Filing summary
Important issuer mismatch: The supplied filing is Viad Corp’s Form 10-Q, not a filing by Pursuit Attractions & Hospitality, Inc. The results below are for Viad Corp and its consolidated businesses, including its Pursuit segment.
Business context and reporting period
Quarterly report for the three and nine months ended September 30, 2017. Viad operates GES, a live-events services business, and Pursuit, a destination travel, hospitality, attractions and transportation business. Amounts below are in U.S. dollars; financial statement amounts are converted to millions unless noted.
Financial performance and liquidity
- Third quarter: Revenue was $339.1 million, down 11.3% year over year. Operating income was $43.7 million versus $56.1 million; net income attributable to Viad was $44.7 million versus $33.8 million. Diluted EPS was $2.19 versus $1.67. The quarter included a substantial Mount Royal Hotel insurance-related impairment recovery.
- Nine months: Revenue was $1,029.7 million, up 8.6%. Operating income was $91.3 million versus $79.3 million; net income attributable to Viad was $79.4 million versus $46.3 million. Diluted EPS was $3.89 versus $2.29.
- Segment operating income: $48.1 million in Q3, down from $59.4 million; $101.3 million for nine months, up from $87.6 million. Q3 GES recorded a $5.7 million segment operating loss, while Pursuit earned $53.9 million.
- Margins: Q3 GAAP operating margin was approximately 12.9%, compared with 14.7% a year earlier. Nine-month operating margin was approximately 8.9%, compared with 8.4%. These figures include reported results; the hotel insurance recovery materially affects comparability.
- Cash flow: Nine-month operating cash flow was $114.6 million, nearly unchanged from $115.4 million. Capital expenditures were $39.5 million. Cash rose to $53.5 million from $20.9 million at year-end; investing activities used $8.9 million and financing activities used $75.6 million.
- Debt and liquidity: Debt and capital lease obligations totaled $185.2 million, down from $249.2 million at December 31, 2016. Viad reported $68.7 million of remaining capacity on its main revolving facility and $38.0 million available under Brewster’s facility. The main facility’s leverage ratio was 1.26x and fixed-charge coverage ratio 3.18x; Viad reported compliance with covenants. Management said available liquidity should fund operations and capital commitments for at least 12 months.
- Other: Effective tax rates were 30.4% for Q3 and 29.0% for the nine months, below the respective prior-year rates of 33.8% and 33.1%. Dividends declared were $0.10 per share in Q3 and $0.30 for nine months.
Material changes versus prior comparable periods
- Q3 revenue fell mainly because GES faced approximately $75 million of negative show rotation; acquisitions, underlying growth and favorable foreign exchange partly offset the decline. Nine-month revenue growth reflected acquisitions and underlying growth, partly offset by unfavorable foreign exchange and approximately $6 million of negative show rotation.
- GES Q3 revenue declined 19.1% and its segment operating result swung to a loss, mainly from show rotation. For nine months, GES revenue rose 7.6% and segment operating income rose 11.6%.
- Pursuit revenue increased 9.8% in Q3 and 11.5% for nine months. Growth reflected attractions, acquisitions and favorable currency effects; downsizing of Brewster’s package tours and the Mount Royal Hotel closure were offsets.
- Q3 net income increased despite lower revenue and segment operating income, primarily because of the Mount Royal Hotel insurance recovery. The nine-month earnings increase also reflected this recovery, higher segment income and lower restructuring charges.
- Debt declined with net repayments. Cash generation from operations was broadly stable, while capital spending rose to $39.5 million from $32.6 million.
Outlook, commentary and risks
- For full-year 2017, management expected GES revenue growth of 6%–7% and Pursuit revenue growth of 12%–14%. These are management forecasts, not guaranteed outcomes. GES guidance included $43–$45 million of incremental revenue from ON Services and Poken; Pursuit guidance reflected acquisitions, organic growth, package-tour reductions, and the hotel closure.
- Management expected GES show rotation to reduce 2017 revenue by approximately $10 million, and Brewster package-tour downsizing and the Mount Royal closure to reduce Pursuit revenue by approximately $13 million and $5 million, respectively. The hotel was expected to remain closed until mid-2018.
- The Mount Royal Hotel fire insurance claims were resolved for $36.3 million. The filing recorded $29.3 million of impairment recovery, $2.2 million of business-interruption gain, $1.1 million as a reduction of non-capitalizable costs, and $1.5 million as deferred revenue. This unusual, non-recurring recovery is important when assessing reported earnings and cash flows.
- Principal disclosed risks include show timing and rotation, tourism demand and weather or natural disasters, foreign exchange movements, labor relations and possible work stoppages, underfunded multi-employer pension plans, interest rates, environmental and legal claims, and execution of acquisitions and growth initiatives. Viad had about $49 million of cash held outside the U.S.; it estimated approximately $1.6 million of incremental tax if specified permanently reinvested earnings were repatriated.
- Viad reported $2.4 million of environmental remediation liabilities related to previously sold operations and up to $7.5 million of potential payments under lease guarantees. Management did not expect disclosed litigation or environmental matters, after reserves and insurance, to materially affect results. The amount of any additional multi-employer pension funding was not ascertainable.
- A November 3, 2017 subsequent event: Viad acquired a 54.5% controlling interest in Iceland’s Esja Attractions for approximately $9.5 million; its FlyOver Iceland attraction was expected to open in 2019.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is Viad Corp’s, despite the request naming Pursuit Attractions & Hospitality, Inc.
- Separate underlying operating performance from Mount Royal fire insurance recoveries and confirm the treatment and timing of deferred proceeds.
- Review GES show rotation, segment profitability, and the assumptions underlying full-year guidance.
- Check the maturity and planned extension of Brewster’s revolving facility, covenant headroom, and the classification of revolving borrowings as current liabilities.
- Assess foreign-exchange exposure, labor and pension-plan risks, and the financial effects of the hotel closure and package-tour downsizing.