Business context and reporting period
Viad Corp’s unaudited Form 10-Q covers the three months ended March 31, 2017, compared with the same quarter of 2016. The filing is for Viad Corp—not a separate Pursuit Attractions & Hospitality, Inc. registrant. Viad operates GES U.S., GES International, and Pursuit. GES provides live-event services; Pursuit operates destination hospitality, attractions, transportation, and travel-planning businesses. Both businesses are seasonal, and Pursuit earns most of its revenue in the second and third quarters.
Financial results and liquidity
Amounts below are in millions of U.S. dollars, except per-share data and ratios.
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $325.8 | $241.4 |
| Operating income (loss) | $10.1 | $(8.2) |
| Net income (loss) attributable to Viad | $6.8 | $(7.0) |
| Diluted earnings (loss) per share | $0.33 | $(0.35) |
| Adjusted EBITDA (non-GAAP) | $22.3 | $(0.6) |
| Operating cash flow | $32.2 | $17.0 |
Operating margin was approximately 3.1%, compared with a 3.4% operating loss margin in Q1 2016. Revenue grew 35.0%; management attributed the increase chiefly to favorable show rotation, acquisitions, same-show growth, and underlying business growth. Adjusted EBITDA is a non-GAAP measure defined by the company.
Cash and cash equivalents were $25.4 million at quarter-end, up from $20.9 million at December 31, 2016. Current assets were $214.1 million and current liabilities were $389.9 million; current debt classification includes revolving borrowings due within one year. Total debt and capital-lease obligations were $236.6 million, net of $1.3 million in unamortized issuance costs, versus $249.2 million at year-end. The weighted-average rates on the principal Viad and Brewster facilities were 2.9% and 2.6%, respectively. Viad reported a 1.57:1 leverage ratio and 3.26:1 fixed-charge coverage ratio and said it complied with its credit covenants. It had $63.3 million of capacity on Viad’s revolver and $1.2 million on Brewster’s facility.
Operating cash flow increased by $15.2 million year over year. Investing cash use was $11.2 million, including $14.7 million of capital expenditures and $4.6 million of insurance proceeds; financing cash use was $16.7 million. The company declared dividends of $0.10 per share.
Material changes versus the prior comparable period
- GES revenue rose to $317.9 million from $236.1 million, while segment operating income increased to $23.0 million from $0.3 million. GES U.S. benefited from approximately $52 million of positive show rotation, ON Services acquisition revenue, 4.1% U.S. base same-show growth, and new business. GES International also grew, but foreign exchange reduced reported revenue.
- Pursuit revenue rose to $7.9 million from $5.2 million, but its segment operating loss widened to $10.3 million from $6.6 million. Acquisitions contributed revenue but also seasonal operating losses; the Mount Royal Hotel remained closed after a fire.
- Interest expense increased to $2.1 million from $1.3 million, primarily due to higher debt following 2016 acquisitions. Depreciation and amortization rose to $12.1 million from $8.4 million.
- Q1 2017 included $2.4 million of impairment recoveries associated with Mount Royal Hotel fire-related costs. Discontinued-operations loss increased to $0.8 million from $0.2 million, primarily from additional reserves for environmental matters and legal fees related to previously sold operations.
- Acquisitions included FlyOver Canada, acquired in December 2016, and Poken, acquired in March 2017. FlyOver Canada contributed $1.4 million of Q1 revenue and a $0.4 million operating loss.
Outlook, commentary, risks, and unusual items
- GES outlook: Management expected full-year 2017 revenue to increase at a mid-single-digit rate versus 2016. ON Services and Poken were expected to add $47–$50 million of revenue and $10.5–$12.5 million of Adjusted Segment EBITDA. Show rotation was expected to reduce revenue by about $15 million; U.S. base same-show revenue was expected to grow at a mid-single-digit rate. Management forecast adverse foreign-exchange effects of about $20 million on revenue and $1 million on segment operating income.
- Pursuit outlook: Management expected full-year revenue to increase at a mid-single-digit rate. CATC and FlyOver Canada were expected to add $10–$12 million of revenue and $2–$3.5 million of Adjusted Segment EBITDA, including an estimated $2.3 million first-quarter seasonal operating loss from CATC. Expected offsets included approximately $13 million of reduced revenue from downsizing Brewster package tours and approximately $6 million from the Mount Royal Hotel closure, assuming it remained closed throughout 2017. Management anticipated adverse foreign-exchange effects of about $3 million on revenue and $1.5 million on segment operating income, partly offset by organic growth, including expected $7–$9 million revenue growth from the renovated Banff Gondola.
- The Mount Royal Hotel fire resulted in a Q1 partial insurance settlement of $5.3 million, allocated among previously recorded insurance receivables, impairment recovery, expense offsets, and a business-interruption gain. In April 2017, Viad received a further $3.7 million partial settlement; the claims were not yet finalized.
- Key risks include show timing and demand, tourism and discretionary spending, foreign-exchange movements, labor relations, and acquisitions. Viad does not hedge its foreign-currency translation exposures; it had no foreign-currency forward contracts outstanding at March 31. Chicago Teamsters Local 727 pension-related negotiations could disrupt GES operations. Potential additional funding for underfunded multi-employer pension plans was not ascertainable.
- Other contingencies include $4.1 million of environmental remediation liabilities related to previously sold operations and up to $8.7 million of guarantees on subsidiary leases. Management said pending litigation and environmental matters were not expected to have a material effect after considering recorded amounts and insurance. A revised risk factor highlighted uncertainty around possible U.S. tax-policy changes and their effects on tax expense and cash flows.
- Management stated existing liquidity should be sufficient for operations and capital commitments for at least 12 months. It reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the entity and scope: the supplied filing is Viad Corp’s 10-Q, with Pursuit reported as one operating segment.
- Track GES growth and margins separately from acquisitions and show rotation; the reported revenue increase is not solely organic.
- Assess Pursuit’s seasonal losses, the Mount Royal Hotel reopening and insurance recovery, and the assumptions underlying management’s full-year outlook.
- Review debt maturities and refinancing needs, particularly Brewster’s facility due December 28, 2017, alongside revolver availability and covenant compliance.
- Monitor foreign-exchange exposure, labor negotiations and pension-plan exposure, and the resolution of environmental and other discontinued-operation contingencies.