Business context and reporting period
This is Viad Corp’s Form 10-K for the fiscal year ended December 31, 2016, filed March 6, 2017—not a standalone quarterly report. The filing identifies Viad Corp as the registrant; “Pursuit” is its travel and recreation business, branded under that name in 2017.
Viad operates GES, a live-events services business, and Pursuit, a portfolio of destination hotels, attractions, transportation, and travel-planning services. GES generated 88% of 2016 revenue and 58% of segment operating income; Pursuit generated 12% and 42%, respectively.
Financial performance
Amounts are U.S. dollars. Unless stated otherwise, figures below are for the year ended December 31.
| Metric | 2016 | 2015 | Change |
|---|---|---|---|
| Revenue | $1,205.0 million | $1,089.0 million | +10.6% |
| Income from continuing operations | $43.5 million | $27.4 million | +58.5% |
| Net income attributable to Viad | $42.3 million | $26.6 million | +58.9% |
| Diluted EPS from continuing operations attributable to Viad | $2.12 | $1.34 | +58.2% |
| Segment operating income (non-GAAP) | $85.9 million | $54.6 million | +57.4% |
| Adjusted EBITDA (non-GAAP) | $112.4 million | $76.8 million | +46.4% |
| Operating cash flow | $100.3 million | $60.3 million | +$40.0 million |
| Capital expenditures | $49.8 million | $29.8 million | +$20.0 million |
Revenue increased with $55.7 million from 2016 acquisitions, approximately $52 million of favorable GES show rotation, and underlying growth, partly offset by a $24.0 million unfavorable foreign-exchange impact. Net income benefited from higher segment operating income; income tax expense also rose to $21.3 million from $10.5 million. The effective tax rate was 32.8%, versus 27.7%.
Calculated from reported figures, continuing-operations income was approximately 3.6% of revenue and net income attributable to Viad approximately 3.5%; Adjusted EBITDA was approximately 9.3% of revenue. These are simple ratios, not company-reported margin measures. Adjusted EBITDA and segment operating income are non-GAAP measures and should be considered alongside GAAP results.
Segment results: GES revenue was $1,054.7 million and segment operating income $50.2 million, versus $976.9 million and $26.8 million in 2015. Pursuit revenue was $153.4 million and segment operating income $35.7 million, versus $112.2 million and $27.8 million. Pursuit’s organic revenue rose 7.2%, while organic segment operating income was essentially flat, down 0.4%.
Liquidity, debt, and capital
- Cash and cash equivalents were $20.9 million at year-end, down from $56.5 million. Operating cash flow was $100.3 million.
- Total debt and capital lease obligations were $249.2 million, up from $127.4 million. The balance comprised $93.8 million under the term loan, $119.0 million under Viad’s revolving facility, $36.5 million under Brewster’s facility, and $1.5 million of capital leases, net of debt issuance costs.
- Viad reported $54.7 million of remaining capacity under its revolving facility and $1.5 million under Brewster’s facility. The filing states Viad was in compliance with its credit covenants at year-end; leverage ratio was 1.92:1 and fixed-charge coverage ratio 2.86:1.
- Current debt and capital lease obligations on the balance sheet were $175.0 million. Contractual debt borrowings due in 2017 were $174.2 million; Brewster’s separate revolving facility matured December 28, 2017. Review the debt agreements and subsequent refinancing or repayment developments when assessing near-term liquidity.
- Cash used in investing was $244.6 million, including $196.0 million net cash paid for acquisitions and $49.8 million of capital expenditures. Financing provided $111.6 million, primarily reflecting increased borrowings. Dividends declared were $0.40 per share.
Material changes, outlook, and risks
- 2016 acquisitions included ON Services, CATC, Maligne Lake Tours, and FlyOver Canada; together they contributed $55.7 million of reported revenue. Acquisition cash payments totaled $196.0 million. FlyOver Canada’s purchase-price allocation remained preliminary at year-end.
- GES’s 2017 outlook called for mid-single-digit revenue growth. Management expected approximately $20 million of negative show rotation and approximately $20 million of unfavorable foreign-exchange impact on revenue. ON Services was expected to contribute $45–48 million of incremental revenue and $11–13 million of Adjusted Segment EBITDA.
- Pursuit’s 2017 outlook called for mid-single-digit revenue growth. Management expected approximately $13 million of revenue reduction from phasing out Brewster package tours and approximately $6 million of revenue impact from the Mount Royal Hotel closure. The hotel was expected to remain closed throughout 2017; insurance proceeds were to be recorded when received. The renovated Banff Gondola was expected to add $7–9 million of revenue.
- Mount Royal Hotel was damaged by fire on December 29, 2016. The company recorded a $2.2 million impairment loss and an offsetting insurance recovery; assessment of the full loss was ongoing. The Banff Gondola redevelopment was completed in 2016.
- Key risks include economic weakness and discretionary spending, seasonality and show rotation, client or venue losses and venue in-sourcing, travel disruptions, foreign-exchange exposure, acquisition integration and impairment risk, labor disputes, and underfunded multi-employer pension plans. Pursuit earned 90% of 2016 revenue in the second and third quarters. Viad did not hedge its foreign net-earnings or translation exposure.
- Multi-employer pension contributions were $25.8 million in 2016, up from $22.0 million. Management said several plans were underfunded; possible additional funding or withdrawal liabilities were not quantifiable.
- Other contingencies include $3.6 million of environmental remediation liabilities for previously sold operations, $9.3 million maximum potential payments under subsidiary lease guarantees, and $33.3 million of self-insurance liabilities excluded from the contractual-obligations table. Management believed pending litigation would not materially affect the company, after reserves and insurance.
- Auditors issued an unqualified opinion on the consolidated financial statements and internal controls. Management and the auditor excluded CATC, ON Services, and FlyOver Canada from the internal-control assessment; those acquisitions represented 22.2% of total assets and 4.1% of revenue.
Important facts for investors to verify
- Confirm the identity and scope: the filing is Viad Corp’s 10-K, with Pursuit as a business group, not a separate registrant in this filing.
- Review the debt maturity schedule, credit-facility terms, covenant headroom, and liquidity after the 2016 acquisition borrowing; the filing shows substantial 2017 current maturities.
- Test 2017 segment outlook against actual results, particularly GES show rotation and currency assumptions, Pursuit package-tour reductions, Mount Royal’s closure and insurance recovery, and Banff Gondola growth.
- Assess whether acquisitions deliver expected returns and integration benefits, especially ON Services’ reported partial-year operating loss and FlyOver Canada’s preliminary purchase accounting.
- Monitor labor negotiations and multi-employer pension exposure, along with foreign-exchange movements, seasonal operating concentration, and self-insurance and legacy environmental claims.