Viad Corp. Q2 2008 Earnings Call Transcript

| About: Viad Corp (VVI)

Viad Corp. (NYSE:VVI)

Q2 2008 Earnings Call Transcript

July 25, 2008 9:00 am ET

Executives

Carrie Long - Director, IR

Paul Dykstra - Chairman, President and CEO

Kevin Rabbitt - President and CEO, GES Exposition Services

John Jastrem - President and CEO, Exhibitgroup/Giltspur

Ellen Ingersoll - CFO

Analysts

Troy Mastin - William Blair & Company

Clint Fendley - Davenport & Company

Operator

Good morning and thank you for standing by. All participants will be able to listen-only until the question-and-answer portion of today’s conference. (Operator instructions). Today's conference is being recorded, if you have any objections you may disconnect at this time.

I'd now like to turn your conference over to Ms. Carrie Long, Director, Investor Relations. You may begin.

Carrie Long

Thank you, Julie. Good morning everyone and thank you for attending our conference call. Before we begin I'd like to remind you 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 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 call may not be recorded or reproduced in transcripts without the expressed written permission of Viad. During today's call we'll refer to tables 1 and 2 in our earnings press release, that press release can be found on our website at www.viad.com.

Now I'll turn it over to Paul Dykstra, President and CEO of Viad Corp.

Paul Dykstra

Thanks Carrie and good morning everybody. Thank you very much for being with us today. On today's call you'll hear from Kevin Rabbitt, although Kevin is fighting some nasty laryngitis. I'll handle the prepared comments for GES and Kevin will conserve his voice and be available for questions at the end. John Jastrem, President of Exhibitgroup/Giltspur and Ellen Ingersoll, Viad's Chief Financial Officer.

As we discuss our second quarter results you may want to refer to tables one and two in the earnings press release. We had a very good quarter and I want to recognize the terrific effort of all of Viad's employees.

Second quarter revenue was $277.2 million with segment operating income of $21.1 million and income from continuing operations of $13.1 million or $0.63 per diluted share. Income before other items, which excludes income from the favorable resolution of tax matters, was $12.2 million or $0.59 per share. These results are better than our prior guidance of $0.37 to $0.48 per share mainly due to stronger than expected revenue growth at Exhibitgroup/Giltspur.

As John will discuss shortly, Exhibitgroup/Giltspur realized a revenue increase of $3.6 million despite negative show rotation of $13 million. The expected year-over-year decline in our income per share was driven by a change in the mix of shows and 2007 second quarter income of $3.9 million from a contract settlement at GES as well as the seasonal operating loss at the Becker Group.

Now let's move on to the individual operating segment results and again you may want to refer to table one of the press release which provides revenue and operating income for each of the operating segments. I will first cover GES.GES had a solid quarter with operating income of $14 million on revenue of $187.6 million. Operating income was at the high end of our prior guidance reflecting strong execution by the GES team and continued growth in the trade show industry.

As compared to the 2007 second quarter revenue was down $5.2 million. This decline was due in part to the loss of a major trade show, which we were able to mostly offset through new business wins and growth in other shows.

Operating income was $8.1 million lower than the 2007 second quarter reflecting several factors including a non-recurring contract settlement of $3.9 million in the 2007 quarter, shift of some shows from higher margin to lower margin geographies, and higher year-over-year staffing levels needed to produce a record revenue year.

During the second quarter we signed $260 million in future bookings, including multi-year renewals with MAGIC and the National Restaurant Association. We currently have over 70% of our remaining 2008-forecasted revenue under contract, and our total revenue backlog for 2008 and beyond stands at $1.4 billion.

I'm also very happy to report that this week we extended our contract with the International Consumer Electronics show. This is the largest annual trade show in North America through 2013. This extension is not included in the backlog figures I just reported.

Our base same-show growth during the quarter was 4.6% reflecting growth across all of our industry sectors. As a reminder base same-show growth is a measure of growth in our shows that occur in the same city and same quarter every year. Base same-shows represented 27% of our total second quarter revenue.

The trade show industry is a reflection of the broader economy and our shows represent every sector of the economy. While the trade show industry as a whole continues to grow at a modest pace, it is experiencing softness in certain sectors and shows, particularly retail and consumer as Kevin discussed last quarter.

During the third quarter we will have a heavier mix of retail and consumer type shows as compared to the second quarter, and as a result we are expecting our base same show growth metric to post a sequential quarter decline. At the same time, we also have a heavier mix of industrial shows, as three major non-annual shows rotate into the third quarter, including IMTS, Mine Expo and The International Woodworking Machinery and Furniture Supply Fair.

Industrial shows continue to be strong. And keep in mind that due to the rotating nature of IMTS, Mine Expo and the Woodworking show, these shows will not be included in our third quarter base same-show growth metric.

Overall we expect third quarter revenue to be in the range of $195 million to $210 million as compared to $151.6 million in the 2007 third quarter. Operating income is expected to be in the range of $7 million to $8.5 million as compared to a loss of $2.7 million in the 2007 third quarter. This guidance reflects the expectation that show rotation will positively impact revenues by about $45 million relative to the 2007 third quarter.

Additionally it reflects the assumption that base same-show growth will decline from the second quarter as I mentioned previously. For the full year, we are still targeting operating income growth of at least 14% and we continue to expect low double-digit revenue growth as compared to 2007.

The economy is clearly more challenging today than it was a year ago and summer show organizers have expressed some concern about attendance and exhibitor participation at future events. To-date the trade show business has seen only limited impact in select industry sectors from the economic challenges. Overall, the trade show industry continues to grow and we continue to look for every opportunity to gain market share, grow our base business and drive additional efficiencies to increase shareholder values.

The GES team remains committed to driving growth delivering solid results and positioning the company for ongoing success. We'll continue to provide quality products and services along with best-in-class customer service at a great value to our customers. In closing, I would like to thank the dedicated hardworking employees at GES for their ongoing efforts to ensure another winning year for GES. As always, the GES team is committed to winning for all of our stakeholders.

Next I’ll hit the highlights of our Experiential Marketing segment and as a reminder, our Experiential Marketing Services segment includes Exhibitgroup/Giltspur and Becker Group. We acquired Becker Group on January 4, 2008.

Second quarter revenue for the segment was $65.7 million with operating income of $1.9 million, which is substantially better than our prior guidance due to stronger than expected revenues at Exhibitgroup/Giltspur. As compared to the 2007 second quarter, segment revenue increased $4.2 million or 6.9%, and segment-operating income declined by $2.6 million. The decline in operating income on higher revenue was due to the acquisition of Becker Group, which produced an operating loss of $2.7 million on revenues of $660,000.

As I discussed last quarter, Becker's Group business is highly seasonal and we expect operating losses in each of the first three quarters with a substantial profit in the fourth quarter. For the year, we expect the acquisition to be accretive to earnings. While, Becker Group had quiet quarter in terms of revenue the team was very busy with the June 7th launch of The Chronicles of Narnia: The Exhibition. Based on the blockbuster film series and C.S. Lewis's fictional books, the submersive and interactive exhibition blends education with entertainment. As visitors walk through the world of Narnia, they learn about subjects such as weather, the environment and animal habitats. Visitors can build a freestanding arch, experience a frozen waterfall and view many original props and costumes from the films.

The exhibition will run at the Arizona Science Center until October 26 and then we'll move on to its next museum venue. This is a fantastic exhibition has been well received by visitors. We were thrilled that we are able to open it in Phoenix and the Arizona Science Center has been and continues to be a great partner in this venture.

Narnia is Becker Group's first major touring exhibition. Becker Group is also busy developing its next major touring exhibition, which is based on the Harry Potter books and films. This exhibition is scheduled to launch in 2009 and will enable fans to experience the magical world of Harry Potter through authentic film artifacts including costumes, props, set dressings and magical creatures from all of the films. Producing and managing exhibitions of this size and profile is a significant milestone for Becker Group and we are very proud to have been entrusted with this iconic and successful brand.

Now, let me get back to second quarter results. On an organic basis, in other words excluding the Becker Group acquisition, segment revenue was $65.1 million up $3.6 million or 5.8% from the 2007 second quarter and segment-operating income was $4.7 million, up 2.3% despite negative show rotation of $13 million. This organic growth reflects the positive results of Exhibitgroup's efforts to reposition the company as an experience-marketing agency.

Now, I'll turn it over to John to elaborate on the great work that the EG team is doing.

John Jastrem

Thanks, Paul. Our success continues to be driven by our client centric approach, which allows us to partner with and advise our clients on their show activities to generate better results. We have also expanded our scope of services. Clients are viewing us as a broader brand and marketing partner as opposed to a traditional tradeshow exhibit producer. This has enabled us to capture incremental client spend; win new clients and increase client satisfaction and loyalty.

During the quarter, clients in certain industry sector such as healthcare decided to invest in more engaging attendee experiences by utilizing technologies at the show site. Our close working relationships with our clients enabled us to benefit from this incremental discretionary spend. Our new client business during the quarter included Honeywell and a permanent installation for the Pro Football Hall of Fame.

In addition, we picked up new international business with existing clients. And we collaborated with the Becker Group to produce the highly creative Narnia Exhibition, which was a win-win for EG Becker Group and Viad. We also have a great success story with our EG Retail business, which produces kiosks and retail merchandising units for shopping malls and lifestyle centers.

A major recently hired EG Retail to be the primary supplier for the replacement of its merchandising units across the United States. This client previously used an oversea supplier and decided to make the switch to EG based on their need for a local partner, who can deliver higher-level quality and lower transportation costs.

With fuel prices reaching record levels, EG's national and global network of locations for managing and storing client properties is a major advantage over our regional and local competitors. In addition, we manage the client properties entrusted to our network through a proprietary technology that facilitates efficient handling and processing. Through our network, our clients realized significant savings on shipping and handling of their properties. These savings enable smarter spending on targeted marketing activities that help our clients gain market share.

We have had some really great wins this year, and we are happy with our progress to-date. We have a solid pipeline of work for the third quarter, and we'll benefit from approximately $10 million of positive show rotation from the Farnborough Airshow in England. However, we are facing an uncertainty economic environment. Clients are scrutinizing their marketing budgets. Some are delaying decisions regarding tradeshow and other marketing spend, and some are decreasing their plan spend.

As a result, we have poor visibility into revenues in our fourth quarter and beyond. Accordingly, we are cautious in our outlook for the fourth quarter. But given the strong growth, we have realized thus far, we are confident in our ability to achieve the full year guidance that we set forth at the beginning of this year.

Going forward, we continue to work closely with our clients to identify smarter ways for them to deploy their budget dollars which may include custom rentals, targeting customers to a pre-show marketing and shifting from a fixed to variable model by outsourcing their planning, coordination and program execution to us. These efforts should help us manage in the current climate and potentially capture a greater share of our clients marketing spend. Thereby mitigating the impact of any reduction in client budgets may have on our results. We are taking all proactive measures to ensure EG's cost stay inline with customer spending.

In closing, we have a lot of positive momentum as demonstrated by our strong revenue growth. We are cognizant of the market conditions and are proactively taking steps to ensure that EG continues to gain market share and produce the best results possible.

Paul, back to you.

Paul Dykstra

Thank you, John. Now I'll give some guidance for the Experiential Marketing Services segment before moving onto Travel and Recreation Services results. For the full year, our guidance for the segment remains unchanged. On an organic basis excluding the acquisition of Becker Group, revenue is expected to increase at a single-digit rate from 2007 revenue of $172.7 million.

Operating results are expected to be in the range of loss of $2 million to breakeven as a compared to a loss of $4.8 million in 2007. Full year revenue from the Becker Group acquisition is expected to be in the range of $32 million to $36 million with operating income in the range of $1.53 million $3 million, or $3.3 to $4.8 million excluding the non-cash amortization of acquired intangible assets.

For the third quarter, we expect segment revenue to be in the range of $41 million to $47 million, including $2 million to $1 million at Becker Group. We expect our operating loss of $3 million to $5 million including a loss of $2.5 million to $3.5 million at Becker Group. The loss at Becker Group is expected due to the seasonality of the business.

On an organic basis, excluding the Becker Group acquisition, third quarter revenue is expected to be in the range of $40 million to $45 million with an operating loss of $0.5 million to $1.5 million. This reflects substantial growth over 2007 third quarter revenue of $26.8 million, and an operating loss of $6.2 million driven by positive show rotation revenue of about $10 million and increases in existing client spend and new business at Exhibitgroup/Giltspur.

Now I'll cover highlights of the Travel and Recreation Services segment. The Travel and Recreation Services segment was inline with our guidance for the second quarter. Revenue was $23.8 million, up 11.5% from 2007, and operating income increased 15.2% to $5.2 million.

Relative to the 2007 second quarter, Brewster experienced an increase in transportation volume, improved occupancy and RevPAR at its Mount Royal Hotel, and stronger volume at its Minnewanka Lake Cruise operation.

Passenger volumes at the Icefield were down slightly, reflecting lower group volume from Japan and some softness in US volume. However, this volume decline was more than offset by price increases. Brewster has a diverse base of clientele from across the globe.

Canadians represents the largest customer segment. And given the relative strength of the Canadian economy and scenic nature of Brewster's properties and attraction, overall demand for Brewster's services remains very healthy.

Glacier Park realized an increase in a number of room occupied and in room revenue, versus the 2007 second quarter. This was despite a seasonably late and heavy snowfall in June that delayed the opening of Going-to-the-Sun Road, which is a popular tourist attraction in the park.

This year the road did not open to the public until July 2nd, which is about three weeks later than normal, but comparable to last year. Although the economy has softened and travel costs are increasing, demand for our unique locations and attractions remained strong during the quarter.

We expect the Travel and Recreation Services segment to continue to post solid performance during the remainder of 2008. We are maintaining our full year guidance of single-digit growth in revenue with operating margins comparable to 2007. For the third quarter, we expect revenue to be in the range of $50 million to $52 million as compared to $50.3 million in the 2007 third quarter.

We expect third quarter operating income to be in the range of $22 to $23 million as compared to $22.1 million in the 2007 second quarter.

I'll now ask Ellen Ingersoll to discuss some financial highlights for the quarter. Ellen?

Ellen Ingersoll

Thanks, Paul. As shown on table two of the earning release, adjusted EBITDA was $26.8 million during the quarter versus $35.6 million in the second quarter of 2007. As shown in table two, Free Cash Flow, defined as net cash provided by operating activities minus capital expenditures and dividends, was $68,000 for the quarter versus $5.9 million in the 2007 second quarter.

Directionally for 2008, Free Cash Flow is expected to approximate net income plus depreciation and amortization minus capital expenditures and dividends and including the effect of working capital. For the full year 2008, our working capital is expected to have a negative impact.

At June 30, 2008, Viad had total cash and cash equivalents of $111.6 million, as compared to $108.5 million at March 31, 2008. Viad's total debt at the end of the quarter was $13.5 million with a debt-to-capital ratio of 2.6%.

Our net interest income for the quarter was 238,000 versus $1 million in the second quarter 2007. Depreciation and amortization for the quarter was $7.2 million, compared to last year's second quarter of $5.8 million. The full year 2008 forecast is approximately $27 million to $29 million.

Capital expenditures were $13.5 million in the second quarter of 2008, compared to $6.5 million in the second quarter of 2007. The full year 2008 forecast is approximately $38 million to $40 million. Payments on Viad's restructuring reserves were $485,000 during the quarter versus $714,000 in the second quarter 2007.

Full year 2008 restructuring payments are expected to approximate $2.2 million. The 2008 income tax rate year-to-date was 35.5% versus 38.4% in 2007. The 2008 rate reflects aggregate favorable resolution of tax matters of $853,000. The 2008 tax rate excluding the favorable resolution of tax matters was 37.4%.

Back to you, Paul.

Paul Dykstra

Thanks Ellen. Before wrapping up comments and opening the call to questions, let me give some guidance for 2008 full year and for the third quarter. Our guidance for 2008 full year income remains unchanged. We continue to expect 2008 full year income to be in the range of $2.17 to $2.32 per share, up significantly from 2007 income before other items of $1.88 per share.

We expect full year revenue to increase at a low double-digit rate with an increase in operating income of 18% to 24% as compared to 2007. Show rotation is expected to positively impact full year revenues by about $50 million.

The increases over 2007 are also expect to be driven by continued growth in GES's base operations, improved performance at Exhibitgroup/Giltspur, the addition of Becker Group, and continued solid performance at the Travel and Recreation Services segment. Our guidance range for 2008 assumes an effective tax rate of 37% to 38% as compared to the 2007 effective tax rate on income before other items of 35.9%.

For the third quarter we expect income per diluted share to be in the range of $0.64 to $0.74. This compares to 2007 third quarter income before other items of $0.32. Revenue is expected to be in the range of $286 million to $309 million with operating income in the range of $24.5 million to $28 million. This compares to 2007 third quarter revenue of $228.8 million and operating income of $13.2 million.

Our third quarter results are expected to benefit from positive show rotation of about $55 million, including $45 million at GES and $10 million at Exhibitgroup/Giltspur. Specific full year and third quarter guidance for each of our operating segments can be found in the earning press release.

In closing, we had a solid first half of the year, and we remain on track to deliver substantial growth and earnings this year. And I again want to recognize and thank the hard work and dedication of all of Viad's employees. The trade-show industry is proving to be quite resilient despite a softer economy. While we have seen some pockets of weakness the overall trade show industry continued to grow during the second quarter.

GES realized positive base same-show growth and Exhibitgroup/Giltspur continued to be successful in winning new client business and increasing penetration into existing client spending. Becker Group launched its Chronicles of Narnia exhibition in June and is gearing up for its busy holiday season.

In our Travel and Recreation Services segment our unique and scenic locations and attractions in the national parks continue to be in demand despite higher fuel costs and reduced airline capacity. Brewster and Glacier Park should continue to produce strong operating margins and cash flow.

All of our businesses are focused on capitalizing on growth opportunities, while also increasing efficiencies to drive strong results. Our balance sheet remains strong enabling us to pursue strategic acquisitions, invest in our existing businesses and return capital to our shareholders. The entire Viad team remains committed to driving growth and enhancing shareholder value.

With that, we'll close and take your questions. Julie, can you open up the line to questions please.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Troy Mastin with William Blair & Company. Your line is open.

Troy Mastin - William Blair & Company

Good morning, thank you. First question relates to the strength in the quarter. It looks like it’s primarily in Exhibitgroup; I'm curious why the upside driven by that strength doesn't flow through to impact your full year guidance. Maybe something has been pulled forward from Q4, Q3, or you put in some extra conservatism into the outlook. Just some perspective there?

Paul Dykstra

Good morning Troy.

Troy Mastin - William Blair & Company

Good morning.

Paul Dykstra

The trade show industry has held up well this year, the deterioration of the economy is causing us to be a little bit more cautious in our outlook. At Exhibitgroup we are seeing some clients delay decisions to spend. Some are talking a little about reducing their spend later this year. And as we've always talked with Exhibitgroup/Giltspur, we have a little less visibility than we do at some of our other businesses.

Exhibitgroup/Giltspur has had great success driving revenue growth thus far and certainly we are trying to get ahead of the curve by being as aggressive as we can in the second quarter and I think that resulted in some great results from John and his team. So far we've been exceeding expectations and we hope we are a little bit conservative.

At GES, we expect two major third quarter retail shows to be softer than previously reflected in our guidance. In Q2, the retail piece of our business is fairly small, but that was actually up a little bit, but we do expect two shows in the third quarter to be soft. So, we are hoping we are a bit conservative but certainly we are going to do everything possible to maximize our opportunities in the third and fourth quarter.

Troy Mastin - William Blair & Company

Okay and I think what would be implied is some fairly negative organic growth in the Exhibitgroup business in the fourth quarter. Are you seeing that necessarily, or you just do not have visibility in the fourth quarter and it wouldn't be prudent at this moment to take up your expectation?

Paul Dykstra

Some of the Exhibitgroup's stronger than expected results in the second quarter were the result of accelerated client spend that was previously anticipated to hit kind of the second half of the year. John, do you want to comment too?

John Jastrem

Sure Paul. Just to give more clarity on that, two items I think jump out. One is on the EG retail side where some of the RMU's were delivered sooner than we had initially projected. And then the other part was on our new Becker relationship where we scheduled and took advantage of some of the slower time in our shop to accelerate some work and get those projects completed.

Troy Mastin - William Blair & Company

Can you give us a ballpark estimate how much that helped Exhibitgroup in the quarter?

Paul Dykstra

That was a few million, Troy.

Troy Mastin - William Blair & Company

Okay, great. And I'm curious on the experiential marketing side. If you could give a little more detail on these kiosks that you have gotten involved with the shopping malls, how substantial this is, how the revenue will flow over the longer term. If this will be a certain period of time over a number of quarters and then will cease or will this be a more ongoing type of business?

Paul Dykstra

John, can you comment on this.

John Jastrem

Well, certainly it's a key part of our business. It's something that we continue to aggressively pursue and look at new opportunities all the time. I think it's hard to project because it is project oriented type of work and I think it is very tied to the economy. So, it's really difficult to say exactly how that would lay out. But we do have a number of opportunities that we are pursuing.

Paul Dykstra

We have some terrific opportunities in that business that we are working on and one of those came to fruition for this year. And it's a business that John and his team has put good focus on.

Troy Mastin - William Blair & Company

The one you mentioned in your prepared remarks, does that just impact you through the remainder of the year or would that flow into next quarter?

Paul Dykstra

It mostly impacts us at this point from a visibility standpoint this year. But we are hoping as obviously, we build relationships and deliver great products. We would expect that to continue.

Troy Mastin - William Blair & Company

Okay, good. And then I also wanted to ask about free cash flow. It's been weak for the past two quarters. I think, you mentioned that for the full year you expect working capital to be negative. I think that's been one of the primary reasons for the weakness versus where you were last year. Can you give us some guidelines as to where free cash flow might come in for the year versus maybe 200.7 And these working capital trends, I would assume they would reverse themselves over time, if you can give a little more insight as to why it has been so negative?

Paul Dykstra

Yeah. I'll have Ellen comment on that. But our cash flow for the quarter was where we expected it to be. We'll definitely see stronger cash flow going forward. Ellen, do you want to…

Ellen Ingersoll

Sure. Troy, we had some onetime working capital gains in '07. We had more advanced deposits than we thought come in December and the cash flow really exceeded our expectations at the end of the year. It ended up at over $45 million last year, which was much higher than we thought.

So, it did set us up for a little bit of a hole in the beginning of the year. The first half of the year is definitely negative cash flow quarters and the second half of the year, we expect substantial cash flow in the third quarter and then good cash flow on the fourth quarter.

Troy Mastin - William Blair & Company

In terms of '08 as compared to '07, I would think we should see an up tick in free cash flow for the full year, is that accurate?

Ellen Ingersoll

An up tick from now, but not an up tick over '07. '07 was about $45 million. '08 is going to be substantially lower than that because of the positive impact in working capital on '07 and then negative impact in '08.

Troy Mastin - William Blair & Company

And I think when you look back to '06 it was, at least, what I have is about $53 million. I'm just trying to understand the declining trend and maybe there was an unusual item in '06?

Ellen Ingersoll

Exactly. In that year, there was also a big push in AR Exhibitgroup, which added to that positive working capital there.

Troy Mastin - William Blair & Company

Okay.

John Jastrem

There's no significant declining trend.

Ellen Ingersoll

No.

John Jastrem

We are very focused on receivables and making sure that we are managing that working capital especially in this economic environment.

Troy Mastin - William Blair & Company

As we look into '09, are we at a low water mark in terms of the kind of impacts we see in working capital and is it reasonable to expect we should see this return to a positive growth?

John Jastrem

Yeah. I think, we are constantly focused on it. In '06 you referred to the pick up there. We had some good activities. We now are in more incremental activities in managing our receivable and payables and other capital items to make sure that we are moving those forward.

Troy Mastin - William Blair & Company

Okay. And then if I can move on to talk about a little bit more about GES and maybe show rotation more generally as we look forward to a little bit more into 2009. I'd like to give the opportunity to offer up any thoughts on show rotation '09 and how other factors might impact your margins in GES in '09, things like energy prices and any other factors that might be driving operating margins, and where you might be margins in '09 directionally versus '08.

John Jastrem

Okay. Kevin has been able to conserve his voice, so I'll call on him in a second. He has got three beautiful daughters, but I think he picked up a little bug from one of them. Rotation for '09 is still a moving target. We expect it to be probably upwards of $50 million negative. But again it's very early in the process and part of that depends on how the heavy show rotation in the third quarter comes out, Troy. It's kind of too early to set an exact number here because clients are still going through their budgeting process. We are very excited. We are going to have some nice opportunity to bid some nice competitive business and Kevin, do you want to comment on that?

Kevin Rabbitt

I think Paul you are right on there around, what we are seeing in rotation at this point in time. Around the other things you talked about Troy, I mean, the fuel cost is certainly something we continue to manage very aggressively. We talked about in the past that PSP partially offsets that but we also have been working very hard on supplier consolidation and then working with major suppliers around finding joint productivity opportunities.

So, the challenges that are out there that we are looking at around the economy and fuel costs are the thing we'll continue to manage through. We are a very good company. We have weathered tough economic challenges in the past and got very good people, who will make the necessary adjustments and feel very positive about the momentum and things that we've done, whether it would be international, or econometrics, or the technology offerings. So, we'll continue to stay focused on addressing challenges in front of us and taking advantage of opportunities that are out there.

Troy Mastin - William Blair & Company

Is there a reason to think you'll have a significant change in your operating margin profile in 2009 from 2008 given what you see now?

Kevin Rabbitt

No.

Troy Mastin - William Blair & Company

Okay. And then there have been a lot of negative headlines as it relates to the state of Las Vegas, maybe this is little bit more on the consumer end. But if you give us your perspective on the Las Vegas market for tradeshows. And maybe an extension to this or maybe an adjacent question, is if you look or have looked into some of the larger shows that you have coming up and where your kind of bookings are in terms of the number of exhibitors or the square footage versus where you would have expected, or where it has been in the past to maybe give a gauge as to whether you are seeing meaningful signs of change, early signs of change, or if it's just more specific to the industries in which those shows are exposed.

Paul Dykstra

Let me make a comment first. Yeah, we are seeing some adjustments in airline schedules and things like that, it's something that we are watching closely. You referenced specifically the Las Vegas market, and the Convention and Visitors Bureau in Las Vegas is very well funded. They are very aggressive; they have close relationships working with the airlines to make sure there is good lift in to support both the tourism business and convention businesses in those towns. Kevin, do you want to make any comment on that?

Kevin Rabbitt

The one think I'll add is, Troy, there's nothing I see kind of geography-by-geography that would impact what we are seeing from an outlook perspective. Paul talked about in the comments around industry sectors, and that's much more relevant.

There is nothing kind of specific to Las Vegas or any other geography. But just looking around industry segments, that's where you are seeing trends.

Troy Mastin - William Blair & Company

Okay. And one final question, I'll turn the floor over. The deceleration of same-show growth in GES, maybe this is just tied to those same industry sectors. I'm curious if there's anything else that might be causing the deceleration.

And are there areas in which you've seen, in particular service areas that are notably less robust than other areas if it has to do with some discretionary items, or if it has something to do with some exhibitor exclusive services or anything else? Thanks.

Paul Dykstra

Thanks Troy. I'll make some general comment and then maybe Kevin can get a little more specific. Same-show growth is a little less than it has been, but in these economic times I think we are feeling good that the trade show business is growing. As we've always said, it is tied very closely to the industries that they operate in.

Retail and consumer shows have probably been one of the softer sectors so far this year. But again, I think we commented on the last call that's not across all shows. So in the second quarter, retail was up slightly.

In the third quarter, we do expect it to be down. The industrial shows and heavy equipment shows we do in the third quarter are non-annual pieces of business. We certainly expect those to perform very well. Kevin, do you want to make any additional comments?

Kevin Rabbitt

The only additional comments, I'd say all sectors are different just depending on kind of what's happening on those sectors from an economic standpoint, and seeing very strong growth in other sectors. We talked a lot about retail and consumer being down, but we are seeing good growth in other sectors, services and government-related sectors. And even some nice solid growth in technology, so we might be down from a same-show growth perspective compared to last year.

But again, last year it was a very high level and we still continued to do very well from a products and services standpoint of growing that portion of our business. We have not seen that slow at all.

Troy Mastin - William Blair & Company

Okay. Thank you.

Paul Dykstra

Thanks, Troy.

Operator

(Operator Instructions). Our next question comes from Clint Fendley with Davenport. Your line is open.

Clint Fendley - Davenport

Thank you. Good morning, guys. Nice quarter in a tough environment here.

Paul Dykstra

Good morning, Clint.

Clint Fendley - Davenport

I wondered on the loss of the major trade show at GES, was that due to a cancellation or show rotation, or was it a competitive loss?

Paul Dykstra

That was a competitive loss.

Clint Fendley - Davenport

Okay. So you knew about that well in advance then?

Paul Dykstra

Yes. That was built into our forecast.

Clint Fendley - Davenport

Okay, and any reason why the Consumer Electronic Show would not be in the backlog or is that just a timing issue with regard to June 30?

Paul Dykstra

It's just a technicality, Clint, it was signed in July and the numbers we gave you were through June 30.

Clint Fendley - Davenport

Okay. And then I think we heard from the previous questioner, no major operating margin changes expected at least at this point in '09 for GES. If I heard correctly, any thoughts on any of the remaining segments there?

Paul Dykstra

We should be doing as well or better in the remaining segments and certainly are very optimistic about margin improvement in Exhibitgroup.

Clint Fendley - Davenport

Okay, thank you. And then on the CapEx, I guess we saw pretty good increase in that for the quarter. Would we expect that to be sustained through the remainder of the year?

Ellen Ingersoll

We did have a high CapEx quarter, but the estimate for the year remains the same. So the estimate is still at 38 to 40 for the entire year. And second quarter was about comparable to first quarter. It's just that it was a lot higher than second quarter of last year year.

Clint Fendley - Davenport

And any idea how much the Canadian FX helped the travel segment in the quarter?

Paul Dykstra

It was about $300,000 - $350,000 on the bottom line. So I think it was $0.93 a year ago and about par this year. So there was a little bit of help.

Clint Fendley - Davenport

Okay.

Paul Dykstra

We did have, though, good organic growth despite that help.

Clint Fendley - Davenport

Okay. And I guess final question, not a big deal, but I wonder what the disk ops charges related to for the entity that had previously been sold?

Paul Dykstra

Ellen, can you handle that?

Ellen Ingersoll

Just one second. We have some obligations from our legacy companies, and I believe those were related to some environmental payments that we had to pay.

Paul Dykstra

These things go back several decades. Yeah.

Ellen Ingersoll

Decades.

Paul Dykstra

Decades, yes.

Clint Fendley - Davenport

Okay. Is there an expectation for that to continue? Was it sort of an unexpected charge, if you will?

Ellen Ingersoll

It wasn't an unexpected charge, because we have it, it's been reserved long ago. This was just something outside of what we had reserved, but no. We have ongoing payments, and occasionally we'll have a small amount that's outside that.

Paul Dykstra

These have been winding down for a number of years and over the last five years have substantially abated.

Clint Fendley - Davenport

Thanks guys.

Paul Dykstra

Thanks, Clint.

Operator

Our next question comes from Troy Mastin with William Blair & Company. Your line is open.

Troy Mastin - William Blair & Company

Sorry, couple of quick follow-ups. Is there a different way we should maybe think about same-show growth for the third quarter, given the shows that are not included in that calculation, since those are more robust industries? I'm curious if you've done any analysis like that to may be get a different representation. Because I do want to understand the implication for Q3 same-show growth if you are saying it will be lower than Q2 or will be negative. So first maybe answer that and then if there's a different way you think we can look at that to better understand the true organic growth of your business, that would be helpful?

Paul Dykstra

Yeah, it should be positive with the exception of the two retail shows that I talked about. Our calculation excludes the non-annual pieces of business just because we haven't figured out a good way to do that, but those shows will be, one is an every four-year show, that's Mine Expo. Again that's a fairly strong industry and should be real solid and then IMTS and IWF every other year shows. We exclude them from the calculation but we certainly expect both of those to be very well. The major rotation show in the first quarter that we talked about was CONEXPO and that was up substantially over the three-year period from the last occurrence.

Troy Mastin - William Blair & Company

Just to be clear, are you saying that the total same-show growth number in Q3 will still be positive?

Paul Dykstra

Excluding two retail shows.

Troy Mastin - William Blair & Company

If you include those, what would happen?

Paul Dykstra

It goes down. In the comments we talked about the sequential decline quarter-over-quarter.

Troy Mastin - William Blair & Company

Yeah, I don't understand what that means. Does that mean it will be negative or not?

Paul Dykstra

Yes. It will be negative for the third quarter including those two shows, excluding those two shows it will be positive. And again that does not include the non-annual pieces of business that we expect to be very strong for the quarter.

Troy Mastin - William Blair & Company

Okay.

Paul Dykstra

And after the third quarter, our retail shows are substantially done for the year.

Troy Mastin - William Blair & Company

Okay, good. Which would may be imply fourth quarter, without really having the visibility necessarily, without any retail shows, given recent trends, same-show growth is positive?

Paul Dykstra

Absolutely.

Troy Mastin - William Blair & Company

But could you include those shows, those larger shows that are not annual, probably would have a positive effect on same-show growth where it would be a more positive sort of organic measure, if such a measure existed?

Paul Dykstra

Yes. Absolutely.

Troy Mastin - William Blair & Company

Okay. And then finally just to clarify the question you got on the Travel and Rec business in terms of the currency benefit. Can you give us some insight on revenue impact from the weak dollar versus the Canadian dollar?

Paul Dykstra

Yeah, it was a little over a million.

Troy Mastin - William Blair & Company

Okay, great. Thanks.

Paul Dykstra

Thanks, Troy.

Operator

I currently show no further questions. I would now like to turn it back to Paul Dykstra for closing comments.

Paul Dykstra

Thanks, Julie, and again thanks everybody for being with us today. We continue to feel very good about our full year; it's going to be a very solid year. Again I want to thank the employees that do such a great job for our customers and our shareholders. Our long-term prospects remain very good.

We continue to have very strong management teams and ability to adjust as necessary going forward. So we are very, very excited about this year and our longer-term prospects. We look forward to getting together again with you in October. Have a great rest of the summer. Thank you.

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