Business context and reporting period
Entity clarification: The supplied filing is Viad Corp’s Form 10-K, not a filing by Pursuit Attractions & Hospitality, Inc. It covers the fiscal year ended December 31, 2018; fourth-quarter figures are unaudited quarterly data within the annual filing.
Viad operates GES, a live-events services business, and Pursuit, a portfolio of travel attractions and hospitality businesses. GES generated 86% of 2018 consolidated revenue and 45% of segment operating income; Pursuit generated 14% of revenue and 55% of segment operating income.
Key financial metrics
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $1,296.2 million | $1,307.0 million |
| Income from continuing operations | $47.9 million | $58.5 million |
| Net income attributable to Viad | $49.2 million | $57.7 million |
| Diluted EPS from continuing operations | $2.33 | $2.84 |
| Segment operating income (non-GAAP) | $88.5 million | $98.6 million |
| Operating cash flow | $90.6 million | $112.2 million |
| Capital expenditures | $83.3 million | $56.6 million |
| Cash and cash equivalents at year-end | $44.9 million | $53.7 million |
| Total debt and capital lease obligations | $230.1 million | $209.2 million |
GAAP operating margin was approximately 6.0% and net margin approximately 3.8% in 2018. Operating cash flow less capital expenditures was approximately $7.3 million. Current assets were $214.0 million versus current liabilities of $389.7 million; management stated existing liquidity sources were sufficient for operations and capital commitments for at least 12 months.
The $450 million revolving credit facility had $227.8 million borrowed and $3.6 million of letters of credit at year-end, leaving $218.6 million of capacity. It matures October 2023; borrowings were classified as current because they were due within one year. The company reported compliance with its covenants and a 1.78:1 leverage ratio.
Material changes versus the prior comparable period
- Revenue declined 0.8%, mainly reflecting approximately $35 million of unfavorable GES show rotation; favorable foreign exchange and Pursuit growth partly offset the decline.
- Segment operating income fell 10.2%. GES segment operating income declined 21.9%, while Pursuit’s rose 2.2% as revenue grew 6.6%.
- Net income attributable to Viad decreased 14.8%. The comparison was affected by the prior-year Mount Royal Hotel fire-insurance impairment recovery and the 2017 Tax Act charge.
- Operating cash flow decreased $21.6 million, attributed mainly to lower deferred-tax expense and unfavorable working-capital movements. Capital expenditures increased $26.7 million, primarily reflecting Pursuit investment.
- Fourth-quarter revenue was $296.9 million versus $277.3 million. Viad reported a fourth-quarter net loss attributable to Viad of $2.3 million, compared with a $21.7 million loss in the fourth quarter of 2017.
Guidance, outlook, commentary, and risks
- GES 2019 outlook: Revenue expected to increase at a low-single-digit rate from 2018, despite an estimated $25 million negative show-rotation impact. Management expected low-single-digit growth in U.S. base same-show revenue and an approximately $5.5 million unfavorable foreign-exchange revenue impact.
- Pursuit 2019 outlook: Revenue expected to increase 15%–17%, with Refresh-Build-Buy investments expected to contribute approximately $15–$17 million of incremental revenue. Management expected approximately $1 million of FlyOver Iceland start-up costs in the first half of 2019; the attraction was scheduled to open in July 2019.
- GES cited weaker retail-sector events and auto shows, ongoing investment and audio-visual capacity improvements, and a focus on labor productivity and corporate-event growth. Pursuit’s 2018 same-store attraction passenger count fell 1.6%, partly due to forest fires, while revenue per passenger increased 7.7%.
- A proposed partial withdrawal from the Central States multi-employer pension plan was expected to create an estimated $14 million liability, payable over 20 years. The new labor agreement and final liability remained under negotiation.
- Other significant exposures include economic and discretionary-spending sensitivity, event-client concentration and contract renewals, seasonality and show rotation, travel disruption and natural disasters, union labor and pension obligations, foreign exchange, cybersecurity and privacy, Brexit-related uncertainty, tariffs, and acquisition/integration and capital-project execution. Management reported longer-than-expected ON Services integration and below-expectation performance; future impairment charges remain possible.
- 2018 included a $3.1 million Tax Act benefit; 2017 included a $16.1 million Tax Act charge. The Mount Royal Hotel reopened in July 2018 after fire-related reconstruction; 2017 included a $29.3 million impairment recovery and business-interruption proceeds. The auditor issued an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- Confirm the issuer and period: this is Viad Corp’s FY2018 10-K, not a Pursuit Attractions & Hospitality, Inc. filing or a standalone Q4 report.
- Review the composition, maturity, interest-rate exposure, and covenant headroom of the revolving debt, along with the company’s ability to refinance or repay amounts classified as current.
- Track GES show rotation, underlying same-show trends, labor productivity, and whether GES’s 2019 revenue outlook translated into improved segment profitability.
- Assess Pursuit’s project spending and returns, the opening and ramp-up of FlyOver Iceland, and delivery of other 2019 expansions and renovations.
- Verify the final Central States pension withdrawal terms and liability, and monitor multi-employer plan funding and collective-bargaining negotiations.
- Reconcile cash generation with elevated capital expenditures, and distinguish recurring earnings from insurance recoveries, tax adjustments, and other unusual items.