Filing context
The supplied filing is Viad Corp’s unaudited Form 10-Q for the quarter ended September 30, 2018, not a standalone filing for Pursuit Attractions & Hospitality. Viad reports GES U.S., GES International, and Pursuit as segments. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $358.2 | $339.1 | $999.3 | $1,029.7 |
| Operating income | $52.8 | $43.9 | $76.0 | $92.2 |
| Net income attributable to Viad | $37.4 | $44.7 | $51.5 | $79.4 |
| Diluted EPS attributable to Viad | $1.83 | $2.19 | $2.51 | $3.89 |
| Segment operating income (non-GAAP) | $56.6 | $48.3 | $84.5 | $102.0 |
Q3 operating margin was approximately 14.7%, versus 13.0% a year earlier; nine-month operating margin was approximately 7.6%, versus 9.0%. These percentages are calculated from reported operating income and revenue. Q3 revenue grew 5.6%, while nine-month revenue declined 3.0%. Services revenue was $300.1 million and products revenue $58.1 million in Q3.
- Cash flow: Nine-month operating cash flow was $101.6 million, down from $114.6 million. Capital expenditures were $69.6 million, versus $39.5 million; investing cash outflow was $68.3 million. Cash increased by $1.7 million from year-end to $55.5 million.
- Debt and liquidity: Debt and capital lease obligations totaled $200.2 million at September 30, including $4.3 million of leases; cash was $55.5 million. The company reported $48.3 million remaining under its principal credit facility and $22.2 million under the Brewster revolver. It said existing liquidity would fund operations and capital commitments for at least 12 months.
- Balance sheet: Total assets were $968.2 million and total liabilities $484.0 million. Contract liabilities were $58.3 million; current contract costs were $24.8 million.
Material changes and business drivers
- Q3 revenue increased mainly from favorable GES show rotation (about $28 million) and Pursuit growth, partly offset by prior-year nonrecurring business and unfavorable foreign exchange. Segment operating income improved, including from lower performance-based incentive costs.
- Nine-month GES revenue and operating income were pressured by negative show rotation and nonrecurring 2017 business. GES U.S. nine-month revenue fell 6.9% and segment operating income fell 46.1%. Pursuit nine-month revenue rose 6.6% and segment operating income was nearly flat, up 0.5%.
- Viad’s net income comparisons were affected by 2017 Mount Royal Hotel fire-related impairment recoveries: $24.5 million in Q3 and $29.1 million for the first nine months. The hotel reopened in July 2018. Q3 2018 included a $3.1 million tax benefit from updated Tax Act estimates.
- Pursuit’s Q3 same-store attraction passengers declined 2.1%, while revenue per passenger rose 7.1%. Same-store hospitality RevPAR rose 2.5%; forest fires affected visitor volumes and occupancy at some locations.
Outlook, risks, and unusual items
- 2018 outlook: Management expected GES full-year revenue to decline at a low-single-digit rate, with show rotation reducing revenue by $35–$40 million; GES U.S. base same-show revenue was expected to grow at a low-single-digit rate. Pursuit revenue was expected to grow at a mid- to high-single-digit rate. Management estimated about $4.5 million of full-year Pursuit revenue benefit from the Mount Royal reopening and approximately $1 million of FlyOver Iceland start-up costs. These are management expectations, not results.
- FlyOver Iceland was under construction and expected to open in 2019. The company reported $0.8 million of related start-up costs in the first nine months.
- On October 24, 2018, after quarter-end, Viad entered a new $450 million revolving credit agreement maturing in 2023, replacing its prior agreement; the facility may be increased by up to $250 million subject to conditions. At September 30, Viad reported compliance with prior credit covenants, a 1.61-to-1.00 leverage ratio, and a 2.71-to-1.00 fixed charge coverage ratio.
- Key disclosed risks include seasonality and show rotation, dependence on large event clients, travel and transportation disruptions, natural disasters, foreign exchange and interest rates, union negotiations and potential work stoppages, multi-employer pension funding, cybersecurity and privacy obligations, capital project delays or overruns, and liabilities from prior operations. Chicago Teamsters Local 727 agreements were due to expire December 31, 2018; negotiations were ongoing.
- Recorded environmental remediation liabilities related to previously sold operations were $2.3 million. The maximum potential payments under facility guarantees were $17.3 million. Additional multi-employer pension funding, if any, was not ascertainable. Management said pending litigation and environmental matters were not expected to have a material effect, after considering recorded amounts and insurance.
- Viad anticipated recognizing approximately $60 million of lease right-of-use assets and lease liabilities upon adoption of the new lease standard in 2019. Management said the income statement impact was not expected to be material.
Investor verification priorities
- Confirm the filing entity and scope: this is Viad Corp’s consolidated 10-Q, with Pursuit as one reportable segment.
- Review GES show rotation, base same-show trends, and whether the 2018 segment outlook was achieved.
- Track Pursuit’s seasonal performance, forest-fire effects, Mount Royal reopening contribution, and FlyOver Iceland development costs and opening schedule.
- Assess cash conversion against higher capital expenditures, debt levels, and terms and covenant capacity under the post-quarter credit agreement.
- Review the outcome of Chicago labor negotiations and exposure to multi-employer pension, insurance, environmental, and guarantee obligations.
- Check final Tax Act accounting and the effect of foreign exchange movements; the company said it did not hedge its foreign-currency translation exposure.