Filing summary: Viad Corp. 10-Q, quarter ended June 30, 2018
Entity note: The supplied filing is for Viad Corp, not Pursuit Attractions & Hospitality, Inc. Pursuit is one of Viad’s reportable business segments. The filing reports the three and six months ended June 30, 2018, compared with the same 2017 periods; dollar amounts below are in millions unless stated otherwise.
Business context and reporting period
Viad operates GES, a live-events services business, and Pursuit, a collection of destination attractions, lodging, transportation, and travel-planning businesses. Results are affected by GES show timing and rotation and by Pursuit’s summer-heavy seasonality. The interim statements are unaudited.
Financial performance and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $363.7 | $364.8 | $641.1 | $690.6 |
| Operating income | $36.2 | $37.7 | $23.2 | $48.3 |
| Income from continuing operations | $23.7 | $27.4 | $12.9 | $34.7 |
| Net income attributable to Viad | $23.5 | $27.9 | $14.1 | $34.7 |
| Diluted EPS from continuing operations | $1.16 | $1.35 | $0.65 | $1.72 |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $31.5 | $59.2 |
| Capital expenditures | Not presented quarterly | Not presented quarterly | $48.1 | $27.4 |
- Q2 revenue was nearly flat year over year, while six-month revenue declined 7.2%. Six-month operating income fell 51.9% and net income attributable to Viad fell 59.4%.
- At June 30, cash was $49.4, down from $53.7 at year-end 2017. Current assets were $264.1 and current liabilities $414.9; reported working capital was therefore negative. Management said existing liquidity sources should fund operations and capital commitments for at least 12 months.
- Total debt and capital lease obligations were $239.5, including $235.5 of debt. The current portion was $191.0, largely because revolving borrowings were classified as due within one year. The company reported $22.6 of capacity on its main revolver and $10.5 on the Brewster revolver. It was compliant with covenants; leverage ratio was 1.99x and fixed-charge coverage 2.63x.
- Six-month cash flow included $31.5 generated from operations, $46.8 used in investing, and $14.3 provided by financing. Increased capital spending and working-capital movements contributed to lower operating cash flow than in 2017.
- Q2 segment operating income was $29.0 for GES and $9.8 for Pursuit. For the first half, GES generated $29.6 and Pursuit recorded a $1.6 segment operating loss.
Material changes versus the prior comparable period
- GES revenue declined amid negative show rotation, partly offset by foreign-exchange benefits and underlying growth. For the first half, GES revenue was down 8.6% as reported; GES segment operating income declined 45.3%, with lower revenue, wage increases, and growth investments cited as factors.
- Pursuit revenue increased 8.3% in Q2 and 10.4% for the first half, supported by revenue management and favorable currency effects. Pursuit’s first-half operating loss widened, reflecting costs to support growth and expense timing.
- Prior-year comparisons benefited from insurance impairment recoveries related to Mount Royal Hotel fire damage and favorable tax matters. These items contributed to the year-over-year net-income decline in 2018.
- Foreign-currency translation reduced accumulated other comprehensive income by $11.2 in the first half, compared with a $9.7 gain in the first half of 2017.
Outlook, commentary, risks, and unusual items
- 2018 outlook stated in the filing: GES expected full-year revenue comparable to 2017, with approximately $40 of net negative show rotation and low-single-digit growth in U.S. base same-show revenue. Management anticipated favorable GES foreign-exchange effects of about $10.0 on revenue and $0.5 on segment operating income.
- Pursuit expected full-year revenue growth at a high-single-digit rate, including approximately $5 of revenue benefit from the Mount Royal Hotel reopening in July 2018. Management expected about $1 of FlyOver Iceland start-up costs in 2018, of which $0.4 had been incurred in the first half, and unfavorable currency effects of approximately $2.5 on revenue and $2.0 on operating income.
- Key risks identified include show rotation and dependence on large event clients; seasonality and discretionary travel demand; foreign exchange and interest rates; labor costs, union negotiations and multi-employer pension obligations; transportation disruptions; cybersecurity and personal-data compliance; capital-project delays or cost overruns; and environmental or other liabilities from prior operations.
- Contingencies include $2.3 of environmental remediation liabilities related to previously sold operations, up to $17.7 of potential payments under facility lease guarantees, and self-insured claims. The company said pending legal matters were not expected to have a material effect, although outcomes are uncertain.
- Viad adopted the new revenue standard in 2018; management reported no material overall financial-statement impact. It expected the new lease standard, effective January 1, 2019, to add more than $60 of right-of-use assets and lease liabilities. The 2018 results also included restructuring charges of $0.8 for the first half.
Most important facts for investors to verify
- Confirm the intended issuer: this filing is Viad Corp’s 10-Q, and the Pursuit figures are segment results, not standalone company financial statements.
- Track GES show rotation against the stated full-year outlook and distinguish underlying performance from currency effects and non-GAAP organic measures.
- Assess liquidity and refinancing needs given $191.0 of current debt and the disclosed 2019 main credit-agreement maturity and December 2018 Brewster facility maturity.
- Monitor whether Pursuit’s revenue growth converts to improved segment profitability, and whether the Mount Royal reopening and FlyOver Iceland project meet expectations.
- Review capital spending, working-capital cash demands, foreign-currency exposure, labor and pension matters, and the potential impact of the upcoming lease-accounting adoption.