unfavorable affect on the travel and recreation group full-year revenue and operating income from approximately $4.7 million and [$875,000], respectively. For the fourth quarter, it had a negative effect on revenue of approximately $700,000 and a positive effect on operating income of approximately $110,000. Travel and recreation group full-year operating margin improved by 320 basis points versus 2013, primarily driven by strong revenue growth from Brewster's high-margin attractions.

Our fourth-quarter corporate activities expense was up $4.1 million from 2013, primarily due to CEO transition costs of $2.7 million and the acquisition transaction-related costs that I mentioned earlier, which amounted to $1.6 million, pre-tax.

Interest expense increased by $655,000 from the 2013 fourth quarter, due to higher debt levels resulting from our recent acquisitions. During the quarter we spent approximately $90 million from the acquisitions of onPeak, Travel Planners, and N200. Our debt at the end of the year was $141 million versus $24 million at the end of the third quarter, and our debt to capital ratio increased to 28.9%.

Free cash flow for the year was $25.7 million, which was slightly better than our prior guidance. Cash and cash equivalents totaled $57 million at year end, comparable to the end of the third quarter.

Now, moving on to guidance for 2015. For the year, we expect consolidated revenue to be comparable to 2014, as growth in the underlying business and our recent acquisitions offsets significant headwinds from negative show rotation of about $75 million, and unfavorable currency translation of about $35 million.

We expect total segment EBITDA -- defined as segment operating income, plus depreciation and amortization -- to be in the range of $90 million to $94 million versus $90.5 million in 2014. Depreciation and amortization is expected to be in the range of $38 million to $40 million, which is up from $30.8 million in 2014 due to the recent acquisitions.

Full-year revenue at GES is expected to be comparable to 2014, as growth from the core business and acquisitions offsets negative show rotation and unfavorable currency translation. We expect core business growth in the mid-single-digits, driven by same-show growth and new business wins.

Full-year operating margins at GES will be lower than 2014 due to high flow-through on negative show rotation revenue, reflecting the operating leverage that exists within the core contracting business. As a reminder, we typically see operating income flow-through 20% or more on incremental contracting revenues, which is greater than the operating margins from our newly acquired businesses. We expect to realize an operating margin in the range of about 5% to 7% on the GES acquisitions, with an EBITDA margin of about 23% to 24%. These ranges include integration costs of about $1.5 million.

For the travel and recreation group, we expect a slight increase in full-year revenue, as unfavorable currency translation is more than offset by low-double-digit growth in the underlying business. In local currency, we expect the operating margins of each travel and recreation business to improve versus 2014. However, we expect this improvement will be matched by unfavorable currency translation, resulting in comparable year-on-year margins for the segment as a whole.

The recent strengthening of the US dollar relative to most other currencies will have a significant impact on our 2015 results. For the year, we expect currency translation to negatively impact income per share by about $0.16. This assumes an exchange rate of $0.82 for the Canadian dollar, and $1.50 for the British pound. For every $0.01 change in these currencies, we would expect to see operating income change by approximately $300,000 to $350,000 for our Canadian operations; and by approximately $50,000 for our UK operations. We have minimal translation exposure to other currencies.

Our full-year cash flow from operations is expected to be about $50 million, and capital expenditures are expected to be about $30 million. For the first quarter, we expect consolidated revenue to decrease by approximately $28 million to $39 million, driven by negative show rotation revenue of about $40 million and unfavorable currency translations of about $7 million, partially offset by additional revenue from the recent GES acquisitions. And we expect a loss per share in the range of $0.23 to $0.15 versus income per share of $0.36 in the 2014 first quarter, due to negative show rotation revenue as well as higher interest expense.

And with that, we'll open the call for questions.

(Operator Instructions). John Healy, Northcoast Research.

Steve, I wanted to ask a strategic question. Over the last four quarters, you guys have been fairly active on the M&A front, both on -- on each sides of your business. And with you taking the helm now and having some headwinds from an FX standpoint, and just managing the business from a show rotation standpoint, how do you look at the acquisition pipeline? Do you decide to push forward with it even faster, because you've got good people that are freed up to maybe do some other things in the business? Or do you look at 2015 as a year where, hey, we've bought some nice properties, we've got to get these integrated? Just trying to assess the appetite for M&A and the speed at which you're going to progress on that front.

Yes. Good morning, John. Thanks for the question. We did have an active year in 2014. It's great to realize some of our growth strategy and get that underway. When I look forward into 2015, yes, there's a balance between integrating the acquisitions that we've already made and continuing to progress against our growth strategy. I see that balance happening in 2015.

We have a very strong pipeline on both the travel and recreation side and on the GES side. And the growth strategy is imperative for our business, and so we're going to go after that, with the balance of making sure that we can integrate fully the businesses that we've already acquired into the business. There's a balance there, John, is how I would answer it.

Okay. And just from a data point standpoint for 2015, are there any meaningful events that are on the horizon on the GES side of the business, the marketing and events group side of the business, from a union standpoint, or anything like that, that need to be revisited? I know every so often, you guys get these contracts that are important to assess, and I was just wondering how 2015 shakes out from that standpoint.

Yes, when we look at our union partner and the agreements we have with them, they tend to be on three-year to five-year periods. So every year, you'll have roughly one-third of the total expense that comes up for renegotiation. Now, some years are larger, because it's a specific union in a city where we do more work; and sometimes, it's less. 2015 is not an especially big year in terms of labor negotiations for us.

Okay, great. And then just a last question. Just from a -- I would say, a big-picture standpoint -- and I think you touched on it just a little bit. But the margin goals that you guys have set out -- do you back those still, or are those under review as you head to home? I know there was favorable commentary in the release. But how do you feel about 2016 and the multi-year margin goals you guys have laid out?

I feel really strong about the target that we've set out there for us, for several reasons. Number one, we are seeing improvements in the core business; but then, also, further progress in our growth strategy and growing the new acquisitions that we have on board will really lead to further growth within the marketing and events segment.

Additionally, what we've said on the travel and recreation side, we continue to make progress against the growth strategy there and build scale to the business. And so I would expect that to continue. And so I feel very strong about the targets we've put out there.

Perfect. Thank you so much.

And I'm showing no additional questions at this time.

Okay. Well, thanks for the questions and your interest in Viad. During my 10 years with the Company, I've never been really more excited about our strategic direction and the opportunities that lie ahead. And for that, I want to thank our talented employees, our clients, and our customers, and our value partners, as well as our Board. So thank you very much, and we look forward to talking to you next quarter.

Thank you. This does conclude today's conference. All parties may disconnect at this time.