Business context and reporting period
Filing identity: The supplied filing is Viad Corp’s Form 10-Q for the quarter ended June 30, 2017, not a standalone filing by Pursuit Attractions & Hospitality, Inc. The figures below are for Viad on a consolidated basis unless identified as Pursuit. Viad operates GES (live-event services) and Pursuit (destination hospitality, attractions, transportation, and travel planning). Results are unaudited; amounts are in U.S. dollars.
Financial performance
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $364.8 million | $324.7 million | $690.6 million | $566.1 million |
| Income attributable to Viad | $27.9 million | $19.5 million | $34.7 million | $12.5 million |
| Diluted EPS attributable to Viad | $1.37 | $0.96 | $1.70 | $0.62 |
| Segment operating income | $40.5 million | $34.4 million | $53.2 million | $28.2 million |
| Adjusted EBITDA (non-GAAP) | $51.9 million | $40.6 million | $74.2 million | $40.0 million |
Q2 consolidated operating income was $37.5 million, compared with $31.3 million a year earlier; the corresponding calculated operating margins were approximately 10.3% and 9.6%. Six-month operating income was $47.6 million versus $23.1 million. Segment operating income and Adjusted EBITDA are non-GAAP measures; the filing provides reconciliations.
Pursuit segment
Q2 Pursuit revenue was $44.7 million, up 10.3%; segment operating income was $9.9 million, up from $7.1 million. Six-month revenue was $52.6 million, up 15.1%, while Pursuit reported a $0.3 million segment operating loss versus $0.5 million income in the prior-year period. Management attributed the six-month loss mainly to CATC’s seasonal first-quarter operating loss. Pursuit’s Q2 organic revenue increased 7.3%, and organic segment operating income increased 36.4%; these are non-GAAP measures.
Cash flow, financial position, and debt
- Six-month operating cash flow was $59.2 million, compared with $54.4 million. Capital expenditures were $27.4 million, up from $20.6 million.
- Cash was $44.0 million at June 30, 2017, versus $20.9 million at year-end 2016. Cash increased $23.1 million in the first half.
- Total debt and capital lease obligations were $241.4 million, down from $249.2 million at year-end. The current portion was $176.1 million; the filing says revolving-credit borrowings are classified as current because they are due within one year.
- Viad reported $55.0 million of remaining capacity under its main revolving facility and $0.2 million under Brewster’s facility. The latter $38 million facility matures December 28, 2017; Viad’s main credit agreement matures in 2019. Viad reported compliance with debt covenants, a 1.41-to-1.00 leverage ratio, and a 3.61-to-1.00 fixed-charge coverage ratio.
- Management said existing liquidity should be sufficient for operations and capital commitments for at least 12 months. Current liabilities exceeded current assets at June 30; seasonal operations and current classification of revolving debt are relevant context.
Material changes and management commentary
- Consolidated revenue rose 12.3% in Q2 and 22.0% in the first half. Growth reflected show rotation, acquisitions, and underlying business growth, partly offset by adverse foreign exchange. Six-month revenue included approximately $69 million of favorable GES show rotation and $36.4 million of incremental acquisition revenue.
- Higher GES segment income drove much of the first-half earnings improvement. GES U.S. first-half revenue benefited from approximately $56 million of favorable show rotation and U.S. base same-show growth of 5.5%. GES International also grew, while adverse currency translation weighed on reported revenue and segment results.
- Pursuit’s Q2 performance benefited from attractions, including the Banff Gondola and Columbia Icefield, and from FlyOver Canada. The Mount Royal Hotel remained closed after a December 2016 fire; management expected it to remain closed until mid-2018. Pursuit is highly seasonal: Viad said 90% of Pursuit’s 2016 revenue was earned in the second and third quarters.
- Interest expense increased to $2.1 million in Q2 and $4.2 million for the first half, primarily reflecting higher debt balances following 2016 acquisitions. Restructuring charges declined year over year.
- In July 2017, Viad settled the Mount Royal Hotel property and business-interruption claims for approximately $35 million, inclusive of $9 million received by June 30. The remaining proceeds were received in Q3. The filing says approximately $23.4 million was recorded as an additional impairment recovery, with business-interruption recoveries recognized over the periods to which they relate.
Outlook, risks, and contingencies
- For full-year 2017, management expected GES revenue growth of 6%–7% and Pursuit revenue growth of 7%–11%. GES guidance cited mid-single-digit U.S. base same-show growth, approximately $10 million of negative show rotation, and an estimated adverse FX effect of approximately $13 million on revenue. Pursuit guidance included expected negative revenue effects of approximately $13 million from downsizing package tours and $5 million from the hotel closure, partly offset by organic growth.
- Guidance also included acquisition-related revenue and Adjusted Segment EBITDA expectations. Pursuit guidance incorporated approximately $1 million of revenue and $3 million of Adjusted Segment EBITDA related to the hotel, including expected insurance recoveries and reopening of retail and dining outlets. These forward-looking non-GAAP measures were not reconciled to GAAP in the filing.
- Key risks include event timing and show rotation, seasonal tourism demand, foreign-exchange movements, consumer discretionary spending, labor negotiations and possible work stoppages, and potential obligations from underfunded multi-employer pension plans. The amount of any additional multi-employer pension funding was not ascertainable.
- Viad disclosed $8.1 million of maximum potential payments under lease guarantees, environmental remediation liabilities of $2.4 million related to previously sold operations, and various legal claims. Management did not expect the matters described to materially affect the company, after considering recorded amounts and insurance.
- Management reported effective disclosure controls as of June 30, 2017 and no material changes in internal control over financial reporting during the quarter. The filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Confirm the issuer: this is Viad Corp consolidated reporting; Pursuit is a segment, not the registrant named in the filing.
- Assess how much reported growth and earnings depended on show rotation, acquisitions, seasonality, and the Mount Royal Hotel insurance recovery, rather than recurring organic operations.
- Review debt maturities and refinancing plans, particularly Brewster’s facility maturing in December 2017, and monitor covenant headroom and available borrowing capacity.
- Track the Mount Royal Hotel reopening timeline and the timing and accounting treatment of remaining business-interruption recoveries.
- Evaluate foreign-exchange exposure, labor and pension-plan risks, and the assumptions underlying management’s 2017 outlook.