Description
Filed with the SEC from Aug 23 to Aug 29:
Viad (VVI)
Starboard disclosed that it now owns 1,192,000 shares (5.9%) of the exhibitions and events producer after it bought 527,935 shares from June 27 through Aug. 23 in a range of prices from $16.72 to $19.60 each. Starboard called the shares undervalued but did not disclose any plans or proposals.
BUSINESS OVERVIEW
Business.
Viad Corp (together with its subsidiaries, “Viad” or the “Company”) derives its revenues from experiential services provided primarily within the exhibition and events industry and travel and recreation industry. Viad occupies leading positions as a value-added service provider in many of the markets in which it competes. Viad serves clients predominantly in North America, the United Kingdom, Germany and the United Arab Emirates.
Viad organizes its businesses into two main operating groups:
Marketing & Events Group . The Marketing & Events Group specializes in all aspects of the design, planning and production of face-to-face events, immersive environments and brand-based experiences for clients, including show organizers, corporate brand marketers and retail shopping centers. The mission of the Marketing & Events Group is to create the world’s most meaningful and memorable experiences for brand marketers, show organizers, event attendees and retail shopping centers. Show organizers include for-profit and not-for-profit show owners as well as show management companies. Corporate brand marketers include exhibitors and domestic and international corporations which want to promote their brands, feature new products, services and innovations and build business relationships. Viad’s retail shopping center customers include major developers, owners and management companies of shopping malls and lifestyle centers.
Travel & Recreation Group . The Travel & Recreation Group generates its revenues from tourism products and experiential services, including world-class attractions, hotel and concession operations, transportation services and package tour operations in and around Western Canada, Glacier National Park in Montana, Denali National Park and Preserve in Alaska and Waterton Lakes National Park in Alberta, Canada.
Viad’s two business groups are supported by a centralized Corporate Services Group, which provides functional support in the areas of human resources, legal, finance and accounting, internal auditing, information technology, corporate development, real estate and tax.
Reportable Segments
With the two business groups, Viad’s organizational structure, operational decision-making authority, allocation of resources and internal reporting are aligned into the following reportable business segments:
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Marketing & Events U.S . segment;
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Marketing & Events International segment; and
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Travel & Recreation Group segment.
No reportable segment has a client comprising more than seven percent of that segment’s revenues, and no client comprises more than five percent of Viad’s revenues. Viad’s reportable business segments are described below.
Marketing & Events U.S. Segment
The Marketing & Events U.S. segment (the “U.S. segment”) is comprised of the domestic operations of Global Experience Specialists, Inc. and affiliates (“GES”). This segment generates revenues from the following services:
Show Organizer Services . Under agreements with show organizers, the U.S. segment serves as the official services contractor of an exhibition, which is also referred to as a “trade show,” “convention” or “show.” As the official services contractor, the U.S. segment provides the following services to the show organizer: general event management; planning and consultation; concept design; exhibition layout and design; graphics and design; show traffic analysis; carpeting and flooring; decorating products and accessories; custom graphics; overhead rigging; cleaning and temporary electrical, lighting and plumbing.
Exclusive Services Provided to Exhibitors . As the official services contractor, the U.S. segment is designated by the show organizer as the exclusive provider of certain services offered to exhibitors participating in the exhibition. This designation provides exhibitors with a single point of contact to facilitate a timely, safe and efficient move-in and move-out of the exhibition and to facilitate an organized, professional during-show experience. The exclusive services offered by the U.S. segment to exhibitors include: material handling services; overhead rigging; temporary electrical and plumbing and cleaning.
Discretionary Services Provided to Exhibitors . In addition to the exclusive services offered to exhibitors, the U.S. segment competes with other service providers to sell non-exclusive services to exhibitors, including: custom exhibit design and construction; portable and “modular” exhibits and design; integrated marketing, including pre- and post-event communications and customer relationship management; multimedia services; event surveys; return on investment analysis; attendee and exhibit booth traffic analysis; staff training; online management tools; logistics and freight-forwarding, storage and refurbishment of exhibits; booth furnishings, carpeting and signage; in-house installation and dismantling; and various other show services. The U.S. segment aims to provide these services, combined with complete event program management and planning, to corporate brand marketers across all exhibitions and events in which they participate. The U.S. segment competes with other service providers to offer these discretionary services to exhibitors, regardless of whether or not the U.S. segment is the official services contractor of the exhibition.
Other Marketing Services . The U.S. segment also provides a variety of immersive, entertaining attractions and brand-based experiences, sponsored events, mobile marketing and other branded entertainment and face-to-face marketing solutions for clients and venues, including movie studios, leading consumer brand marketers, shopping malls, museums and casinos. In addition, the U.S. segment offers retail clients complete turnkey services, including design, engineering, graphic production, fabrication, warehousing, shipping and on-site installation of retail merchandising units, kiosks and holiday environments. The U.S. segment also provides construction and installation services for permanent installations, including museum exhibits, corporate lobbies, visitors centers, showrooms and retail interiors.
Competition. The U.S. segment generally competes in the exhibition and events industry on the basis of discernible differences, value, quality, price, convenience and service. Viad believes the primary competitor in the domestic official services contractor market is The Freeman Companies (a private company), however, the U.S. segment encounters substantial competition from a large number of providers. No competitor has significant market share in the other service categories. Most of the competitors are privately held companies with limited information available about them.
During 2011, the U.S. segment provided services to over 1,500 exhibitions and events and more than 166,000 exhibitors. The U.S. segment has full-service operations in every major exhibition market in the United States, including: Las Vegas, Nevada; Chicago, Illinois; Orlando, Florida; New York, New York and Los Angeles, California. In each of these locations, the U.S. segment is a leading service provider, servicing some of the most visible and influential events in its industry.
Marketing & Events International Segment
The Marketing & Events International segment (the “International segment”) includes all foreign operations of the Marketing & Events Group and consists of two operating segments: Canada and EMEA (Europe, Middle East and Asia). The International segment offers services that are similar to those provided by the U.S. segment. These services are delivered by Viad’s wholly-owned subsidiaries including: GES Exposition Services (Canada) Limited, Melville Exhibition and Event Services Limited and affiliates (collectively, “Melville”), SDD Exhibitions Limited and GES GmbH & Co. KG.
During 2011, the International segment provided services to over 650 exhibitions and events and more than 58,000 exhibitors. The International segment has full-service operations in many of the most active and popular exhibition and event destinations, including ten Canadian cities, six United Kingdom cities, one German city and two cities in the United Arab Emirates. In each location, the International segment is a leading service provider, servicing some of the most visible and influential events in its industry.
Competition . The International segment generally competes on the basis of discernible differences, value, quality, price, convenience and service. The International segment is the largest exhibitions competitor in the countries in which it competes. The International segment encounters competition from a large number of providers of similar services. Most of the competitors are privately held companies, with limited information available about them.
Travel & Recreation Group Segment
Travel and recreation services are provided by Brewster Inc. (“Brewster”), Glacier Park, Inc. (“Glacier Park”) and Alaskan Park Properties, Inc. (“Alaskan Park Properties”). Brewster and Alaskan Park Properties are wholly-owned subsidiaries of Viad and Glacier Park is an 80 percent owned subsidiary of Viad.
Brewster
Brewster is a major tourism service operator in Western Canada, delivering tourism products that include world-class attractions, transportation services, inbound package tour operations, hotel operations and corporate and event management.
Attractions. Brewster’s attractions include the Banff Gondola, tours of the Athabasca Glacier on the Columbia Icefield and the Banff Lake Cruise operations. The Banff Gondola transports visitors to an elevation of over 7,000 feet above sea level to the top of Sulphur Mountain in Banff, Alberta, Canada, offering an unobstructed view of the Canadian Rockies and overlooking the town of Banff and the Bow Valley. Tours of the Athabasca Glacier on the Columbia Icefield provide clients with an opportunity to experience one of the largest accumulations of ice and snow south of the Arctic Circle. Icefield customers ride in an “Ice Explorer,” a unique vehicle specially designed for glacier travel. Brewster also offers boat tours, small boat rentals and charter fishing on Lake Minnewanka, which is situated outside of the town of Banff in the heart of the Canadian Rockies.
Transportation Operations . Brewster’s transportation operations include charter motorcoach services, sightseeing and scheduled services and airport service. Brewster operates a modern fleet of luxury motorcoaches, available for groups of any size, for travel throughout the Canadian provinces of Alberta and British Columbia. In addition, Brewster provides seasonal half- and full-day sightseeing tours from Calgary, Banff, Lake Louise and Jasper, Canada.
Package Tour Operations and Corporate and Event Management . Brewster’s inbound package tour operations feature year-round package tours throughout Canada. These packages include motorcoach, rail, self-drive automobile, ski and winter touring and consist of both group and individual tours which may be custom designed at the time of booking. Brewster also offers a full suite of corporate and event management services for meetings, conferences, incentive travel, sports and special events. Event-related service offerings include staffing, off-site events, tours/activities, team building, housing, event management, theme development, production and audio visual services.
Hotels . Brewster operates two hotels in Alberta: the Mount Royal Hotel, which is located in the heart of Banff, and the Glacier View Inn, which is located on the Columbia Icefield between Lake Louise and Jasper. The hotels cater principally to leisure travelers.
Brewster draws its customers from major markets including Canada, the United States, the United Kingdom, Australia/New Zealand and Asia. Brewster markets directly to consumers, as well as through distribution channels that include tour operators, tour wholesalers, destination management companies and retail travel agencies/organizations.
In October 2010, “Brewster Travel Canada” became the new brand identity of Brewster.
Glacier Park
Glacier Park is an independent hotel operator and concessionaire of Waterton-Glacier International Peace Park, which encompasses Glacier National Park in Montana and Waterton Lakes National Park in Alberta, Canada. Glacier Park is the largest concessionaire in Glacier National Park which is among the most visited National Parks in the United States. Glacier Park provides lodging accommodations, food and beverage services, retail operations, transportation services and tours throughout Glacier and Waterton-Lakes National Parks.
The operations of Glacier Park are seasonal, typically running from mid-May until the end of September. During those months, Glacier and Waterton Lakes National Parks typically host over two million visitors, the vast majority of whom purchase services from Glacier Park. During the peak months of July and August, the occupancy level at Glacier Park’s lodges and motor inns typically exceeds 90 percent. During the “shoulder” months of June and September, occupancy typically exceeds 80 percent.
Individual travelers account for over 80 percent of Glacier Park’s customers, and the balance of its customers are tour groups. Demographically, Glacier Park draws over 90 percent of its customers from the United States, with approximately 60 percent of them coming from the Northwest and Midwest regions.
Historic Lodges and Hotel Accommodations . Glacier Park operates five lodges, three 1960s-era motor inns and one full-season resort hotel, with accommodation offerings varying from hikers’ cabins to hotel suites. In January 2011, Glacier Park acquired Grouse Mountain Lodge, a 145-room resort hotel in Whitefish, Montana, which is near Glacier National Park. In June 2011, Glacier Park acquired St. Mary Lodge & Resort, a 115-room hotel in St. Mary, Montana, which is located outside the east entrance to Glacier National Park.
Hospitality Services. Glacier Park has food and beverage operations providing services to lodging guests and park visitors. Glacier Park also has retail operations, including a camp store and gift shops catering to lodging guests and park visitors.
Tour and Transportation Services. Glacier Park utilizes a fleet of authentic 1930s red touring buses that have rollback canvas tops to conduct interpretive park tours throughout Glacier and Waterton Lakes National Parks, including tours of the scenic Going-to-the-Sun Road.
Concession Business . Glacier Park operates the concession portion of its business under a concession contract with the U.S. National Park Service (the “Park Service”) for Glacier National Park. Glacier Park’s original 25-year concession contract with the Park Service that was to expire on December 31, 2005, has been extended for seven one-year periods and now expires on December 31, 2012. The Park Service, in its sole discretion, may continue extending Glacier Park’s concession contract in one-year increments beyond 2012. When this contract ultimately expires, Glacier Park will have the opportunity to bid on a new concession contract. If Glacier Park does secure a new contract, possible terms would be for 10, 15 or 20 years. Glacier Park generated approximately 45 percent of its 2011 revenue through its concession contract for services provided within Glacier National Park. If a new concessionaire is selected by the Park Service, Glacier Park’s remaining business would consist of its operations at Waterton Lakes National Park, Alberta, Canada; East Glacier, Montana; Whitefish, Montana and St. Mary, Montana. In such a circumstance, Glacier Park would be entitled to an amount equal to its “possessory interest,” which generally means the value of the structures acquired or constructed, fixtures installed and improvements made to the concession property at Glacier National Park during the term of the concession contract. Glacier Park owns Glacier Park Lodge in East Glacier, Montana; Grouse Mountain Lodge in Whitefish, Montana and St. Mary Lodge & Resort in St. Mary, Montana. Glacier Park also owns the Prince of Wales Hotel in Waterton Lakes National Park, which is operated under a 42-year ground lease with the Canadian government running through January 31, 2052. Glacier Park generated 19 percent of the Travel & Recreation Group’s 2011 segment operating income.
Alaskan Park Properties
On September 16, 2011, Alaskan Park Properties, Inc., Viad’s wholly-owned subsidiary, acquired Denali Backcountry Lodge, with 42 guest rooms on six acres inside Denali National Park and Preserve, and Denali Cabins, with 46 guest cabins on six acres near the entrance to Denali National Park and Preserve. The lodge operates day trips to its day trip lodge accessed by the scenic park road, a package tours sales and marketing program and daily motorcoach service between Anchorage and Denali National Park and Preserve. Alaskan Park Properties’ operations leverage Viad’s full-service hospitality operational expertise and expand Viad’s national park footprint into Alaska. Full-service operations of Alaskan Park Properties will begin in 2012 and it is anticipated that the operations will be seasonal, running from early June until the end of September.
Competition. The Travel & Recreation Group generally competes on the basis of location, uniqueness of facilities, service, quality and price. Competition exists both locally and regionally in the package tour business, hotel and restaurant business and charter service business.
Recent Business Developments
Over the past several years, Viad has made acquisitions and strategic investments to grow its business. In 2011, the Travel & Recreation Group acquired two properties near Glacier National Park (the St. Mary Lodge & Resort and Grouse Mountain Lodge), one property inside Denali National Park and Preserve (Denali Backcountry Lodge) and one property near the entrance to Denali National Park and Preserve (Denali Cabins).
Viad has also reorganized its structure and operations and rebranded its services. In July 2009, Viad announced a strategic reorganization to align operations into two groups: the Marketing & Events Group and the Travel & Recreation Group . The two groups are described above. On the close of business on December 31, 2009, the operations of the Marketing & Events U.S. segment were combined into Global Experience Specialists, Inc. (such operations being formerly known as GES Exposition Services, Inc., Exhibitgroup/Giltspur and The Becker Group). On February 2, 2010, the Marketing & Events Group introduced “Global Experience Specialists” as its new brand which is used in connection with all of the Marketing & Events Group’s services, replacing the “GES Exposition Services,” “Exhibitgroup/Giltspur” and “Becker Group” brands. During 2011, Viad streamlined its operations by consolidating its leased facilities in San Francisco, California and Chicago, Illinois. The consolidation was part of an effort to optimize the Marketing & Events Group’s U.S. service delivery network.
Most recently, on March 7, 2012, Viad acquired the Banff International Hotel and related assets for $23.5 million in cash, subject to certain adjustments. The Banff International Hotel is a 162-guest room commercial hotel located in Banff, Alberta, Canada.
Intellectual Property
Viad and its subsidiaries own or have the right to use registered trademarks and trademarks pending registration, used in their businesses, including Global Experience Specialists, GES ® , ExhibitSelect ® , GES Servicenter ® , GES National Servicenter ® , HANG:RZ ® , Trade Show Electrical ® , Trade Show Rigging TSR ® , TSE Trade Show Electrical & design ® , ethnoMetrics ® , EMAX ® , DEXZ ® , WAM! The Wireless Ambassador ® , LUMA2 & design ® and ecosense and design . Viad and its subsidiaries also own or have the right to use many registered trademarks and trademarks pending registration outside of the United States, including the Melville lion image , GES Worldwide Network ® , GES , Maxim ® , Emax ® , Showtech , SDDRetail and the trademarks associated with Brewster’s rebranding in 2010, including Brewster Travel Canada & design , Brewster Attractions Explore & design , Brewster Hospitality Refresh & design and escape.connect.refresh.explore . United States trademark registrations are for a term of ten years and are renewable every ten years as long as the trademarks are used in the regular course of business.
The Company owns a number of patents for exhibit technology and exhibit processes that are cumulatively important to its business and that it believes provide competitive advantages in the marketplace for designing and building exhibits. These include patents relating to modular furniture used in exhibits and displays and a modular structure having a load-bearing surface. The Company also owns a number of design patents for its retail merchandising units. United States utility patents are currently granted for a term of 20 years from the date a patent application is filed and United States design patents are currently granted for a term of 14 years from the date granted. The Marketing & Events Group has extensive design libraries with copyright protections and owns copyright registrations for a number of the designs within its design libraries. Copyright protection for such work is 95 years from the date of publication or 120 years from creation, whichever is shorter.
Seasonality
Exhibition and event activity varies significantly depending on the frequency and timing of shows (some shows are not held each year and some may shift between quarters). The Marketing & Events U.S. segment generally reports its highest revenues during the first quarter of each year, while the Marketing & Events International segment generally reports its highest revenues during the second quarter of each year. The Travel & Recreation Group segment experiences peak activity during the summer months and 87 percent of revenues are earned in the second and third quarters. Viad’s average segment operating income during the past three years, as a percentage of the average full year’s segment operating income during the past three years, was approximately 54 percent (first quarter), 62 percent (second quarter), 29 percent (third quarter) and minus 45 percent (fourth quarter). See “Risk Factors – Viad’s businesses are seasonal, which causes results of operations to fluctuate and makes results of operations particularly sensitive to adverse events during peak periods” and “Risk Factors – Exhibition rotation impacts overall profitability and makes comparisons between periods difficult” in Item 1A, which are incorporated herein by reference; see also Notes 20 and 23 of notes to consolidated financial statements.
Financial Information about Restructuring Charges
Information regarding restructuring charges is provided in Note 17 of notes to consolidated financial statements.
Financial Information about Segments
Business segment financial information is provided in Note 20 of notes to consolidated financial statements.
Financial Information about Geographic Areas
Geographic area financial information is provided in Note 20 of notes to consolidated financial statements.
CEO BACKGROUND
Daniel Boggan Jr.
Mr. Boggan is a retired Senior Vice President and Chief Operating Officer of the National Collegiate Athletic Association (NCAA), a voluntary organization which governs college and university athletic programs, from 1996 through his retirement in August 2003. He was Chief of Staff, Office of the Mayor, Oakland, California from January 2007 to August 2007, and prior
thereto, Vice President-Business Development for Siebert Brandford Shank & Co., L.L.C., a municipal finance firm which provides investment banking, sales and trading and financial advisory services, from October 2005 until March 2006. From 2003 to 2005, Mr. Boggan served as a consultant for Siebert Brandford Shank & Co., L.L.C. Mr. Boggan is also a trustee of The California Endowment, currently serving as Chair of the Investment and Finance Committee and formerly serving as Chairman of the Board from 2008 to 2010. He served as a trustee of Albion College from 1993 to 2011. He also has served as the President of the Board of Alameda County Medical Center from 2010 to present and is a director of Collective Brands, Inc. and The Clorox Company. Mr. Boggan has specific knowledge regarding the marketing industry, sales and the industries specific to Viad. Age 66. Director since 2005.
Richard H. Dozer
Mr. Dozer is Chairman-Phoenix Office of GenSpring Family Offices, a wealth management firm for ultra high net worth families, a position he has held since 2008. He also serves as Treasurer of the Greater Phoenix Convention and Visitors Bureau. Prior thereto, Mr. Dozer was co-founder and a managing partner of CDK Partners, a real estate development and investment company, from 2006 to 2008. Mr. Dozer was President of the Arizona Diamondbacks, a major league baseball franchise, from its inception in 1995 until 2006, and prior thereto, was the Vice President and Chief Operating Officer of the Phoenix Suns, an NBA professional basketball franchise, from 1987 to 1995, as well as President of the US Airways Center arena (formerly, America West Arena) from 1989 to 1995. Mr. Dozer’s leadership positions with the Arizona Diamondbacks, Phoenix Suns and US Airways Center provided him with skills and experience related to operations, sales and other areas related to Viad’s specific industries, including marketing, corporate events and branded events. Mr. Dozer also has financial experience, which he acquired from his audit manager position and other positions he held with Arthur Andersen from 1979 to 1987, during which time he held a CPA license. Mr. Dozer is a director and Audit Committee Chairman of Swift Transportation Company, a public company, a director of Blue Cross Blue Shield of Arizona, and a director and Audit Committee member of Apollo Group, Inc., a public company. He previously served as a director of Stratford American Corporation from 1998 to 2006. Age 55. Director since 2008.
Robert E. Munzenrider
Mr. Munzenrider is Founder or Co-Founder of several E-Commerce Businesses, and is a retired President of Harmon AutoGlass, a subsidiary of Apogee Enterprises, Inc., a national chain of retail automotive services and insurance claims processor, a position he held from 2000 to 2002. In 1999, Mr. Munzenrider served as Vice President and Chief Financial Officer of the Glass Services Segment of Apogee Enterprises. He also served during part of 1999 as Executive Vice President and Chief Financial Officer of Eliance Corp., an e-commerce transaction processor. From 1997 to 1998, Mr. Munzenrider served as Vice President and Chief Financial Officer of St. Jude Medical, Inc., an international medical device manufacturing and marketing company. Mr. Munzenrider has a strong finance and accounting background, holding his CPA license since 1971 and serving in the position of Chief Financial Officer for a majority of his professional career. In addition, he has a historical familiarity with Viad operations, as he was the Chief Financial Officer of three of Viad’s former operating companies from 1982 to 1997. Mr. Munzenrider is a director of Angeion Corp and Kips Bay Medical, Inc., and previously served as a director of Criticare Systems, Inc., ATS Medical, Inc. and CABG Medical, Inc. Age 67. Director since 2004.
MANAGEMENT DISCUSSION FROM LATEST 10K
Overview:
Viad Corp (“Viad” or the “Company”) operates in three reportable business segments: Marketing & Events U.S., Marketing & Events International and Travel & Recreation Group.
The Marketing & Events Group, comprised of Global Experience Specialists, Inc. and affiliates (“GES”), specializes in all aspects of the design, planning and production of face-to-face events, immersive environments and brand-based experiences for clients, including show organizers, corporate brand marketers and retail shopping centers. In addition, the Marketing & Events Group provides a variety of immersive, entertaining attractions and brand-based experiences, sponsored events, mobile marketing and other branded entertainment and face-to-face marketing solutions for clients and venues, including shopping malls, movie studios, museums, leading consumer brands and casinos.
The Travel & Recreation Group segment consists of Brewster Inc. (“Brewster”), Glacier Park, Inc. (“Glacier Park”) and Alaskan Park Properties, Inc. (“Alaskan Park Properties”). Brewster provides tourism products and experiential services in the Canadian Rockies in Alberta and in other parts of Western Canada. Brewster’s operations include the Banff Gondola, Columbia Icefield Glacier Adventure, motorcoach services, charter and sightseeing services, tour boat operations, inbound package tour operations and hotel operations. Glacier Park operates five lodges, three motor inns and one four-season resort hotel and provides food and beverage operations, retail operations and tour and transportation services in and around Glacier National Park in Montana and Waterton Lakes National Park in Alberta, Canada. Glacier Park is an 80 percent owned subsidiary of Viad. Alaskan Park Properties operates the Denali Backcountry Lodge, which is the largest of three lodges located within Denali National Park and Preserve in Alaska, and the Denali Cabins, which are located near the entrance to Denali National Park and Preserve. In addition to lodging, Alaskan Park Properties also provides food and beverage operations and package tour and transportation services in and around Denali National Park and Preserve.
Non-GAAP Measures:
The following discussion includes a presentation of Adjusted EBITDA and Income before impairment losses, which are utilized by management to measure the profit and performance of Viad’s operations and to facilitate period to period comparisons. “Adjusted EBITDA” is defined by Viad as net income attributable to Viad before interest expense, income taxes, depreciation and amortization, impairment losses and recoveries, changes in accounting principles and the effects of discontinued operations. “Income before impairment losses” is defined by Viad as income from continuing operations before the after-tax effect of impairment losses related to goodwill, other intangible assets and other long-lived assets. The presentation of Adjusted EBITDA and Income before impairment losses is supplemental to results presented under GAAP and may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA is considered a useful operating metric as potential variations arising from taxes, depreciation, debt service costs, impairment losses and recoveries, changes in accounting principles and the effects of discontinued operations are eliminated, thus resulting in an additional measure considered to be indicative of Viad’s ongoing operations. Income before impairment losses is utilized by management to review operating results of the business without the effects of non-cash impairment losses. These non-GAAP measures should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP.
Management believes that the presentation of Adjusted EBITDA and Income before impairment losses provides useful information to investors regarding Viad’s results of operations for trending, analyzing and benchmarking the performance and value of Viad’s business. Management uses Adjusted EBITDA and Income before impairment losses primarily as performance measures and believes that the GAAP financial measures most directly comparable to these non-GAAP measures are net income attributable to Viad and income from continuing operations attributable to Viad, respectively. Although Adjusted EBITDA is used as a financial measure to assess the performance of the business, the use of Adjusted EBITDA is limited because it does not consider material costs, expenses and other items necessary to operate the business. These items include debt service costs, non-cash depreciation and amortization expense associated with long-lived assets, expenses related to U.S. federal, state, local and foreign income taxes, impairment losses or recoveries, and the effects of accounting changes and discontinued operations. Similarly, although Income before impairment losses is used as a financial measure to assess the performance of the business, its use is limited because it does not consider non-cash goodwill, other intangible assets and other long-lived asset impairment losses. Because Adjusted EBITDA and Income before impairment losses do not consider the above items, a user of Viad’s financial information should consider net income attributable to Viad and income from continuing operations attributable to Viad as important measures of financial performance because they provide more complete measures of the Company’s performance.
Marketing & Events Group. Revenues for the Marketing & Events U.S. segment were $631.4 million for 2011, up 10.6 percent compared to $571.0 million in 2010. The increase was primarily due to base same-show revenue increases of 11.2 percent, increased exhibitor spending, new business wins and positive show rotation of approximately $11 million. Management defines base same-show revenue as revenue from exhibitions and events that occur in the same quarter and same city every year. Base same-shows represented 36.6 percent of Marketing & Events U.S. segment revenues in 2011. The 2011 segment operating loss was $6.3 million, compared to a loss of $15.2 million in 2010. The improved operating results were primarily the result of higher revenues, partially offset by higher accruals for performance-based incentives.
Revenues for the Marketing & Events International segment were $218.6 million for 2011, up 10.5 percent compared to $197.8 million in 2010. Segment operating income was $11.4 million in 2011, compared to $10.1 million in 2010. As discussed above, results in this segment were impacted by exchange rates during 2011, resulting in increases of $9.8 million in revenue and $379,000 in segment operating income, as compared to 2010. Excluding exchange rate variances, 2011 revenues increased by $11.1 million, or 5.6 percent, and operating income increased by $982,000, or 9.7 percent. The increase in revenues was primarily due to new show wins, positive show rotation of approximately $4 million and same-show growth, which more than offset 2010 first quarter revenues from a major project for the 2010 Winter Olympic Games in Canada. Operating results for 2011 reflect higher compensation expenses, including merit increases and the elimination of temporary wage reductions, as compared to 2010.
Although the Marketing & Events Group has a diversified revenue base and long-term contracts for future shows, its revenues are affected by general economic and industry-specific conditions. The prospects for individual shows tend to be driven by the success of the industry related to those shows. In general, the exhibition and event industry is experiencing modest improvement. Following quarterly declines from the third quarter of 2008 through the first quarter of 2010, Marketing & Events U.S. base same-show revenues were essentially flat in the 2010 second quarter and have increased in each of the following six quarters.
For 2012, management expects U.S. same-show revenues to increase at a mid-single digit rate and that show rotation will not have a meaningful impact on revenues as revenue from non-annual shows during 2012 is expected to be comparable to revenues from non-annual shows that took place during 2011. Additionally, management anticipates that foreign currency exchange rate variances versus 2011 will have an unfavorable impact on the Marketing & Events Group’s 2012 revenues and operating income of approximately $9 million and $500,000, respectively. Management remains focused on improving the profitability of the Marketing & Events U.S. segment through continued integration and consolidation of operations to increase capacity utilization and reduce costs. Consequently, management expects to record additional restructuring charges of approximately $1.5 million in the first quarter of 2012 as a result of the continued reorganization activities. Additional restructuring charges may be incurred as further cost structure improvements are made.
The Marketing & Events Group is subject to multiple collective-bargaining agreements that affect labor costs, about one-third of which expire each year. Although labor relations between the Company and labor are currently stable, disruptions during future contract negotiations could occur, with the possibility of an adverse impact on the operating results of the Marketing & Events Group.
Travel & Recreation Group. Revenues for the Travel & Recreation Group segment were $101.8 million, up 15.3 percent compared to 2010 revenues of $88.3 million. Segment operating income was $20.2 million, up 1.6 percent from 2010 segment operating income of $19.9 million. Segment operating margins were 19.8 percent in 2011 compared to 22.5 percent in 2010. As discussed above, results in this segment were impacted by exchange rate variances during 2011, resulting in increases of $4.3 million and $1.3 million in revenues and segment operating income, respectively, as compared to 2010.
Excluding exchange rate variances, 2011 revenues increased by $9.2 million, or 10.5 percent, primarily due to the acquisitions of St. Mary Lodge & Resort and Grouse Mountain Lodge, which are located near Glacier National Park, as well as organic revenue growth at Brewster. The Company acquired the 145-room Grouse Mountain Lodge on January 5, 2011 for $10.5 million in cash and the 115-room St. Mary Lodge & Resort on June 29, 2011 for $15.3 million in cash. Brewster realized growth across all of its lines of business with the exception of its transportation business, which had higher 2010 revenues resulting from charter contracts related to the Winter Olympic and Paralympic Games. These improvements were partially offset by lower revenues from Many Glacier Hotel, a property operated by Glacier Park, resulting from planned construction that reduced the number of rooms available during 2011 as compared to 2010, as well as lower visitation to Glacier National Park during July and August.
Excluding exchange rate variances, 2011 segment operating income decreased by $1.0 million primarily due to the lower revenues at Many Glacier Hotel (which have a high flow through to operating income) and the seasonal fourth quarter operating loss at Alaskan Park Properties. The Company acquired the 42-room Denali Backcountry Lodge and 46 Denali Cabins on September 16, 2011 for $15.3 million in cash.
During 2011, approximately 70 percent of revenue and 86 percent of segment operating income generated in the Travel & Recreation Group segment were derived through its Canadian operations. These operations are largely affected by foreign customer visitation, and, accordingly, increases in the value of the Canadian dollar compared to other currencies could adversely affect customer volumes, revenue and segment operating income for the Travel & Recreation Group.
Management anticipates that foreign currency exchange rate variances versus 2011 will have an unfavorable impact on Travel & Recreation Group segment 2012 revenues and operating income of approximately $3 million and $1 million, respectively. Additionally, the Travel & Recreation Group segment is affected by consumer discretionary spending on tourism activities.
Glacier Park operates the concession portion of its business under a concession contract with the U.S. National Park Service (the “Park Service”) for Glacier National Park. Glacier Park’s original 25-year concession contract with the Park Service that was to expire on December 31, 2005, has been extended for seven one-year periods and now expires on December 31, 2012. The Park Service, in its sole discretion, may continue extending Glacier Park’s concession contract in one-year increments beyond 2012. When this contract ultimately expires, Glacier Park will have the opportunity to bid on a new concession contract. If Glacier Park does secure a new contract, possible terms would be for 10, 15 or 20 years. Glacier Park generated approximately 45 percent of its 2011 revenue through its concession contract for services provided within Glacier National Park. If a new concessionaire is selected by the Park Service, Glacier Park’s remaining business would consist of its operations at Waterton Lakes National Park, Alberta, Canada; East Glacier, Montana; Whitefish, Montana and St. Mary, Montana. In such a circumstance, Glacier Park would be entitled to an amount equal to its “possessory interest,” which generally means the value of the structures acquired or constructed, fixtures installed and improvements made to the concession property at Glacier National Park during the term of the concession contract. Glacier Park owns Glacier Park Lodge in East Glacier, Montana; Grouse Mountain Lodge in Whitefish, Montana and St. Mary Lodge & Resort in St. Mary, Montana. Glacier Park also owns the Prince of Wales Hotel in Waterton Lakes National Park, which is operated under a 42-year ground lease with the Canadian government running through January 31, 2052. Glacier Park generated 19 percent of the Travel & Recreation Group’s 2011 segment operating income.
Corporate Activities. Corporate activities expense of $7.7 million in 2011 increased from $6.4 million in 2010. This increase was primarily due to higher legal fees related to employee benefits associated with previously divested operations and other matters.
Restructuring Charges. In 2011, Viad recorded net restructuring charges of $3.8 million compared to $4.2 million in 2010 (the 2010 amount includes a reversal of restructuring reserves of $814,000 primarily related to revisions in estimated sublease income associated with certain leased facilities). These charges primarily related to reorganization activities in the Marketing & Events Group, comprised of the elimination of certain positions as well as facility consolidations.
Income Taxes. The effective tax rate for 2011 was 29.5 percent compared to 68.1 percent for 2010. The relatively low rate for 2011 compared to the statutory rate was due to favorable tax resolutions of $103,000, state tax benefits of $100,000 and other tax benefits. The relatively high rate for 2010 compared to the statutory rate was due to the write-off of deferred taxes of $1.3 million as a result of health care legislation, partially offset by favorable tax resolutions of $514,000. Excluding the effects of these items, the 2010 effective rate was 38.2 percent.
2010 vs. 2009:
Revenues for 2010 increased 4.8 percent to $844.8 million compared to $805.8 million in 2009. Viad’s income from continuing operations before income taxes was $2.6 million for 2010 compared to a loss of $133.4 million in 2009. Impairment losses for 2010 were $268,000 (after-tax), or $0.01 per diluted share. In 2009, the Company recorded impairment losses of $98.2 million (after-tax), or $4.92 per diluted share, primarily related to goodwill and other intangible assets in the Marketing & Events Group, as well as $2.9 million related to the write down of a non-strategic real estate asset held for sale as of December 31, 2009. Income attributable to Viad before impairment losses for 2010 was $449,000, or $0.02 per diluted share, compared to the 2009 loss attributable to Viad before impairment losses of $7.2 million, or $0.36 per diluted share. Net restructuring charges in 2010 were $4.2 million compared to $14.1 million in 2009, both primarily related to the Marketing & Events Group. The improved results as compared to 2009 were also the result of higher revenues, overhead reductions and productivity improvements driven by the Company’s Lean initiatives.
Net income attributable to Viad for 2010 was $443,000, or $0.02 per diluted share, compared to a loss of $104.7 million, or $5.25 per diluted share, in 2009. These results include income from discontinued operations of $262,000, or $0.01 per diluted share, in 2010 and $679,000, or $0.03 per diluted share, in 2009 relating to obligations associated with previously sold operations.
During 2010, foreign exchange rate variances resulted in increases in revenues and segment operating income of $8.7 million and $1.1 million, respectively, as compared to 2009. Viad conducts its foreign operations primarily in Canada and the United Kingdom and to a lesser extent in certain other countries.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
Overview:
Viad Corp (“Viad” or the “Company”) operates in three reportable business segments: Marketing & Events U.S., Marketing & Events International and Travel & Recreation Group.
The Marketing & Events Group, comprised of Global Experience Specialists, Inc. and affiliates (“GES”), specializes in all aspects of the design, planning and production of face-to-face events, immersive environments and brand-based experiences for clients, including show organizers, corporate brand marketers and retail shopping centers. In addition, the Marketing & Events Group provides a variety of immersive, entertaining attractions and brand-based experiences, sponsored events, mobile marketing and other branded entertainment and face-to-face marketing solutions for clients and venues, including shopping malls, movie studios, museums, leading consumer brands and casinos.
The Travel & Recreation Group segment consists of Brewster Inc. (“Brewster”), Glacier Park, Inc. (“Glacier Park”) and Alaskan Park Properties, Inc. (“Alaska Denali Travel”). Brewster provides tourism services in the Canadian Rockies in Alberta and in other parts of Western Canada. Brewster’s operations include the Banff Gondola, Columbia Icefield Glacier Adventure, motorcoach services, charter and sightseeing services, tour boat operations, inbound package tour operations and hotel operations. Glacier Park operates five lodges, three motor inns and one four-season resort hotel and provides food and beverage operations, retail operations and tour and transportation services in and around Glacier National Park in Montana and Waterton Lakes National Park in Alberta, Canada. Glacier Park is an 80 percent owned subsidiary of Viad. Alaska Denali Travel operates Denali Backcountry Lodge and Denali Cabins. Denali Backcountry Lodge is a 42-guest room lodge located within Denali National Park and Preserve in Alaska and Denali Cabins are 46 guest cabins located near the entrance to Denali National Park and Preserve. In addition to lodging, Alaska Denali Travel also provides food and beverage operations and package tour and transportation services in and around Denali National Park and Preserve.
Non-GAAP Measure:
The following discussion includes a presentation of Adjusted EBITDA, which is utilized by management to measure the profit and performance of Viad’s operations and to facilitate period-to-period comparisons. “Adjusted EBITDA” is defined by Viad as net income attributable to Viad before interest expense, income taxes, depreciation and amortization, impairment losses and recoveries, changes in accounting principles and the effects of discontinued operations. The presentation of Adjusted EBITDA is supplemental to results presented under GAAP and may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA is considered a useful operating metric as potential variations arising from taxes, depreciation, debt service costs, impairment losses and recoveries, changes in accounting principles and the effects of discontinued operations are eliminated, thus resulting in an additional measure considered to be indicative of Viad’s ongoing operations. This non-GAAP measure should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP.
Management believes that the presentation of Adjusted EBITDA provides useful information to investors regarding Viad’s results of operations for trending, analyzing and benchmarking the performance and value of Viad’s business. Management uses Adjusted EBITDA primarily as a performance measure and believes that the GAAP financial measure most directly comparable to this non-GAAP measure is net income attributable to Viad. Although Adjusted EBITDA is used as a financial measure to assess the performance of the business, the use of Adjusted EBITDA is limited because it does not consider material costs, expenses and other items necessary to operate the business. These items include debt service costs, non-cash depreciation and amortization expense associated with long-lived assets, expenses related to U.S. federal, state, local and foreign income taxes, impairment losses or recoveries and the effects of accounting changes and discontinued operations. Because Adjusted EBITDA does not consider the above items, a user of Viad’s financial information should consider net income attributable to Viad as an important measure of financial performance because it provides a more complete measure of the Company’s performance.
Marketing & Events Group . Revenues for the Marketing & Events U.S. segment were $165.5 million for the second quarter of 2012, up 10.2 percent compared to $150.2 million in the second quarter of 2011. The increase was primarily due to positive show rotation revenue of approximately $5 million, base same-show revenue increases of 6.1 percent and new business wins. Management defines base same-show revenue as revenue from exhibitions and events that occur in the same quarter and same city every year. Base same-shows represented 30.2 percent of 2012 second quarter Marketing & Events U.S. revenues. Segment operating income was $5.6 million in the second quarter of 2012, compared to $205,000 in the second quarter of 2011. The improved operating results were primarily due to increases in revenues and ongoing margin improvement initiatives to increase show profitability and reduce overhead costs.
Revenues for the Marketing & Events International segment were $54.7 million for the second quarter of 2012, down 18.4 percent compared to $67.0 million in the second quarter of 2011. Segment operating income was $2.3 million in the second quarter of 2012, compared to $6.7 million in the second quarter of 2011. As discussed above, period-to-period comparisons for this segment were affected by exchange rate variances, which decreased revenues by $2.7 million and segment operating income by $117,000 as compared to the second quarter of 2011. Excluding exchange rate variances, 2012 second quarter revenues decreased by $9.6 million, or 14.3 percent, and segment operating income decreased by $4.2 million primarily due to negative show rotation revenue of approximately $14 million.
Although the Marketing & Events Group has a diversified revenue base and long-term contracts for future shows, its revenues are affected by general economic and industry-specific conditions. The prospects for individual shows tend to be driven by the success of the industry related to those shows. In general, the exhibition and event industry is experiencing modest improvement. Following quarterly declines from the third quarter of 2008 through the first quarter of 2010, Marketing & Events U.S. base same-show revenues were essentially flat in the 2010 second quarter and have increased in each of the following eight quarters.
For the 2012 full year, management expects U.S. same-show revenues to increase at a mid-single digit rate and that show rotation will not have a meaningful impact on revenues as revenue from non-annual shows during 2012 is expected to be comparable to revenues from non-annual shows that took place during 2011. Additionally, management anticipates that foreign currency exchange rate variances versus 2011 will have an unfavorable impact on the Marketing & Events Group’s 2012 full year revenues and segment operating income of approximately $7.5 million and $325,000, respectively. Management remains focused on improving the profitability of the Marketing & Events U.S. segment through continued integration and consolidation of operations to increase capacity utilization and reduce costs. Additional restructuring charges may be incurred as further cost structure improvements are made.
The Marketing & Events Group is subject to multiple collective bargaining agreements that affect labor costs, approximately one-third of which expire each year. Although labor relations between the Company and labor are currently stable, disruptions during future contract negotiations could occur, with the possibility of an adverse impact on the operating results of the Marketing & Events Group.
Travel & Recreation Group . Revenues for the Travel & Recreation Group were $29.5 million for the second quarter of 2012, up 23.2 percent compared to second quarter 2011 revenues of $24.0 million. Segment operating income was $2.6 million in the second quarter of 2012 compared to $3.0 million in the second quarter of 2011. As discussed above, period-to-period comparisons for this segment were affected by exchange rate variances, which decreased revenues by $1.2 million and segment operating income by $287,000 as compared to the second quarter of 2011. Excluding exchange rate variances, 2012 second quarter revenues increased by $6.7 million, or 28.1 percent, and segment operating income decreased by $142,000.
The revenue growth was primarily due to $4.3 million of incremental revenues from the acquisitions of the Alaska Denali Travel business (acquired on September 16, 2011), the Banff International Hotel (acquired on March 7, 2012) and St. Mary Lodge & Resort (acquired on June 29, 2011), as well as organic revenue growth, primarily at Brewster’s attractions. As compared to the second quarter of 2011, passenger volumes increased by 12.8 percent to 136,065 at the Banff Gondola, by 7.6 percent to 94,967 at the Columbia Icefield Glacier Adventure and by 96.6 percent to 10,477 at the Banff Lake Cruise. Increases were largely due to an earlier opening in 2012 and an increase in average daily passenger volume.
Collectively, the acquired properties contributed essentially breakeven operating results for the quarter, reflecting the seasonally slow period for these properties. The lower segment operating income versus the 2011 second quarter primarily reflects higher overhead expenses, including increased performance-based incentives due to management’s expectation of stronger full year performance, as well as additional resources to support the Company’s growth strategy.
During 2011, approximately 70 percent of revenue and 86 percent of segment operating income generated in the Travel & Recreation Group were derived through its Canadian operations. These operations are largely affected by foreign customer visitation and, accordingly, increases in the value of the Canadian dollar compared to other currencies could adversely affect customer volumes, revenue and segment operating income for the Travel & Recreation Group. Additionally, the Travel & Recreation Group is affected by consumer discretionary spending on tourism activities.
Management anticipates that foreign currency exchange rate variances versus 2011 will have an unfavorable impact on Travel & Recreation Group 2012 full year revenues and segment operating income of approximately $3 million and $1 million, respectively. Management also anticipates the four acquisitions completed by Viad since 2011 will generate approximately $24 million in revenue in 2012 with an average Adjusted EBITDA margin (defined as Adjusted EBITDA divided by revenues) of more than 30 percent. By leveraging economies of scale and scope and repositioning the acquired assets for higher-returns, management expects to grow this revenue base at a high single-digit compound annual growth rate from 2012 to 2015, with expanding Adjusted EBITDA margins over that time period.
Glacier Park operates the concession portion of its business under a concession contract with the U.S. National Park Service (the “Park Service”) for Glacier National Park. Glacier Park’s original 25-year concession contract with the Park Service that was to expire on December 31, 2005, has been extended for seven one-year periods and now expires on December 31, 2012. The Park Service, in its sole discretion, may continue extending Glacier Park’s concession contract in one-year increments beyond 2012. When this contract expires, Glacier Park will have the opportunity to bid on a new concession contract. If Glacier Park does secure a new contract, possible terms would be for 10, 15 or 20 years. Glacier Park generated approximately 45 percent of its 2011 revenue through its concession contract for services provided within Glacier National Park. If a new concessionaire is selected by the Park Service, Glacier Park’s remaining business would consist of its operations at Waterton Lakes National Park, Alberta, Canada; East Glacier, Montana; Whitefish, Montana and St. Mary, Montana. In such a circumstance, Glacier Park would be entitled to an amount equal to its “possessory interest,” which generally means the value of the structures acquired or constructed, fixtures installed and improvements made to the concession property at Glacier National Park during the term of the concession contract. Glacier Park owns Glacier Park Lodge in East Glacier, Montana; Grouse Mountain Lodge in Whitefish, Montana and St. Mary Lodge & Resort in St. Mary, Montana. Glacier Park also owns the Prince of Wales Hotel in Waterton Lakes National Park, which is operated under a 42-year ground lease with the Canadian government running through January 31, 2052. Glacier Park generated 19 percent of Travel & Recreation Group’s full year 2011 segment operating income.
Corporate Activities. Corporate activities totaled $2.2 million in the second quarter of 2012, compared to $1.6 million in the second quarter of 2011. The increase was primarily due to higher legal costs related to employee benefits associated with previously divested operations as well as costs related to the amendment and restatement of the Company’s shareholder rights plan.
Restructuring Charges. Viad recorded restructuring charges of $678,000 in the second quarter of 2012 compared to $1.2 million in the second quarter of 2011. The charges primarily related to facility consolidations and the elimination of certain positions in the Marketing & Events Group.
ncome Taxes. The effective tax rate in the second quarter of 2012 was 30.2 percent compared to 37.6 percent in the comparable period in 2011. The relatively low effective tax rate in 2012 was due to nontaxable income received during the second quarter of 2012. Excluding the nontaxable income, the effective tax rate would have been 35.2 percent.
Comparison of First Six Months of 2012 to the First Six Months of 2011
Revenues for the first six months of 2012 decreased 2.6 percent to $515.2 million from $528.8 million during the first six months of 2011. Viad’s income before income taxes was $8.8 million compared to $22.4 million in 2011. These decreases were primarily due to reduced revenues from the Marketing & Events Group resulting from negative show rotation. Net restructuring charges in the first six months of 2012 were $2.9 million compared to $1.5 million in the first six months of 2011, both primarily related to facility consolidations and the elimination of certain positions in the Marketing & Events Group.
Net income attributable to Viad for the first six months of 2012 was $7.1 million, or $0.35 per diluted share, compared to $14.3 million, or $0.70 per diluted share, during the first six months of 2011. These results include income from discontinued operations of $639,000, or $0.03 per diluted share, in the 2012 second quarter relating to the sale of land associated with previously sold operations.
Marketing & Events Group. Revenues for the Marketing & Events U.S. segment were $372.3 million for the first six months of 2012, down 2.5 percent from $381.9 million in 2011. Segment operating income was $12.8 million in the first six months of 2012, compared to $18.1 million in 2011. These decreases were primarily due to negative show rotation of about $39 million, partially offset by base same-show revenue increases of 8.3 percent, the Company’s success capturing additional exhibitor spending and new business wins. Base same-shows represented approximately 49.1 percent of revenues for the first six months of 2012 for the Marketing & Events U.S. segment.
Revenues for the Marketing & Events International segment were $112.4 million for the first six months of 2012, down 7.0 percent from $120.9 million in 2011. Segment operating income was $6.2 million in the first six months of 2012 compared to $10.4 million in 2011. As discussed above, results in this segment were impacted by exchange rates during the first six months of 2012 resulting in decreases of $3.8 million and $208,000 in revenues and segment operating income, respectively, as compared to 2011. Excluding exchange rate variances, revenues for the first six months of 2012 decreased by $4.7 million, or 3.9 percent, and segment operating income decreased by $4.0 million. These decreases were primarily due to negative show rotation revenue of about $14 million, partially offset by greater demand and new show wins.
Travel & Recreation Group. Revenues from the Travel & Recreation Group segment were $36.2 million for the first six months of 2012, up 21.9 percent compared to 2011 revenues of $29.7 million. Segment operating loss was $3.0 million compared to $1.5 million in 2011. As discussed above, results in this segment were impacted by exchange rate variances during the first six months of 2012 resulting in decreases of $1.3 million and $244,000 in revenues and segment operating results, respectively, as compared to 2011. Excluding exchange rate variances, revenues for the first six months of 2012 increased by $7.8 million, or 26.2 percent, and operating results decreased by $1.3 million.
CONF CALL
Carrie Long - Director of Investor Relations,
Thank you. Good morning and thank you for attending our conference call. Before we begin I’d like to remind everyone that certain statements made during this call which are not historical facts, may constitute forward-looking statements. Actual results may differ materially from those projected in the 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. This conference call may not be recorded or reproduced in transcript without the expressed written permission of Viad. During today’s call we’ll refer to tables 1 and 2 in our earnings press release, which can be found on our website at www.viad.com.
With that said, I’ll introduce Paul Dykstra, Chairman, President and CEO of Viad Corp.
Paul Dykstra - Chairman, President & Chief Executive Officer
Good morning everyone. Thanks very much for being with us today. On today’s call you’ll heard from Kevin Rabbitt, President of GES Exposition Services; John Jastrem, President of Exhibitgroup/Giltspur; and Ellen Ingersoll, Viad’s Chief Financial Officer. As I discuss our 2008 results, you may want to refer to tables one and two in the earnings press release.
We had a very strong year in 2008. All of our businesses performed well and for that I’d like to thank all of Viad’s employees for their dedication and extraordinary contributions throughout the year. Exhibitgroup/Giltspur produced its second straight year of double digit revenue growth; GES successfully executed a record revenue year and the travel and recreation services businesses continued to produce strong operating income and margins.
Viad’s full year income before other items per share grew by 21.3% to $2.28, which is at the high end of the guidance we set forth at the beginning of 2008. We reached $1.1 billion in revenues, up 11.7% from 2007, and segment operating income grew 19.3% to $82 million. This growth was driven primarily by positive show ration and strong penetration into exhibitor discretionary spending at GES and a 15.8% increase in revenue at Exhibitgroup/Giltspur.
For the 2008 fourth quarter, income before other items was $0.16 per share, up from $0.02 per share in the 2007 quarter. Our substantial improvement in fourth quarter results was driven primarily by higher segment operating income from the acquisition of the Becker Group.
As a reminder, income before other items is a non-GAAP measure that we defined as income from continuing operations before the favorable resolution of tax matters and impairment charges and recoveries.
For 2008, the favorable resolution of tax matters added $.28 per share to our income from continuing operations, versus $0.15 per share in 2007 and we recorded impairment charges of $0.46 per share in 2008, versus impairment recoveries of $0.01 per share in 2007. Our 2008 income from continuing operations which includes these other items was $2.10 per share. The 2008 impairment charges relate to the Becker Group and Melville acquisitions, and Ellen will discuss them in more detail late.
While these impairments are disappointing, I can assure you that all of the fundamentals reasons we acquired Becker Group and Melville remain intact. They are both terrific businesses with strong brands and customer relationships and they are a great strategic fit for GES and the Exhibitgroup/Giltspur. Unfortunately like nearly all other businesses, they are being negatively impact by broader economic issues.
Now let’s move on to the individual operating segment results. You may want to refer to table one of the press release, which provides revenues and operating income for each of the operating segments. First I’ll turn it over to Kevin Rabbitt to talk about GES, Kevin.
Kevin Rabbitt - President of GES Exposition Services
Thanks Paul. Despite this deteriorating economy, we had a very strong year with record revenues of $808.8 million, up 8.3% from 2007. Full year operating income increased 14.3% to $58.1 million. Our growth in 2008 was driven by positive show rotation of $63 million, versus 2007.
Along with strong penetration in to exhibitor discretionary spending, partially offset by a 3.2% decline in base of the same show revenue. As a reminder base same show growth is a measure of growth in our US shows that occur in the same city and same quarter every year. Base same shows represent 34% of our full year revenues.
As I’ve discussed on prior earnings calls, the weakness in base same show revenue in 2008 was driven primarily by two major biannual retail shows. Excluding these shows, full year base same show revenue grew by about 1%, reflecting the stronger growth in the first half of the year and declines in the second half.
For the fourth quarter, our total revenue was $132.2 million, down $25.2 million or 16% over the 2007 quarter. This decrease was driven by negative show rotation revenue of $9 million, unfavorable currency translation of $8.8 million, lower exhibitor discretionary revenue and a 6% decline in base same show growth. Base same shows represented 29% or fourth quarter revenues.
Although fourth quarter revenue was down, we drove $1 million improvement in operating results for the proactive cost reductions and tight control over discretionary spending. Our accruals for performance based incentives were also lower than the 2007 fourth quarter.
During the fourth quarter we signed more than $84 million in future books. Our show revenue backlog for 2009 and beyond stands at $1.3 billion, and we have nearly 70% of our 2009 forecasted revenue under contract.
While our long term show contracts provide us with high revenue visibility relative to most businesses, that visibility is becoming more challenging in the current environment. Exhibitors are delaying decisions and making it difficult to accurately forecast the size of shows. Additionally, exhibitors are focused on reducing their costs, by using lighter weight exhibitory and less product, which affects our shipping and grade revenues.
As I mentioned earlier, we saw our base same show growth deteriorate as 2008 progressed, ending the year with a decline of 6% in the fourth quarter. Many of the space commitments for 2008 shows were made in 2007, before the economic issues came to the forefront.
In contrast, space commitments for 2009 shows were made or are being made within the context of an economic recession and during a time when most companies are looking for every opportunity to cut costs, which might include trade show marketing budgets. We have said many times, the trade show industry represents every sector of the broader economy and that shows go as their industries go.
We are working very closely with our show organizer clients to gauge exhibitor participation of future shows. Based on recent client feedback and performance of January shows, we are planning for a 10% decline in same show revenue in 2009.
In addition to the economic head winds, we are also expecting unfavorable currency translations to negatively impact revenues by about $25 million and as I’ve mentioned on past earnings call, we’ll face significant negative show rotation this year as 2009 will bring only a small number of non-annual shows compared to 2008, which had several major non-annual shows, including CONEXPO, Con Agg and FB, IMTS, Mine Expo and the International Woodworking Machinery and Furniture Supply Fair.
In total, we expect show rotation to have a net negative impact of about $85 million on our 2009 revenues, compared to 2008. The large revenue swings caused by show rotation will make our year-over-year financial comparisons especially difficult.
Overall, we expect full year 2009 revenue to decrease by 15% to 20%, from 2008. This drop can be attributed to a 10% decline from show ration, 3% from foreign exchange, with the remaining 2% to 7% reflecting expected same show declines, partially offset by new shows, market share gains and pricing.
We expect 2009 full year operating margins to approximate 6%, reflecting our ability to flex variable and semi-variable costs, while ensuring we deliver high levels of customer service and maintain our strong sales actions to win market share.
For the first quarter we expect revenue to be in the range of $215 million to $225 million. This range reflects a decrease of about $60 million to $70 million from the 2008 quarter, driven by negative show rotation of $30 million, unfavorable currency translation of $11 million and same show declines.
First quarter operating income is expected to be in the range of $20 million to $23 million, reflecting an operating margin of about 10%, which is inline with the 2008 quarter. Cost control will be an important focus for us in 2009. As we demonstrated in the fourth quarter of 2008, the cost reduction measures we have already put in place are working.
We are diligently monitoring and managing our direct labor costs, which are highly variable and represent roughly about one third of our total cost structure. Nearly two-thirds of our costs are truly variable and roughly 30% of the remaining cost structure is semi-variable in nature and we have been aggressively attacking these costs or reducing budgets wherever we can. As we do so, we are being careful not to cut too deep and ensure the changes we make to our cost structure will help us emerge from the recession as an even stronger and more efficient organization.
We anticipate the economic downturn will provide an opportunity for us to gain market share and new show wins in 2009 as some of our competitors begin to struggle. GES’s financial strength and transparency, industry leading capability and high levels of customer service and safety are key advantages for us and they will be strong selling points as we go out to win new business.
Our products and services sales team are working closely with our trade show sales team to provide cost effective, exhibit rental solutions to gain greater share of the show for us. Additionally, we are able to offer our organizer clients the high end creative and branding capabilities of our sister companies, exhibit through Giltspur and Becker Group, which our competitors cannot match.
While we anticipate the trade show industry will continue to see declines in 2009, the industry has a long history of steady growth. It has been negatively impacted by prior recessions and has always emerged from these periods and resumed its upward trajectory. We do not expect this recession to be any different. Trade shows are still a vital and cost effective means of transacting business, launching new products and connecting with customers.
As we endure this recession, we plan to look for every opportunity to strengthen our business through market share gain, increase productivity and selective investments, to remain focused on delivering solid results and positioning the company for continued success.
We will continue to provide quality products and services along with best in class customer service at a great value to our customers. As always the GES team is committed to winning for all of our steak holders and for that I want to thank the hard working, dedicated employees of GES.
Paul Dykstra - Chairman, President & Chief Executive Officer
Thanks Kevin. Now, let’s move on to the experiential marketing services segment. As a reminder, this segment is comprised of Exhibitgroup/Giltspur and Becker Group. Since our acquisition of Becker Group, the Exhibit Group and Becker Group have worked successfully together on several notable projects including, production of the Chronicles of Narnia touring exhibition and Norad Holiday Environment.
During the fourth quarter, we began the formal integration of Exhibit Group and Becker Group, in order to best leverage the creative talent, customer relationships and capital of these two businesses under the leadership of John Jastrem.
As a result of the integration and in light of lower revenue expectations resulting from the economic downturn, we eliminated certain positions within the two companies and trimmed redundant headcount during January 2009. This action will result in a pretax restructuring charge of approximately $1 million and will provide annual pretax cost savings in the range of $2 million to $3 million.
Now I’ll turn it over to John to discuss the segments results and the outlook. John.
John Jastrem - President of Exhibitgroup/Giltspur
Thanks Paul. For the fourth quarter, revenue for the segment was $67.2 million, up $17.1 million from the 2007 quarter and operating income increased $6.2 million to $7.7 million. These increases were due to the acquisition of Becker Group, which generated revenue of $21.4 million, and operating income of $6.9 million in the fourth quarter.
Partially offsetting the benefit from Becker Group were declines at Exhibitgroup/Giltspur, driven primarily by some non-repeating business in the 2007 fourth quarter. As compared to the 2007 fourth quarter, EG’s revenue declined by $4.2 million or 8.4%, with a corresponding decline in operating results of $659,000.
On a full year basis, the experiential marketing services segment, earned revenues of $225.4 million, with an operating profit of $1.9 million. Full year results for the segment include revenues of $25.4 million and an operating loss of $677,000 at the Becker Group; which includes $1.8 million of amortization expense, related to acquired and intangible assets.
Excluding this non-cash amortization expense, Becker Group turned an operating profit of $1.1 million. Although Becker Group’s results fell short of initial expectations, due to reduced client spending on holiday programs, driven by the weak economy and the credit market issues, Becker Group still realized record revenues in 2008 and substantial growth over 2007.
Exhibitgroup/Giltspur, also realized strong revenue growth in 2008, despite the economic downturn. Full year revenues increased $27.3 million or 15.8% to $200 million and full year operating results improved by $7.4 million, driven primarily by continued success in winning new clients and strong client retention.
EG’s success in 2008 was fueled by our client centric approach and the hard work creativity and the dedication that EG employees provide to our clients each and every day. During the past two years we invested significant time and energy to reposition EG as an experienced marketing agency, by elevating customer service, and increasing the quality and quantity of our creative and strategic thinkers, transforming EG from a design and build shop to a true strategic marketing partner to our clients.
The recent integration of EG and Becker Group, will further strengthen our capabilities and client relationships. EG and Becker Group are both well established brands, with reputations for providing innovative, experience for marketing solutions to clients. By, focusing on client needs and leveraging the collective resources of both teams, we have the opportunity to strengthen each brand independently, while simultaneously establishing a cohesive product offering that is unmatched by the competition.
As we move forward together, the talent of the staff at EG and Becker Group, will enhance our product and service offerings. We have a combined worldwide network of 28 client care centers, 600 professionals worldwide, more than 100 outstanding creators and designers, production and installation and dismantle capabilities and a first rate team of sales, marketing and branded entertainment specialists throughout the world.
While we have a lot of positives going for us, we are facing an increasingly challenging economic environment. We have stayed close to our clients through the 2009 budgeting season and are expecting many of them to cut back on their trade show and marketing spend in 2009. To help offset the impact of reduced client budgets, we are taking steps to capitalize on the momentum we gained during the past two years and on the combined talents and resources of EG and Becker Group to continue winning new clients and gaining market share.
Many of our competitors are suffering financially in the current recessionary environment, affording us the opportunity to capitalize on our recent successes and be at a strong financial position. We will leverage this opportunity by continuing to serve as a strategic partner to our clients, focusing on their needs, to find innovative ways to maximize the value of their marketing spend during this difficult time.
We have significant new business goals for 2009 and we are well positioned to achieve those goals from a position of strength and forward momentum. Our international divisions [STD] and [Boblo] have been key differentiators and contributors to our success and we expect them to continue to provide valuable service to our international clients.
However the rapid strengthening of the US dollar during the last quarter fore shadows negative foreign exchange head wins for 2009. As a result of these factors and with limited visibility, we are guiding for 2009 full year segment revenues to decline by $25 million to $35 million or 11% to 6%, including roughly $9 million from unfavorable currency translation.
Full year operating income is expected to decrease by $6 million to $9 million, due to the decline in revenue partially offset by proactive, over head cost reductions. For the first quarter we expect segment revenues to be in the range of $32 million to $38 million, with an operating loss of $6.5 million to $8.5 million; reflecting the expectation of lower trade show marketing spend.
Going forward we remain focused on strengthening our client relationships by providing compelling value added programs, that help clients achieve marketing goals within budgets. At the same time we will continue to identify and to implement initiatives to improve efficiencies and capacity utilization across our network.
Our team is committed to our mission of positioning EG and Becker Group as the leading brand in face-to-face and experiential marketing services and growing our business by delivering the highest level of value and innovation to our clients. While the current economic climate is challenging, I remain excited and optimistic about the future of our business and confident in the talented and energetic team that comes to work for our clients every day. Paul.
Paul Dykstra - Chairman, President & Chief Executive Officer
Thanks John. Now I will cover highlights for the travel and recreation services segment. Revenue during the segment seasonally slowed fourth quarter, with $6.4 million as compared to $8 million in the fourth quarter of 2007. Fourth quarter operating segment loss was $1.7 million as compared to a loss of $1.5 million in the 2007 quarter.
For the full year, revenues were $86.6 million, up 2.8% from 2007. Segment operating income was $22 million, down slightly from 2007, with operating margins at 25.4%. Overall the travel and recreation services segment had another very solid year. Despite a soft economy and higher travel costs, Glacier Park realized strong occupancy in lodges and an increase in room revenue over 2007.
Brewster saw lower tourist volumes due to reduced international travel, but the team did a great job managing the business to maintain revenues and control cost. Recent feedback from Brewster’s tour operator clients in various international markets, suggest that group tour volume will decline markedly in 2009.
In 2008 Brewster was successful in offsetting declining long haul group traffic, with visitors from the local and regional markets. This will once again be an area of focus in 2009; however the recent decline in oil prices has slowed the Western Canadian economy and as a result we’re not expecting this market to be as strong in 2009.
Overall, we expect full year revenues to decrease by 15% to 20% from 2008, including $8 million or 9% from unfavorable currency translations, with the remaining 6% to 11% driven by the weaker economy. Full year operating margins are expected to approximate 23%. For the seasonally slow first quarter, expect revenue to be in the range of $4.5 million to $5.5 million, with an operating loss in the range of $3 million to $2 million.
I’ll now ask Ellen Ingersoll to discuss some financial highlights for the quarter. Ellen.
Ellen Ingersoll - Chief Financial Officer
Thanks Paul. In the four quarter of 2008, we recorded non-cash impairment charges totaling $11.2 million pretax, and $9.4 million after tax. Of the total pretax amount $8.6 million related primarily to the write down of good will and other intangible assets at Becker Group and $2.6 million related to the write down of certain intangible assets at Melville.
A discounted cash flow methodology was used to test for impairment, which required various estimates and assumption. In light of the recession, our future revenue and cash flow projections were revised downward, resulting in the impairment charges.
Moving on as shown in table two of the earnings release, our adjusted EBITDA was $12.9 million during the quarter, versus $5.4 million in the fourth quarter of 2007. Also shown in table two are free cash flow of $5.5 million for the quarter versus $20.4 million in the 2007 fourth quarter.
We expect positive operating cash flow during the year to fund our capital expenditures and regular dividend payments, resulting in essentially breakeven free cash flow for 2009. At December 31, 2008, we had total cash and cash equivalence of $148 million, as compared to $152.9 million at September 30, 2008. Our total debt at the end of the quarter was $12.6 million, with a debt to capital ratio of 2.6%.
We repurchased shares in the fourth quarter totaling 253,119 at an aggregate cost of $5.7 million. Our net interest income for the quarter was $231,000 versus $1.1 million in the fourth quarter of 2007. Our depreciation and amortization expense for the quarter was $6.7 million; this compares to last year’s fourth quarter of $5.9 million. The full year 2009 forecast is approximately $28 million to $30 million.
Our capital expenditures were $7 million in the fourth quarter of 2008, compared to $9.9 million in the fourth quarter of 2007. The full year 2009 forecast is approximately $26 million to $28 million, as compared to full year 2008 actual amount of 39 million. Payments on our restructuring reserves were $788,000 during the fourth quarter of 2008, versus 536,000 in the fourth quarter of 2007. Full year 2009 restructuring payments are expected to approximate $3.5 million.
The 2008 income tax rate for the year was 32.2% versus 31% in 2007. 2008 and 2007 rates reflect aggregate favorable resolution of tax matters of $5.7 million and $3.1 million respectively. The 2008 and 2007 tax rates on income before other items, which excludes the favorable resolution of tax matters and the impairment charges were 37.4% and 35.9% respectively. Back to you Paul.
Paul Dykstra - Chairman, President & Chief Executive Officer
Thanks Ellen. Before wrapping up my comments and opening up the call to questions, let me discuss our outlook for the 2009 full year and first quarter.
For the full year, as you heard in our earlier remarks, we expect economic head wins to be a much larger factor for us in 2009. Corporate marketing budgets are being reduced as a part of overall cost reduction efforts and consumers are being affected by falling home prices and rising unemployment.
Trade show exhibitors are scaling back and based on early 2009 shows and input from organizer and exhibitor clients, we expect larger same show declines and lower exhibitor spending as compared to 2008.
On the travel and recreation side, we expect declines in tourism, especially from long haul groups. In addition to the weaker economy, our 2009 results will also be hampered by significant negative show rotation at GES and unfavorable currency translations, due to the rapid strengthening of the US dollar.
Overall we expect 2009 full year income to be in the range of $1.15 to $1.35 per share, as compared to 2008 income before other items of $2.28 per share. This guidance range reflects the expecting, that unfavorable currency translation will negatively impact income per share by approximately $0.18. It also includes lower interest income of approximately $0.06 per share and the first quarter restructuring charge of approximately $0.03 cents per share related to the integration of Becker Group and Exhibit Group that I discussed earlier.
We expect full year revenue to decrease by 15% to 20%, including roughly $40 million from unfavorable currency translation, and about $85 million from negative show rotation. Excluding those two factors, the decline in revenue is expected to be roughly 4% to 9%, reflecting the expectation that we will be success in winning new business and gaining market share to help offset the economic head wins.
Full year segment operating income is expected to decrease by 35% to 40%, driven by the decline in revenues, partially offset by cost reductions. For the first quarter we expect income per share to be in the range of $0.18 to $0.33, as compared to 2008 first quarter income before other items of $0.81 per share.
Revenues are expected to be in the range of $250 million to $270 million, with operating income in the range of $9 million to $14 million. We expect the declines from 2008 first quarter revenue of $335.4 million, and operating income of $28.6 million, reflect a negative show rotation of about $13 million in revenue at GES, a $14 million revenue decline due to unfavorable currency translation, and expected declines in trade show marketing spend. Additional details regarding our full year and first quarter outlook can be found in the earnings press release.
In closing, we had a very successful 2008, thanks to the hard work and winning spirit of our talented employees. Income before other items per share grew by 21.3%, driven by double digit revenue growth at Exhibit Group, a record revenue year at GES, and solid performance by our travel and recreation services companies.
We have celebrated our 2008 successes and have quickly moved on to executing well in a challenging 2009. While we are expecting significant head wins, including difficulty year-over-year comparisons due to the significant positive show rotation in 2008, we also expect 2009 to bring many opportunities. In this environment, our leading market positions, talented and hard working employees, culture of innovation and integrity and strong balance sheet, are key advantages for us relative to many of our competitors and we fully intend to capitalize on these advantages.
Cash is king in this market and as Ellen mentioned earlier, we have nearly $150 million on our balance sheet with very little debt. Over the past three years we have generated $121.3 million in free cash flow and we have returned $105 million to shareholders through share repurchases and regular quarterly dividend.
Our financial strength and transparency will be an important differentiator for us in this market as both clients and employees are looking for a bigger boat in stormy seas. Our capital will also enable us to continue making selective investments to further strengthen our businesses. We will continue to be good stewards of our shareholders capital and we will keep a tight leash on spending in 2009.
All of our companies are focused not only on reducing costs, but also on increasing service levels, winning new business and increasing market share. The near term will be clearly be difficult, but the fundamentals of our business remain very strong. Our goal right now is simple, to do the best job possible to manage through the down turn, while also positioning our businesses to emerge from this recession even stronger. We remain committed to driving long term growth and shareholder value.
With that we’ll close and take your questions. Catherine if you can open up the question line please.
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