Viad Corp (VVI) 2015 Q2 法說會逐字稿

Welcome to the Viad Corporation's second-quarter earnings conference call. Your lines have been placed on listen-only until the question-and-answer session. (Operator Instructions) This conference is being recorded. If you have any objections, please disconnect at this time.

I will now turn the call over to Ms. Carrie Long. Ma'am, you may begin.

Good afternoon, and thank you for joining us for Viad's 2015 second-quarter earnings conference call. During our call, you will hear from Steve Moster, our President and CEO; and Ellen Ingersoll, our Chief Financial Officer.

Certain statements made during the call, which are not historical facts, may constitute forward-looking statements. 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.

Additionally, we'll be referring to certain non-GAAP managers during the call. A discussion and reconciliation of those measures can be found in Table 2 of our earnings press release, which is available on our website at www.Viad.com.

With that, I'll turn it over to Steve.

Thank you for joining us on today's call. We had a very strong second quarter and I'm very proud of our results. Our income per share before other items was $1.18 compared to $0.45 in the second quarter of last year, and exceeded our prior guidance of $0.78 to $0.88 per share. Both business groups performed well and benefited from strong industry fundamentals, driving better-than-expected operating results and substantial revenue growth.

TS's performance was largely driven by strong growth in the US business that resulted in significant upside to our prior guidance for the quarter. The growth was broad-based across three main categories.

First, our US-based same show revenue growth was about 7.4% for the quarter versus our forecast of about 5%. This marks the second consecutive quarter with same show growth above 7%. In June, CEIR, which is the Center of Exhibition Industry Research, released 2015 first-quarter data for its annual CEIR Index Report. Despite the severe wet winter, the total Index posted its highest increase in the last eight years with growth in exhibition space, number of exhibitors, and attendants.

The second, GS had significant success in winning new in-the-year exhibition clients for 2015, resulting in near-record levels of revenue in the second quarter of short-term bookings.

And third, our revenue from corporate clients increased considerably, reflecting some new client wins and increases in client spending, particularly from our pharmaceutical clients. We benefit from our clients' increased spending levels to support their new product launches.

I'm very proud of the GS team for delivering significant revenue growth and operating efficiently. For the quarter, GS posted an operating margin of 10.5%, which is the highest it's been since the second quarter of 2007. The 2015 second-quarter was an important one for GS, as it represents the largest quarter for the year. We needed to deliver solid performance and we did.

Given the significant upside to our second-quarter results, we considered increasing our outlook for the full-year, but felt it would not be prudent to do so at this time. We still have half the year to go with some unsecured business that we need to win. That said, the risk is manageable. And our solid execution and favorable industry conditions give me confidence in our ability to deliver on our full-year revenue and operating income targets.

On the longer-view term, we continue to make progress on our growth strategy for GS. Our position as the global full-service partner for live events is resonating with our client base, and continues to result in cross-sell wins and growth in live events. For example, the CISS Force Industries of America and Helicopter Association International, two long-standing GS clients, both selected GS for event accommodation services. We also won the event accommodation in audiovisual services for Endocrine Societies' events.

All three of these contracts will begin in 2016. And additionally, we picked up the data and registration services for our portfolio of European events organized by Mack Brooks Exhibitions. Our core exhibition business also had some nice wins, including multiyear renewals with the Helicopter Association International, the International Production Processing Expo, and Komatsu. And Boeing chose to consolidate its event program with GES in an expanded multiyear renewal.

As part of our strategy, we are focused on growing our presence in other segments of live events, like corporate events. And I'm very pleased with our progress. Recently, we produced Infosys Confluence 2015, a premier technical conference in San Francisco. And Tableau extended our contract to produce its annual US customer conference through 2017.

Expanding into other segments of live events provides GES with a broader customer base and a significant growth opportunity. I'm proud to say that the integrations of our recent acquisitions of onPeak, N200, and Blitz Communications are on track and meeting our financial expectations. More importantly, these acquisitions are creating a true growth platform for our business that is setting us apart from the competition and driving shareholder value.

Now let me switch gears and talk a little bit about our Travel and Recreation group, where we also had a strong second quarter. Revenue was at the midpoint of our guidance range, with operating income slightly above the range. We experienced revenue growth in both our attractions and hospitality properties, where we saw increased demand and higher effective rates resulting from our yield management efforts.

Passenger counts were up 7.9% at our attractions, with an increase in revenue per passenger of about $5.00 or 17.2% on a same-store constant currency basis. At our hospitality properties, the same-store RevPAR was up 5.3%. In addition to strong growth from our higher-margin lines of business, Travel and Recreation operating income also benefit from cost management efforts to minimize expenses during the seasonally slow part of the second quarter.

Additionally, we continue to make progress on our refresh, build, buy strategy. During the second quarter, we completed the renovations of about one-third of the rooms at the Banff International Hotel. We have received positive guest comments regarding the completed renovations, and we've realized significant increase in ADR for the updated rooms. The remaining rooms and public spaces will be renovated during the next off-season starting in October of 2015 and continuing through May 2016.

The West Glacier properties that we acquired in July of 2014 are fully integrated and exceeding our financial expectations. Warmer weather drove strong visitation to Glacier National Park during the month of June. Our West Glacier properties benefited from the increased visitation, with revenue growth of about 25% from our retail and food and beverage properties.

As you may be aware, there is currently a forest fire burning at the opposite side of the park that has temporarily closed the east entrance and a portion of it going to the Sun Road. Fire crews have made great progress containing the fire, and all of our properties are fully operational. We have seen some shift of bookings at our St. Mary property, which is located at the east entrance. But aside from having a number of our rooms rented out to fire crews, it's pretty much business as usual.

I'm also excited to announce that we are finalizing our plans for a major renovation at the Banff Gondola attraction. We purchased the Gondola in 1999, and it's been a tremendous asset for us, welcoming over 500,000 visitors annually, and consistently rated the number one attraction in Banff. We will invest about CAD25 million into the upper terminal of the Gondola.

The planned renovations will increase the square footage by more than 25%, improve the layout, optimize the food and beverage and retail space, add a new interpretive area and experiential elements, and address some required maintenance. Construction is planned for this coming off-season, beginning in September, with a completion target of mid-2016.

The financial impact of the construction activity will be minimized by limiting operation closures to our seasonally slow months. We have a great plan that we ensure the Gondola's ongoing success as the must-do attraction in Banff and position it for optimal returns. I'm really excited to get started on it.

I do want to thank the entire team for driving solid results and for their commitment to our strategic direction. And now I'd like to turn the call over to Ellen for some additional color on the financials. And after that, we'll open up the call for your questions. Ellen?

Thanks, Steve. For the 2015 second-quarter, we reported income before other items of $1.18 per share; adjusted segment operating income of $36.6 million, which excludes acquisition integration costs; and total revenue of $317 million. These results were better than our prior guidance, as Steve discussed earlier, and up significantly from the 2014 second-quarter.

Both business groups posted year-over-year growth, driven by favorable industry conditions and strong underlying fundamentals that more than offset unfavorable exchange rate variances. GES posted total revenue of $286.6 million for the second quarter, with a 10.6% adjusted segment operating margin and a 13% adjusted segment EBITDA margin. This is the highest quarterly operating margin that GES has achieved in the past eight years.

On an organic basis, which excludes acquisitions and unfavorable exchange rate variances, GES's second-quarter revenue was $274.7 million, which is up $48.2 million or 21.3% from 2014, primarily reflecting strong growth in the US and positive share rotation for the international segment. Organic revenue for the US segment grew $28.1 million or 16.6%, reflecting broad-based growth across base same shows, short-term event bookings, and spending by our corporate clients.

Organic operating income for the US segment increased $8.2 million, primarily due to strong flow-through on the revenue growth. GES's international segment posted an organic revenue increase of $22.4 million or 35.3%, primarily driven by positive share rotation revenue of about $15 million and new business wins. Organic operating income for the international segment increased by $7 million, primarily reflecting higher revenue with strong throughput, as well as a $1.3 million gain related to exiting a venue services agreement in the UK.

The acquisitions of onPeak, Blitz, and N200 added revenue of $21.6 million for the quarter, with adjusted segment operating income of $7.4 million. Adjusted segment EBITDA for the acquisitions was $9.7 million, with an EBITDA margin of 44.8%.

Currency translation had an unfavorable effect on GES's second-quarter revenue and operating income of approximately $9.8 million and $1.2 million, respectively, versus the prior year. The Travel and Recreation group posted total revenue of $30.5 million for the second quarter, with a 20.4% segment operating margin and a 27.8% adjusted segment EBITDA margin.

On an organic basis, which excludes the West Glacier acquisition and unfavorable exchange rate variances, Travel and Recreation group's second-quarter revenue was $32.7 million, which is up $2.9 million or 9.8% from 2014. This growth was driven mainly by our attractions and hospitality assets, which got off to a strong start to the 2015 peak season.

Passenger counts at our attractions were up 7.9%, and we realized a 17.2% increase in revenue per passenger on a constant currency basis. Hospitality revenue was up about 11% on a same-store constant currency basis, including a 5.3% increase in RevPAR, and growth in ancillary revenue for food and beverage and retail.

Organic segment operating income increased $2.1 million, reflecting the benefit of growth in our higher-margin lines of business and strong cost management. The West Glacier properties, which were acquired in July 2014, added revenue of $1.1 million for the quarter, with adjusted segment operating income of just under $100,000. Adjusted segment EBITDA for West Glacier was $213,000 with an EBITDA margin of 18.8%.

As a reminder, the West Glacier properties are closed during the off-season. They open in late May, and are off to a strong start for the peak season.

Currency translation had an unfavorable effect on Travel and Recreation group's second quarter revenue and operating income of about $3.4 million and $1.1 million, respectively. Corporate activities expense for the second quarter was $2 million, which included acquisition transaction-related costs, and shareholder nomination and settlement agreement costs totaling $677,000 in the aggregate. These costs are excluded from income before other items.

Net interest expense increased by $405,000 from the 2014 second-quarter due to higher debt levels resulting from our recent acquisitions. During the quarter, we generated cash from operations of $19.7 million versus $3 million in the 2014 quarter, with an increase being driven primarily by higher income. Capital expenditures were $7.9 million in both the 2015 and 2014 second-quarter, and we returned a total of $2 million to shareholders in the form of regular quarterly dividend payments of $0.10 per share.

Net debt payments were $4.8 million, bringing our debt at the end of the quarter to $133.3 million with a debt to capital ratio of 27.5%. Cash and cash equivalents were $64.9 million at June 30, up $7 million from March 31.

Now moving on to guidance. As we had previously disclosed, our third-quarter results will be affected by negative share rotation of about [$50 million]. This will result in lower year-over-year revenue, segment operating income and income per share as compared to the 2014 third quarter.

GES's third-quarter revenue is expected to be in the range of $175 million to $185 million as compared to $226.7 million in the 2014 quarter. The decline primarily reflects negative share rotation and unfavorable currency translation, partially offset by additional revenue from the acquisitions made during 2014.

Those three factors are expected to account for a net revenue decline in the range of $46 million to $48 million. Our revenue guidance range also anticipates a reduction in revenue from nonrecurring events that will be at least partially offset by continued same share revenue growth.

We expect GES to post a third-quarter operating loss in the range of $16 million to $18.5 million as compared to income of $2.4 million in the 2014 quarter. This decline primarily reflects lower organic revenue as well as a reduction of $3.5 million to $4 million from the acquisitions, which will have a seasonally slow quarter.

For the Travel and Recreation group, we expect third-quarter revenue to be in the range of $68 million to $73 million, which is comparable to 2014 third-quarter revenue of $73.1 million. Our revenue guidance range anticipates unfavorable currency translation of about $8 million and continued growth in the underlying business.

Segment operating income for the Travel and Recreation group is expected to be in the range of $29.5 million to $31.5 million, as compared to $30.6 million in the 2014 quarter. Our third-quarter income before other items is expected to be in the range of $0.25 to $0.35 per share as compared to $1.11 per share in the 2014 third-quarter.

For the 2015 full-year, our outlook is essentially unchanged. We continue to expect full-year consolidated revenue to be comparable to 2014, as growth in the underlying business and our recent acquisitions offset significant headwinds from negative share rotation of about $70 million and unfavorable currency translation of about $40 million. We expect total adjusted segment EBITDA to be in the range of $89 million to $93 million versus $91.3 million in 2014.

Depreciation and amortization is expected to be in the range of $36 million to $38 million, which is up from $30.8 million in 2014, due to the recent acquisitions. Acquisition integration expenses, which are excluded from adjusted segment EBITDA, are expected to approximate $1.5 million. Our full-year cash flow from operations is expected to be about $60 million and capital expenditures are expected to be about $35 million.

This is up $5 million from our prior guidance, as we now expect to commence renovation work at the Gondola later this year. The timing of that project was previously uncertain and therefore not included in our prior guidance. Additional guidance for our business units can be found in the earnings press release.

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

(Operator Instructions) John Healy, Northcoast Research.

Steve, I just wanted to ask a little bit about some of the new wins in the quarter. It could just be me, but it sounded like there's a lot more there than there normally is. And I just kind of wanted to get a better understanding of what seems to be driving that? Is it some sort of change in the strategy? Is it the added benefit of some of the audiovisual stuff? Or is it just things happened to line up this quarter?

Yes. Thanks, John, for the question. So, I think the growth we had in the second quarter really is reflected in those three items. The first is, we've done a very good job of cross-selling some of our new services with our existing base of clients. A lot of that revenue in those contracts will actually take effect next year. So it's not necessarily -- some of those cross-selling opportunities are not reflected in the results of the second quarter, but that's activity that happened in the second quarter.

Some of the results are driven by what we would call short-term bookings. And these are events that are not contracted coming into the year, but they are sold in the year. They typically have a 90-day sales cycle to them. And we were very successful in selling more of those within the second quarter than we had anticipated. And a lot of that is a reflection of the sales team. And the value proposition that we are putting out there is really resonating with our clients.

Okay. And just wanted -- I just wanted to ask a quick question on the M&A side of things. I know you guys have been pretty active this year. I mean, is there any sort of view on how -- what the pipeline looks like?

Yes. So, John, we've been -- obviously, we did a lot at the end of 2014. We have been busy with integration and making sure we get that right. I'm very pleased to say that the acquisitions we've done have been fully integrated, and they are hitting the kind of the financial targets that we put out there for the businesses.

We continue to look at deals and opportunities that come across. We have a full pipeline, and we are ready to continue looking at those opportunities as they come up.

Great. And then just one quick question on the CapEx side of things. I know you kind of outlined the project that might be taking place next year with some of the Gondola activity. Any thoughts on what that might cost?

Yes. So the Gondola will actually start at the end of this season and continue through mid-2016, when the Gondola is typically at the slower months for that attraction. Our investment is about CAD26 million.

And John, that will be about [CAD7 million] this year and about [CAD19 million] next year. So we'll start later this year.

Okay. And is that just kind of like a normal recurring -- you know, you need to upgrade things? Or is this -- does it change the experience much?

Yes, John, there's some of it which is required maintenance that we have to do. Again, we've owned the attraction since 1999, and there's some required maintenance that we need to put into it. But it gave us an opportunity to really change the overall experience.

And as I mentioned during the talking points, we are increasing the square footage pretty significantly. It allows us to do a lot with the space in terms of food and beverage retail, and also bring in those experiential elements. We've worked very closely with Parks Canada in order to develop unique content that will be part of the experience within the attraction.

Okay, great. Thank you so much.

You're welcome. Thanks, John.

Thank you. At this time, there are no further questions.

Okay. Thanks, Cindy. Thanks, everyone, for your questions and your interest in Viad. I'm very excited about the strategic direction and the progress that we are making. We are seeing strong and underlying performance from both our Travel and Recreation and GES, and expecting substantial growth in 2016 that's amplified by positive share rotation, in addition to the growth of our core businesses and newly acquired businesses.

We remain focused on meeting our targets for 2015 and delivering greater shareholder value in the years to come. We look forward to speaking with you again next quarter. Thank you very much.

Thank you. And that concludes today's conference. Thank you for participating. You may now disconnect.