Pursuit Attractions & Hospitality, Inc. quarterly report, Q1 FY2020

Filing and reporting period

This is Viad Corp’s unaudited Form 10-Q for the three months ended March 31, 2020, filed June 19, 2020. Viad operates GES North America, GES EMEA and Pursuit; Pursuit is a segment, not the registrant named on this filing. The filing was delayed under an SEC order because COVID-19 disrupted operations and the completion of financial reporting.

Financial results and liquidity

Unless noted otherwise, amounts are in millions of U.S. dollars. Comparative results are for the three months ended March 31, 2019.

• Revenue increased 7.1%, but results included $88.4 million of non-cash impairment charges: $72.7 million for goodwill and $15.7 million for intangible assets. The net loss attributable to Viad worsened by $68.8 million.
• Segment operating loss, a non-GAAP measure, was $9.4 million versus $11.3 million. GES North America recorded segment operating income of $12.0 million; GES EMEA recorded a $1.1 million loss; Pursuit recorded a $20.3 million loss.
• Capital expenditures were $23.2 million; net cash used in investing activities was $23.2 million. Financing activities provided $99.3 million, mainly reflecting credit-facility borrowing. Cash rose to $130.5 million from $62.0 million at year-end.
• At March 31, debt and finance lease obligations totaled $438.8 million, including $420.8 million classified as current. The current classification reflects expected future covenant noncompliance, not a reported covenant breach at March 31. The company reported $33.8 million of remaining capacity under its main revolving facility at quarter-end.
• In May, Viad reported cash of $165 million as of May 31 and received $24.8 million from terminating legacy life insurance policies. These are subsequent-period liquidity figures, not March 31 balances.

Changes versus the prior period

• GES revenue rose 6.4%, primarily due to approximately $57 million of favorable show rotation, partly offset by event postponements and cancellations. GES North America revenue rose 12.8%; GES EMEA revenue fell 21.4%.
• Pursuit revenue rose 26.8% as reported, largely from the Mountain Park Lodges acquisition. Organic Pursuit revenue was approximately flat. Its segment operating loss increased by $7.3 million, partly reflecting the acquisition, FlyOver Iceland and higher depreciation and amortization.
• Attractions visitation fell 29.6% on a same-store basis. Same-store RevPAR fell 1.8% and average daily rate fell 5.6%; these figures reflect March closures and do not include the Mountain Park Lodges acquisition or FlyOver Iceland, as applicable.
• Cash from operations shifted from $8.0 million provided to $4.7 million used, with management citing unfavorable working-capital changes. Interest expense rose 37.8%, primarily because of higher debt balances. The prior-year comparison included an $8.5 million GES legal-settlement charge; none was recorded in Q1 2020.

Outlook, risks and unusual items

• COVID-19 caused widespread event cancellations and temporary closures of attractions and lodging properties. Viad expected a material negative impact on revenue and earnings for the remainder of 2020, with the largest impact then expected in Q2 and Q3. Management anticipated some GES events could resume in certain areas in Q3; Pursuit reopenings were expected as restrictions eased. These were expectations, not guarantees.
• Management stated that the shutdown, operating losses and cash outflows, and expected covenant noncompliance raised substantial doubt about Viad’s ability to continue as a going concern for one year after issuance of the financial statements.
• A May 8 credit amendment waived financial covenants for Q2 2020 and introduced a minimum-liquidity requirement. Viad expected it would be unable to meet financial covenants beginning in Q3 and was negotiating further lender relief and pursuing capital-raising options. Failure to obtain relief or capital could permit lenders to accelerate debt. The FlyOver Iceland facility was also expected to breach covenants beginning in Q3.
• Cost actions included furloughs, unpaid leave or salary reductions, executive pay reductions, cuts to discretionary spending and nonessential capital expenditures, and suspension of future dividends and share repurchases. The 401(k) employer match was suspended in April. The company also accessed government wage and tax-relief programs.
• Nonessential capital cuts delayed FlyOver Canada Toronto to an anticipated 2023 opening; FlyOver Las Vegas and Sky Lagoon were still expected to open in 2021. Further impairment charges were possible as COVID-19 conditions evolved.
• Additional risks include demand and travel uncertainty, foreign-exchange and interest-rate exposure, seasonal concentration, union and pension obligations, and potential legal, environmental and self-insurance liabilities. Viad reported $75.3 million of maximum potential payments under guarantees.

Important facts for investors to verify

• Whether Viad obtained further lender amendments or raised capital, and its compliance with minimum-liquidity and debt covenants after Q2.
• Cash burn, available borrowing capacity, and the effect of subsequent borrowings and other liquidity measures on near-term funding needs.
• Actual event and attraction reopening dates, customer demand, cancellations and operating performance versus management’s 2020 expectations.
• Whether additional goodwill or intangible-asset impairments, or changes to the going-concern assessment, were reported in subsequent filings.
• Underlying segment performance, distinguishing reported revenue growth from show rotation, acquisitions, foreign exchange and COVID-19 effects.