Business context and reporting period
This is Viad Corp’s unaudited Form 10-Q for the quarter and six months ended June 30, 2019. Viad is an experiential-services company with three reportable segments: GES North America, GES EMEA, and Pursuit. The filing is for Viad Corp, not a standalone filing by Pursuit Attractions & Hospitality. Unless noted otherwise, amounts below are in U.S. dollars; financial statement amounts are in millions.
Financial results and key metrics
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $402.3 | $363.7 | $687.9 | $641.1 |
| Net income (loss) attributable to Viad | $13.8 | $23.5 | $(4.0) | $14.1 |
| Diluted EPS attributable to Viad | $0.67 | $1.15 | $(0.21) | $0.69 |
| Segment operating income | $46.6 | $38.8 | $35.3 | $27.9 |
- Q2 revenue grew 10.6%; first-half revenue grew 7.3%. Q2 segment operating income rose 20.1%, and first-half segment operating income rose 26.4%. Segment operating income is a company-defined non-GAAP measure.
- Q2 Pursuit revenue was $55.4 million, up 14.6%; Pursuit segment operating income was $11.3 million, up from $9.8 million. For the first half, Pursuit revenue was $66.1 million, up 13.8%, while the segment recorded a $1.7 million operating loss, similar to the prior-year loss.
- Cash and cash equivalents were $45.6 million at June 30, compared with $44.9 million at December 31, 2018. First-half operating cash flow was $39.5 million, versus $31.5 million; capital expenditures were $46.5 million.
- Total debt and finance lease obligations were $324.5 million, including $313.7 million of debt and $10.8 million of finance leases. The balance sheet classified $313.9 million as current; the filing says credit-facility borrowings are current because amounts are due within one year. The principal revolving facility matures in 2023.
- The revolving credit facility had $135.2 million of remaining capacity at June 30, after borrowings of $311.2 million and $3.6 million of letters of credit. Viad reported covenant compliance, a 10.84x interest-coverage ratio, and a 2.24x leverage ratio. Management said existing liquidity should cover operations and capital commitments for at least 12 months.
- Current assets were $274.1 million and current liabilities were $565.1 million. These include the current classification of revolving-facility borrowings; the filing does not provide a separate adjusted liquidity ratio.
Material changes versus comparable periods
- Q2 net income attributable to Viad fell $9.7 million despite higher revenue and segment results, primarily because of a $15.5 million charge for withdrawal from the Central States multi-employer pension plan ($11.6 million after tax).
- First-half results also included an $8.5 million legal-settlement charge ($6.4 million after tax). Together with the pension charge, these items were significant contributors to the shift from prior-year first-half profit to a loss.
- Revenue growth reflected positive GES show rotation, corporate-client growth and new wins, underlying Pursuit growth, and Pursuit acquisitions and hotel reopening. Unfavorable foreign exchange reduced revenue by about $4.9 million in Q2 and $9.4 million in the first half.
- Viad acquired a 60% interest in Mountain Park Lodges in June for approximately $76 million and acquired Belton Chalet in May for $3.2 million. Mountain Park Lodges contributed $2.8 million of Q2 revenue and $1.5 million of operating income after acquisition.
- First-half investing cash outflow rose to $118.7 million, chiefly reflecting $72.9 million of net cash paid for acquisitions and $46.5 million of capital spending. Borrowings provided $133.8 million during the first half.
- Adoption of lease-accounting rules in January 2019 added $59 million of operating lease right-of-use assets and lease liabilities to the balance sheet, with no material impact on the income statement.
Outlook, management commentary, risks and contingencies
- For 2019, Viad expected GES revenue to increase at a low-single-digit rate from 2018, with show rotation expected to reduce revenue by about $20 million. Management anticipated a low-single-digit increase in U.S. base same-show revenue and an unfavorable GES foreign-exchange impact of about $10 million on revenue.
- For 2019, Viad expected Pursuit revenue growth of 20% to 23.5%. The company expected $28 million to $32 million of incremental revenue from its Refresh-Build-Buy strategy, including $17 million to $19 million from Mountain Park Lodges and Belton Chalet, plus mid-single-digit growth across other attraction and hospitality assets. It expected about $1.5 million of FlyOver development start-up costs.
- GES completed restructuring actions, including a Las Vegas facility consolidation; management expected about $8 million in annualized savings. First-half restructuring charges were $5.1 million.
- Construction and expansion plans included FlyOver Iceland, expected to open in August 2019; FlyOver Las Vegas, expected in 2021; and FlyOver Toronto, expected in 2022. After quarter-end, Viad announced a 51% controlling interest in a planned Iceland geothermal lagoon, with an expected 2021 opening.
- Key risks cited include seasonality; dependence on large exhibition clients and show rotation; economic and industry conditions; travel or transportation disruptions; project delays and cost overruns; foreign exchange and interest-rate changes; labor costs, strikes, and pension obligations; competition; natural disasters; cybersecurity and data-protection exposure; and acquisition integration. Pursuit is especially seasonal: Viad said 87% of its 2018 revenue was earned in Q2 and Q3.
- Other exposures include up to $54.5 million of potential payments under guarantees of subsidiary lease obligations, $2.3 million of recorded environmental remediation liabilities related to previously sold operations, and self-insurance liabilities. The filing states that unresolved legal matters are not expected to materially affect the company after considering reserves and insurance.
- Following quarter-end, Viad amended its credit agreement on July 23, 2019, modifying terms related to withdrawal limits for single- and multi-employer ERISA plans. The filing describes the amendment but does not quantify its financial effect.
Important facts for investors to verify
- Confirm the impact and payment schedule of the $15.5 million pension-plan withdrawal liability and whether any further plan withdrawal obligations could arise.
- Review the final Mountain Park Lodges purchase-price allocation, acquisition performance, and the contribution of acquisitions to Pursuit’s growth and cash needs.
- Track debt classification, revolving-facility capacity, covenant headroom, interest costs, and the effect of the post-quarter credit-agreement amendment.
- Compare actual results with the 2019 GES and Pursuit outlook, including show rotation, foreign exchange, Pursuit seasonality, and expected restructuring savings.
- Monitor cash conversion and investment requirements for the planned attractions, including construction costs, start-up spending, and opening timelines.