Viad Corp Reports 2017 Third Quarter Results

Pursuit Growth Exceeds Prior Guidance

GES Delivers In-Line Results

PHOENIX--(BUSINESS WIRE)-- Viad Corp (NYSE: VVI) today announced third quarter 2017 net income attributable to Viad of $44.7 million, or $2.19 per share, which included an impairment recovery of $24.5 million pre-tax ($17.8 million after-tax, or $0.87 per share) primarily related to insurance proceeds received for fire damage to the company’s Mount Royal Hotel. Income before other items of $27.3 million*, or $1.33 per share*, was in line with the company’s prior guidance of $1.23 to $1.38 per share and lower than the 2016 third quarter due to negative show rotation at GES.

			Q3 2017				Q3 2016				y-o-y Change
$ in millions, except per share data
Revenue			$	339.1			$	382.5			-11.3	%
Organic Revenue*				312.2				372.1			-16.1	%
Net Income Attributable to Viad			$	44.7			$	33.8			32.2	%
Income Before Other Items*				27.3				35.2			-22.6	%
Income Before Other Items per Share*				1.33				1.74			-23.6	%
Adjusted Segment Operating Income*			$	48.2			$	59.4			-19.0	%
Adjusted Segment EBITDA*				64.0				72.0			-11.2	%

• Revenue of $339.1 million decreased 11.3% ($43.4 million) year-over-year, or 16.1% ($59.9 million) on an organic basis (which excludes the impact of acquisitions and exchange rate variances).
  • The organic revenue decline primarily reflects negative show rotation at GES, partially offset by solid underlying growth at both business units.
  • The acquisitions of ON Services (August 2016), FlyOver Canada (December 2016) and the Poken event visitor engagement technology (March 2017) contributed incremental revenue of $13.1 million.
  • Exchange rate variances had a favorable impact on revenue of $3.4 million.
• Adjusted segment operating income, adjusted segment EBITDA and income before other items declined compared to the prior year quarter primarily due to the decrease in revenue.

Steve Moster, president and chief executive officer, commented, “Viad delivered solid third quarter results with Pursuit exceeding the high end of our prior guidance range and GES delivering in-line results. Overall, 2017 is shaping up to be a strong year of profitable growth for Viad and continued progress against our strategic goals. With our focused investments and disciplined management of the business, we are confident in our ability to continue delivering value for our customers and shareholders.”

GES Results

Moster said, “GES delivered third quarter results that were in-line with our prior guidance. Continued strength from new business wins and same-show growth, combined with incremental revenue from the acquisition of ON Services, helped to offset part of the expected revenue decline from negative show rotation and some non-recurring business produced in the prior year quarter. Revenue from our recently acquired businesses came in short of our prior expectations primarily driven by lower than anticipated short-term bookings at ON Services.”

Moster continued, “Overall, we remain encouraged by the health of the industry and our progress toward our strategic goal of positioning GES as the preferred global, full-service provider for live events. By adding complementary and higher-margin services to our suite of offerings, we are driving margin expansion and creating new revenue opportunities. Through the first nine months of 2017, GES has delivered year-over-year revenue growth of 7.6% and a 90 basis point improvement in adjusted EBITDA margin.”

• GES revenue of $232.1 million decreased 19.1% ($54.9 million) year-over-year. On an organic basis, which excludes the impact of acquisitions and exchange rate variances, revenue decreased 23.5% ($65.0 million).
  • U.S. organic revenue decreased 25.4% ($56.4 million*) primarily due to negative show rotation of approximately $63 million. New business wins and same-show growth more than offset other non-recurring business during the 2016 third quarter. Base same-show revenue growth of 1.6% was below the recent mid-single digit run-rate primarily due to one show with a reduced scope of services due to a venue change. Excluding that event, base same-show growth was 4.2%.
  • International organic revenue decreased 13.7% ($8.3 million*) primarily due to negative show rotation of approximately $12 million, partially offset by new business wins.
• GES adjusted segment operating loss was $5.7 million* as compared to adjusted segment operating income of $15.3 million in the 2016 third quarter. On an organic basis, GES adjusted segment operating results declined by $19.3 million versus the 2016 quarter.
  • U.S. organic adjusted segment operating results declined by $15.9 million to a loss of $1.8 million* primarily due to lower revenue driven by negative show rotation, partially offset by lower performance-based incentives and income from a contract settlement.
  • International organic adjusted segment operating results declined by $3.4 million to a loss of $2.8 million* primarily due to lower revenue driven by negative show rotation.
• The acquisitions of ON Services and the Poken event visitor engagement technology contributed revenue of $19.2 million during the third quarter of 2017 versus $10.4 million from a partial quarter of ON Services results in the prior year quarter. ON Services and Poken generated a combined adjusted segment operating loss of $1.3 million during the 2017 third quarter, with adjusted segment EBITDA of $1.5 million.

Pursuit Results

Moster said, “Pursuit delivered strong third quarter results that exceeded our prior guidance. Revenue grew 9.8% with a $9.7 million increase in adjusted segment operating income. Our attractions performed especially well during the quarter, with year-over-year growth in both passengers and revenue per passenger. Pursuit’s ability to deliver such strong results, despite some disruptions from extreme forest fire activity during the quarter, is a testament to the strength of our offerings, our Refresh, Build, Buy strategy and our revenue management initiatives.”

(1) Same-store RevPAR is calculated as total rooms revenue divided by the total number of room nights available for all comparable Pursuit properties during the periods presented, expressed on a constant currency basis. Comparable properties are defined as those owned by Viad and operating for the entirety of both periods. Accordingly, the third quarter comparisons exclude the Mount Royal Hotel (closed for renovation due to the fire).

(2) Same-store revenue per passenger is calculated as total attractions revenue divided by the total number of passengers for all comparable Pursuit attractions, expressed on a constant currency basis. Comparable attractions are defined as those owned by Viad for the entirety of both periods. Accordingly, the third quarter comparisons exclude FlyOver Canada (acquired December 2016).

• Pursuit revenue of $107.0 million increased $9.6 million (9.8%) year-over-year. On an organic basis, which excludes the impact of acquisitions and exchange rate variances, revenue increased $3.2 million (3.3%) primarily due to strong performance from our attractions which more than offset revenue declines from the previously announced downsizing of the lower-margin package tours line of business and the fire-related closure of the Mount Royal Hotel.
• Pursuit adjusted segment operating income of $53.9 million* increased $9.7 million year-over-year. On an organic basis, adjusted segment operating income increased $6.2 million primarily due to the increase in revenue from high-margin attractions.
• The acquisition of FlyOver Canada contributed revenue of $4.2 million, adjusted segment operating income of $2.2 million* and adjusted segment EBITDA of $2.9 million* during the quarter.

Mount Royal Hotel Fire Update

On December 29, 2016, the Mount Royal Hotel was damaged by a fire and closed. In the fourth quarter of 2016, as a result of the fire, Viad recorded an asset impairment loss of $2.2 million and an offsetting impairment recovery (and related insurance receivable) as the losses related to the fire were covered by Viad’s property and business interruption insurance.

During July 2017, Viad resolved its property and business interruption insurance claims for a total of $36.3 million, inclusive of partial recoveries received during the first and second quarters of 2017. The recoveries were recorded as follows in Viad’s financial statements:

The majority of the property’s retail tenants have resumed their operations. The hotel itself is expected to remain closed until mid-year 2018 as the company works to reconstruct and upgrade the property for an enhanced guest experience.

Management anticipates recognizing approximately $0.5 million of the deferred business interruption recovery during the 2017 fourth quarter, with approximately $1 million being deferred to the first half of 2018.

Cash Flow / Capital Structure

• Cash flow from operations was $55.4 million for the 2017 third quarter, including $2.6 million of insurance proceeds related to the Mount Royal Hotel fire representing business interruption. The remaining $24.7 million of insurance proceeds, representing impairment recoveries, was recorded as cash flow from investing activities.
• Capital expenditures for the quarter totaled $12.0 million, comprising $4.0 million for GES, $7.8 million for Pursuit and $0.2 million for Viad’s corporate office.
• Return of capital totaled $2.0 million for the quarter (which represented quarterly dividends of $0.10 per share). Viad had 440,540 shares remaining under its current repurchase authorization at September 30, 2017.
• Debt payments (net) totaled $57.7 million for the quarter.
• Cash and cash equivalents were $53.5 million, debt was $186.3 million and the debt-to-capital ratio was 28.4% at September 30, 2017.

Business Outlook

Guidance provided by Viad is subject to change as a variety of factors can affect actual results. Those factors are identified in the safe harbor language at the end of this press release.

Viad has provided the following forward-looking non-GAAP financial measures: Adjusted Segment EBITDA, Adjusted Segment Operating Income and Income Before Other Items. The company does not provide reconciliations of these forward-looking non-GAAP financial measures to the most directly comparable GAAP financial measures because, due to variability and difficulty in making accurate forecasts and projections and/or certain information not being ascertainable or accessible, not all of the information necessary for quantitative reconciliations of these forward-looking non-GAAP financial measures to the most directly comparable GAAP financial measures are available to the company without unreasonable efforts. Specifically, recent acquisitions include preliminary recordings of the fair values of the assets acquired and liabilities assumed as of the acquisition date. Purchase price allocations are subject to change within the measurement period (up to one year from the acquisition date) as the assessment of property and equipment, intangible assets, and working capital are finalized. Consequently, any attempt to disclose such reconciliations would imply a degree of precision that could be confusing or misleading to investors. It is probable that the forward-looking non-GAAP financial measures may be materially different from the corresponding GAAP financial measures.

Moster said, “We continue to expect strong full year growth in 2017 and our outlook for total company revenue and EBITDA remains relatively unchanged. Pursuit has significantly exceeded our expectations thus far and, as a result, we have increased our full year outlook for that business unit. At the same time, we have reduced our full year outlook for GES because we are not capturing synergies from the ON Services acquisition as quickly as we had previously anticipated. Having successfully capitalized on some synergy opportunities to-date, we remain confident in our ability to capture more upside from this business in the future. The scale that ON Services brings to our in-house audio-visual capabilities is making a difference as we go to market to win new corporate events and expand our scope of services with existing clients.”

2017 Full Year Guidance

• Consolidated revenue is expected to increase by approximately 7% to 8% from 2016 full year revenue, driven primarily by incremental contributions from acquisitions completed during 2016 and continued growth in the underlying business, partially offset by unfavorable currency translation of approximately $5 million, negative show rotation of about $10 million and a $13 million reduction in revenue from package tours as the company completes the rationalization of that line of business in Canada.
• Consolidated adjusted segment EBITDA is expected to be in the range of $153 million to $155 million, as compared to prior guidance of $153.5 million to $157.5 million and $130.2 million* in 2016. The reduction versus prior guidance primarily reflects a lower EBITDA contribution from ON Services than previously anticipated as the company continues to focus on integration efforts that will drive future revenue and cost synergies. Largely offsetting that reduction is an improved outlook for Pursuit.

• Exchange rates are assumed to approximate $0.81 U.S. Dollars per Canadian Dollar and $1.31 U.S. Dollars per British Pound during the 2017 fourth quarter. Exchange rate variances are expected to impact 2017 full year results as follows:

The outlook for Viad’s business units is as follows:

• The GES acquisitions of ON Services (August 2016) and the Poken event visitor engagement technology (March 2017) are expected to provide incremental revenue of $43 million to $45 million, incremental adjusted segment EBITDA of $5 million to $7 million and an incremental adjusted segment operating loss of $2.5 million to $0.5 million.

• GES show rotation is expected to have a net negative impact on full year revenue of about $10 million versus 2016. Show rotation refers to shows that occur less frequently than annually, as well as annual shows that shift quarters from one year to the next.

• GES U.S. base same-show revenue is expected to increase at a mid-single digit rate.
• The Pursuit acquisitions of CATC (March 2016) and FlyOver Canada (December 2016) are expected to provide incremental revenue of $10 million to $11 million and incremental adjusted segment EBITDA of $2 million to $3.5 million. Combined, these acquisitions are expected to contribute adjusted segment operating income that is in line with 2016, which reflects an incremental first quarter seasonal operating loss of $2.3 million from CATC.
• Pursuit’s revenue is expected to be negatively impacted by approximately $13 million as the company completes the previously announced downsizing of the lower-margin package tours line of business, and by approximately $5 million due to the fire-related closure of the Mount Royal Hotel which is expected to re-open mid-year 2018. These declines are expected to be offset by growth across the rest of the Pursuit business, with particularly strong growth at the newly renovated Banff Gondola.
• The Pursuit guidance ranges include approximately $1 million in revenue and approximately $3 million in adjusted segment EBITDA related to the Mount Royal Hotel, which reflects the 2017 portion of business interruption insurance recoveries (including both business interruption gains for lost profits and contra-expense for on-going operating costs) and the re-opening of the property’s retail tenants and dining outlets. The guidance also includes approximately $18 million in capital expenditures related to the Mount Royal Hotel, including approximately $10.5 million incurred during the first nine months.

• Corporate activities expense is now expected to approximate $13 million versus the company’s prior guidance of $11 million to $12 million. This increase primarily reflects higher expense for performance-based incentives driven by Viad’s stock price appreciation and is inclusive of acquisition transaction-related costs of $0.6 million incurred during the first nine months.
• The effective tax rate on income before other items is assumed to approximate 31% to 32%.

2017 Fourth Quarter Guidance

• GES fourth quarter revenue is expected to increase primarily as a result of higher international revenues, including $4.5 million from more favorable currency translation. The expected decline in GES operating income primarily reflects a less favorable mix of revenue, higher overhead costs and a $1 million increase in depreciation and amortization.
• Pursuit fourth quarter results are expected to increase primarily as a result of incremental revenue of approximately $2 million from the acquisition of FlyOver Canada and continued growth from the recently renovated Banff Gondola, partially offset by the fire-related closure of the Mount Royal Hotel and the downsizing of package tours, which are anticipated to negatively impact fourth quarter revenue by approximately $0.6 million and $0.5 million, respectively.
• Viad’s loss per share before other items is also expected to be impacted by interest income of $1 million received in the 2016 fourth quarter related to a favorable legal judgment, and an increase in corporate expenses of about $500,000 in the 2017 fourth quarter primarily due to higher performance-based incentives driven by Viad’s stock price appreciation.

Conference Call and Web Cast

Viad Corp will hold a conference call with investors and analysts for a review of third quarter 2017 results on Thursday, October 26, 2017 at 5:00 p.m. (ET). To join the live conference, call (877) 917-8933, passcode “Viad”, or access the webcast through Viad’s Web site at www.viad.com. A replay will be available for a limited time at (800) 679-9657 (no passcode required) or visit the Viad Website and link to a replay of the webcast.

About Viad

Viad (NYSE: VVI) generates revenue and shareholder value through its two business units: GES and Pursuit. GES is a global, full-service live events company offering a comprehensive range of services to the world's leading brands and event organizers. Pursuit is a collection of iconic travel experiences in Alaska, Montana and Western Canada that showcase the best of Banff, Jasper, Waterton Lakes, Glacier, Denali and Kenai Fjords national parks. Viad is an S&P SmallCap 600 company. For more information, visit the company's Website at www.viad.com.

Forward-Looking Statements

As provided by the safe harbor provision under the Private Securities Litigation Reform Act of 1995, Viad cautions readers that, in addition to historical information contained herein, this press release includes certain information, assumptions and discussions that may constitute forward-looking statements. These forward-looking statements are not historical facts, but reflect current estimates, projections, expectations, or trends concerning future growth, operating cash flows, availability of short-term borrowings, consumer demand, new or renewal business, investment policies, productivity improvements, ongoing cost reduction efforts, efficiency, competitiveness, legal expenses, tax rates and other tax matters, foreign exchange rates, the level of interest rates and the realization of restructuring cost savings. Actual results could differ materially from those discussed in the forward-looking statements. Viad’s businesses can be affected by a host of risks and uncertainties. Among other things, natural disasters, gains and losses of customers, consumer demand patterns, labor relations, purchasing decisions related to customer demand for exhibition and event services, existing and new competition, industry alliances, consolidation and growth patterns within the industries in which Viad competes,acquisitions, capital allocations, adverse developments in liabilities associated with discontinued operations and any deterioration in the economy, may individually or in combination impact future results. In addition to factors mentioned elsewhere, economic, competitive, governmental, technological, capital marketplace and other factors, including terrorist activities or war, a pandemic health crisis and international conditions, could affect the forward-looking statements in this press release. Additional information concerning business and other risk factors that could cause actual results to materially differ from those in the forward-looking statements can be found in Viad’s annual and quarterly reports filed with the Securities and Exchange Commission.

Information about Viad Corp obtained from sources other than the company may be out-of-date or incorrect. Please rely only on company press releases, SEC filings and other information provided by Viad, keeping in mind that forward-looking statements speak only as of the date made. Viad undertakes no obligation to update any forward-looking statements, including prior forward-looking statements, to reflect events or circumstances arising after the date as of which the forward-looking statements were made.

* Refer to Table Two of this press release for a discussion and reconciliation of this non-GAAP financial measure to its most directly comparable GAAP financial measure.