Viad Corp (VVI) 2015 Q4 法說會逐字稿

Welcome to the Viad Corp fourth-quarter earnings conference call.

(Operator Instructions) This conference is being recorded.

If you have any objections, please disconnect at this time.

I will now turn the call over to Ms. Carrie Long.

Ma'am, you may begin.

Thank you and good afternoon to those of you on the call.

Thanks for joining us.

During the call, you will be hearing from Steve Moster, Viad's President and CEO, and Ellen Ingersoll, our Chief Financial Officer.

During the call, certain statements will be made that are not historical facts and they may constitute forward-looking statements.

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 SEC.

Additionally, we will be referring to certain non-GAAP measures during the call.

A discussion and reconciliation of those measures can be found in Table 2 of our earnings press release, which is available on our website at www.viad.com.

With that, I'll turn the call over to Steve.

Thanks.

And thank you, everybody, for joining us on today's call.

We delivered strong results for the 2015 fourth quarter and full year.

And we met the financial targets that we set out at the beginning of 2015.

Despite various headwinds, including a revenue decline of about $110 million from a combination of show rotation and exchange rate variances, I am very proud to say that we were able to hold adjusted segment EBITDA relatively flat to 2014 at both business groups.

These results reflect the strength of our businesses, good industry fundamentals, and execution against our strategic growth plans.

Our marketing and events group benefited from strong same-show growth, new business wins, and solid performance from our 2014 acquisitions.

For the year, GES delivered EBITDA of $54.8 million, which essentially was flat to 2014, despite a revenue headwind of about $97 million from show rotation and exchange rates.

GES's US-based same-show growth was 8% for the full year.

Similarly, CEIR, the Center for Exhibition Industry Research, has reported positive growth in the industry for 2015 and has forecasted continued growth in 2016.

Our travel and recreation group also delivered essentially flat full-year EBITDA of $35.8 million on a revenue decline of about $8.3 million versus 2014.

Our focus on margin improvement more than offset revenue headwinds of about $14 million from exchange rates and about $3.5 million due to the combination of forest fire activity at the Glacier Park during our peak season and the closure of the Banff Gondola for renovations during the fourth quarter.

We saw strong growth from Brewster, where revenue was up 6.4% in local currency, led by its high-margin attractions.

Alaska Denali Travel also posted strong revenue growth of 8%, primarily due to increased revPAR.

The industry trends overall are positive, as visitation of the national parks continues to grow.

The resiliency of our travel and recreation group is a testament to the great experiences that we deliver for our guests and the iconic locations in which we operate.

In 2015, we made significant progress against our growth strategy.

Our strategy for the travel and recreation group is to scale the business to more than twice its current size through our refresh-build-buy initiatives.

During 2015, we launched a major refresh project to renovate and upgrade our leading attraction, the Banff Gondola.

The project is progressing well and we are excited to unveil the new and improved experience later this year.

We also announced plans last quarter to streamline our package tours and transportation services at Brewster.

While this will have a negative impact on 2016 revenue, it will free up capital and other resources to drive growth in higher-margin areas.

Several weeks ago, we announced the acquisition of Maligne Lake Tours, which provides interpretive boat tours and related services at the largest lake in Jasper National Park.

Maligne Lake Tours is a world-class asset and a natural fit with our existing Jasper- and Banff-based businesses, offering cross-selling opportunities and operational synergies in a geography and a service line that we know very well.

At GES, our strategy is to leverage our existing leading market share position within our core services to drive growth in our adjacent areas that offer higher margins and stronger growth prospects.

In support of the strategy, we completed four important acquisitions during late 2014 that bring leading capabilities in event housing, registration and data, and audiovisual services.

These acquisitions were successfully integrated during 2015 and are helping to position GES as the preferred global full-service provider for the live events market.

Through the strength of our combined offering, we have had numerous wins for 2016 and beyond, both from cross-selling our full range of services and from securing new business within corporate and consumer events.

I'd like to give you a few examples.

We were able to secure a new contract for the registration and the combination services for an existing GES client, Tarsus, for Labelexpo Americas in 2016.

We also leveraged our position as the audiovisual service provider on Solar Power International to win the exhibition-contracting services on that event for 2016 through 2018.

We were able to extend our contract to produce one of the premier corporate events, Tableau's annual US Customer Conference, through 2017.

And we secured the rights to produce and tour a new consumer event based on the blockbuster movie Avatar that will launch later this year.

While we have made significant progress against our growth strategy, we still see opportunities to add capabilities in audiovisual and event technologies.

And we remain active on the M&A front, pursuing deals that are a right strategic fit for us while also meeting our return requirements.

Looking ahead, we expect significant jump in revenue and profit.

The midpoint of our 2016 guidance range for the consolidated segment operating income is just over 40% higher than 2015.

This growth reflects the benefit of our cross-selling and new business wins at GES, the impact of a stronger show rotation year, and the acquisition of Maligne Lake Tours as well as the expectation that we will continue to see favorable trends in same-show growth and park visitation.

As we have discussed in the past, show rotation will be a significant driver of growth in 2016, to the tune of about $50 million to $55 million in revenue.

It's important to note that this isn't just a single one-year pop for us.

We are coming off a trough year for show rotation in 2015 and have a stronger show schedule for the next three years.

In summary, we have very good reasons to be optimistic about 2016 and beyond, and I want to thank the entire Viad team for their contributions to our success.

The execution of our growth strategy is resulting in increased value for our shareholders, additional benefits for our customers, and exciting opportunities for our employees.

And now I'll turn it over to Ellen to provide more color on our financials.

Ellen?

Thanks, Steve.

For the fourth quarter, our income before other items came in just above our prior guidance range at $0.01 per share on revenue of $251.7 million and adjusted segment operating income of $4.8 million.

As compared to the 2014 fourth quarter, our income before other items increased by $0.19 per share and adjusted segment operating income increased $4.7 million on a revenue increase of $28.5 million or 12.8%.

The year-over-year growth was driven by GES, which experienced a revenue increase of $31.1 million or 14.6% versus the 2014 fourth quarter.

Show rotation resulted in a net increase in revenue of about $9 million.

Unfavorable currency translation impacted GES's revenue by $5.8 million, and the acquisitions of onPeak and N200 contributed incremental revenue of $3.2 million versus the 2014 fourth quarter.

Excluding those three factors, GES's fourth-quarter revenue was up about $25 million or about 12%, reflecting US-based same-show revenue growth of 13.4%, new business wins, and increased sales to corporate clients.

GES's fourth-quarter adjusted segment operating income increased by $4.8 million, primarily reflecting higher revenue, partially offset by higher performance-based incentives.

The travel and recreation group had a fourth-quarter revenue decline of $2.6 million, of which approximately $1.7 million was due to the closure of the Banff Gondola for renovation work and $1.1 million was due to unfavorable exchange rate variances.

The seasonal fourth-quarter operating loss increased by $0.1 million on lower revenue.

For the full year, our income before other items was $1.46 per share on revenue of $1.1 billion, adjusted segment EBITDA of $90.6 million, and adjusted segment operating income of $55.5 million.

As compared to 2014, revenue increased 2.3% and adjusted segment EBITDA decreased by $0.7 million or 0.8%.

The slight decline in EBITDA was primarily driven by higher performance-based incentives, reflecting stronger achievement against our targets in 2015 as compared to 2014.

Adjusted segment operating income declined by $5.2 million and income before other items declined by $0.29, primarily due to additional non-cash depreciation and amortization expense of $7.3 million associated with acquisitions completed during the second half of 2014.

GES's full-year revenue was $976.9 million, which was up $32.4 million versus 2014.

Show rotation resulted in a net decrease in revenue of about $71 million.

Unfavorable currency translation impacted GES's revenue by $26 million and the acquisitions of onPeak, Blitz, and N200 contributed incremental revenue of $48.3 million versus 2014.

Excluding those three factors, GES's revenue was up about $81.1 million or 8.7%, reflecting US-based same-show revenue growth of 8%, new business wins, and increased sales to corporate clients.

GES's full-year adjusted segment EBITDA was $54.8 million, which was down $0.1 million or 0.2% from 2014, primarily reflecting increased compensation expense, including higher performance-based incentive.

Adjusted segment operating income decreased by $4.8 million to $27.7 million, reflecting $7.1 million of additional depreciation and amortization expense from the acquisitions completed in the last half of 2014.

The travel and recreation group posted full-year revenue of $112.2 million, which was down $8.3 million versus 2014.

Unfavorable currency translation impacted T&R revenue by $13.7 million and the acquisition of the West Glacier Properties contributed incremental revenue of $0.8 million versus 2014.

Excluding those two factors, revenue was up $4.5 million or 3.9%.

As Steve discussed earlier, Brewster and Alaska Denali Travel both experienced strong organic growth, while Glacier Park was negatively impacted by forest fire activity during its peak season.

And as reminder, we previously quantified the revenue impact of the fires at approximately $1.9 million during the third quarter.

Travel and recreation full-year adjusted segment EBITDA was $35.8 million and segment operating income was $27.8 million, down $0.6 million and $0.3 million, respectively, versus 2014.

Excluding unfavorable exchange rate variances, adjusted segment EBITDA increased $4.9 million and segment operating income increased $4.3 million, primarily reflecting strong flowthrough on attractions revenue growth.

Now I will cover some cash flow and balance sheet items before discussing 2016 guidance.

[Mid] consolidated cash flow from operations was $60.7 million for the 2015 full year, up from $58.1 million in 2014, primarily due to favorable working capital.

And capital expenditures totaled $29.8 million.

At December 31, our cash and cash equivalents totaled $56.5 million and debt was $129 million with our debt-to-capital ratio of 27.8%.

Now moving on to guidance.

For the first quarter, we are expecting a loss per share of $0.33 to $0.23 as compared to a loss of $0.12 in the 2015 quarter.

We expect lower first-quarter results from both business groups, which will be more than offset over the balance of the year.

For GES, we expect first-quarter revenue to decrease by approximately $7 million to $17 million from the 2015 quarter, with an adjusted segment operating income decrease of approximately $1.5 million to $4 million.

Negative show rotation and unfavorable exchange rate variances are expected to impact GES's revenue by about $10 million and $5 million, respectively, versus the 2015 quarter.

Travel and recreation group revenue is expected to decline by $1.5 million to $3.5 million with a drop in operating results of $1.2 million to $2.2 million.

The Gondola closer and unfavorable exchange rate variances are expected to impact T&R's revenue by about $1.8 million and $500,000, respectively.

For the 2016 full year, we expect consolidated revenue to increase at a mid- to high-single-digit rate from 2015, with an increase in adjusted segment EBITDA of approximately $20 million to $25 million.

Adjusted segment operating income is expected to be in the range of $75.5 million to $80.5 million.

And as Steve mentioned earlier, the midpoint of this range reflects growth of just over 40% relative to 2015.

This guidance anticipates that exchange rates will present a more meaningful headwind than previously anticipated when we held our third-quarter earnings call.

Consolidated revenue is expected to be negatively impacted by about $25 million, including $17 million for GES and $8 million for the travel and recreation group.

The impact on consolidated segment operating income is expected to be about $3 million, with an impact on income before other items of about $0.10 per share.

These impacts assume exchange rates of $0.70 for the Canadian dollar and $1.45 for the British pound.

A $0.01 change in the Canadian dollar would affect our full-year revenue by about $1.5 million to $2 million and a $0.01 change in the British pound would affect our full-year revenue by about $1 million to $1.5 million.

For GES, we expect full-year revenue to grow at a high-single-digit rate from 2015, with growth in adjusted segment operating income of about $23 million to $26 million.

GES's 2016 full-year adjusted segment operating margin is expected to approximate 5%, up from 2.8% in 2015.

This strong year-over-year growth will be driven primarily by a positive show rotation of about $50 million to $55 million, new business wins, and continued same-show growth, partially offset by unfavorable exchange rate variances.

Our outlook for show rotation revenue by quarter can be found in the earnings press release.

For the travel and recreation group, we expect full-year revenue to decline by a low-single-digit rate from 2015, and this is due to a few factors.

Number one: revenue from Brewster's package tours and transportation lines of business are expected to decline by $7 million to $9 million as we streamline those operations to focus on higher-return opportunities.

Number two: exchange rates are expected to be unfavorable, as I previously discussed.

And number three: we expect a modest full-year revenue decline of about $1 million at the Banff Gondola due to renovation closures early in the year, partially offset by stronger demand for the new experience during the peak third quarter.

These factors will be partially offset by the acquisition of Maligne Lake Tours, which is expected to contribute revenue of about $5 million during 2016.

Adjusted segment operating income is expected to decrease by about $1.3 million to $3.3 million from 2015, primarily due to unfavorable exchange rates and the gondola renovations.

Adjusted segment EBITDA margins are expected to be in line with or better than the 31.9% margin realized in 2015.

Our full-year cash flow from operations is expected to be in the range of $80 million to $90 million and capital expenditures are expected to be about $45 million to $49 million.

Additional 2016 guidance can be found in the earnings press release.

And back to you, Steve.

Thanks, Ellen.

In closing, I'm very excited about our strategic direction and the progress we're making to deliver strong shareholder value.

We've got a big year ahead of us in terms of growth and strategic initiatives.

And we continue to pursue attractive acquisitions for both GES and the travel and recreation group.

Again, I want to thank the entire Viad team for driving strong results and for their commitment to our strategy.

And with that, Sam, I'd like to open up the call for questions.

(Operator Instructions) John Healy, Northcoast Research.

Congrats on another strong year, guys.

I wanted to ask a question just from an industry outlook standpoint.

Steve, I know you mentioned the industry outlook from CEIR.

I was hoping you could expand on that; I haven't seen those numbers.

Maybe you can talk to what their outlook is and maybe how that relates to your same-show revenue outlook.

Because when I look at the benefit of show rotation, it seems like the outlook for same shows is a little bit more in that low- to mid-single-digit growth rather than the upper-single-digits or the double digits that you have been seeing the last few quarters.

Right.

So CEIR, which is the Center for Exhibition Industry Research.

Each year, they look -- they do a forecast, which looks at the number, the growth in number of attendees, the number of exhibitors, the square footage, and then the overall revenue for the industry in total.

What they are forecasting going forward is lower single-digit-growth in those categories.

What we experienced in 2015, as we mentioned earlier on the call, was an 8% same-show growth.

That includes, John, not only the growth in, say, the square footage, but also pricing increases and us being able to sell additional services into our accounts.

So as I look forward, I think CEIR had a consistent view of 2015 and 2016 going forward.

They've been in that low-single-digit growth.

And so what we've seen so far is the continuation of that mid-single-digit growth for our events.

Okay, fair enough.

And I wanted to ask just a little bit about the entrance into the audiovisual market.

I was hoping you could give us a little bit of a report card grade there in terms of how you think the team is doing.

And maybe, from a penetration standpoint, how far you think you've gotten in terms of creating awareness amongst the portfolio of shows that you guys help put on every year.

Yes, I'll separate the question into two parts, John.

We did -- the first part would be what we are doing in EMEA, which is where we did an acquisition at the end of 2014.

That acquisition of Blitz Communication allowed us to get scale very quickly within the UK and European market.

A lot of their revenue was tied to more corporate events than exhibitions.

And so we've done a good job of cross-selling into the exhibition space.

I still believe there's a lot of room for us to continue to cross-sell in the UK and European market for that side of our business.

In the US, we have really launched audiovisual services organically.

And while we have been successful and we've had high growth year over year, it's -- we are at low penetration numbers for our total -- for our cross-selling and on our events.

And so I see a long runway ahead of us for that side of the business.

Got you.

And then just a final question.

From a profit contribution standpoint, I know the third quarter looks to be the big show rotation quarter for you.

Is there a way that you could maybe help us frame the way profits maybe should be contributed during that quarter or maybe size that impact on the business just as we are laying out the quarters for you guys?

I know you've provided annual guidance.

But any sort of color that you could provide us in terms of how that all comes together for the year?

Yes.

I'll talk a little bit.

I'll let Ellen jump in as well.

Obviously, we're expecting a $50 million to $55 million rotation in the full year.

As we talked about, the first quarter has some negative rotation in that quarter, roughly $10 million.

Those are events that either aren't happening, so they are non-annual events, or there's a shift in the calendar from one quarter to another.

The bulk of our positive rotation comes in the third quarter.

There's a number of events that make it up.

The largest ones, obviously, are the International Manufacturing Technology Show as well as Mine Expo.

I don't know, Ellen, if you want to comment on --

Yes; I was just going to comment that's where the two large show rotation shows come through.

And we do typically see about a 20% throughput on those.

Okay, that's helpful.

Thank you.

Ian Corydon, B. Riley.

Could you just talk about, on the marketing and event side, what the pricing environment is like these days?

The pricing environment is stable.

Within the exhibition side of our business, we have high client retention rates for our existing clients.

We have been able to win some new businesses and some new services from our existing clients.

I would classify that the overall pricing environment as very stable.

Okay, good.

And then on Maligne, how quick can you start cross-selling with your other properties in the area?

And I think you said there were some operational synergies.

Maybe you could just talk about what those might be?

Sure.

Well, we closed on it in early January.

It will be part of our offering this summer, as soon as we are able to open it up.

It will be included from a bundling and marketing perspective into our programs for 2016.

So a lot of that synergy can happen immediately in 2016.

There is additional benefits down the road as we are able to work with tour operators to include that into their package for the tour.

That will not have an impact in 2016 because a lot of those decisions have happened 12 or 18 months earlier.

From an operational synergy perspective, this is very close to our other two attractions, which would be the Ice Adventure and also the Glacier Skywalk.

So we see opportunities from a personnel or management perspective as well as some maintenance and -- repair and maintenance perspective, where we see an opportunity for synergies on the cost side.

Okay, great.

And I appreciate that.

The last question is just on the acquisition pipeline.

Could you just characterize what you are seeing in both businesses in terms of the availability of acquisitions and whether acquisition targets are -- have rational senses for what their businesses might be worth?

Yes, I think we have active pipelines on both sides of our business.

The funnel is actually pretty strong.

Getting them to a point where they fit our strategic, our financial, as well as a cultural fit always takes time.

And so -- but we do believe that we have a strong pipeline and opportunities that we will be able to transact on.

I think that bodes well for us not only in 2016, but beyond.

Great.

That's all I have, thank you.

Peter Rabover, Artko Capital.

Thanks for the update and great year.

I had a few questions.

First, a small one -- so out of the $45 million to $49 million in CapEx for 2016, how much would you say is maintenance versus growth?

I would say maintenance is probably closer to $25 million.

Okay, great.

Because we had a couple of projects going on.

We had the Banff Gondola, and that's going to be about -- what is it for 2016?

I think it's CAD19 million.

Okay.

So it's maybe about $14 million-$14 million in -- so that would be just for the gondola alone, right off the top.

And then we also have the Avatar that Steve spoke about, and that's going to be another couple, $3 million, $4 million.

I'd say about $25 million to $30 million would be maintenance.

Okay, great.

So you are guiding for $80 million to $90 million of operating cash flow.

The run rate for free cash flow is $50 million to $60 million.

And my question is what is your sense for capital allocation going forward.

And I know you guys have talked about in the past about splitting up the companies or the capital structure.

So I'm just -- maybe it's a bigger-picture question.

I'm not committing you to anything, but I'm just curious what you are thinking about the future of the two businesses.

Yes; I think that we have very strong growth strategies in place.

And our goal is to be balanced in how we do capital allocation.

But the growth strategy is one of those components.

We see a lot of opportunities to continue growing the businesses.

We see attractive opportunities and we are going to pursue those.

Does it still make sense for the two businesses to be together, though?

We went through a strategic review a couple years ago where we looked at that and we came out with an opinion on why the two were together and where there are synergy and where there are not.

Right now, the best way for us to grow and provide better shareholder value is to grow the businesses, and that will give us options down the road in terms of other things that Viad can do.

Okay.

So you would be open, longer term, to splitting the companies up or selling, I guess, one of them?

Yes, Peter.

We are always looking at ways to create shareholder value.

And obviously that's one of a number of different options for us.

But it is in the set of options that we consider.

Yes.

Look, you guys have a great history of creating shareholder value and I know you guys are, as insiders, pretty invested.

So I'm not questioning that; I'm just more curious about your decision-making process and how you guys are thinking about it and what would be the catalyst to doing that.

But maybe I'll follow up on that off-line.

And the last question -- you just mentioned you have a pretty high retention rate on the marketing and events business.

And I would be curious to hear what that is.

Yes.

So for our -- higher than a 90% retention on our marketing and events are our GES clients.

So we have a strong retention and have had it for a long time.

Okay, great.

Thanks again and I look forward to continue being a shareholder.

Steve O'Hara, Sidoti & Company.

In terms of the acquisitions that you did in 2014 and how much they added to the growth, maybe through cross-selling or something else, what other adjacencies are you not in that maybe you need to be in or want to be in that you think could add value?

Or is it more about adding to what you have and bulking up the options within the offerings that you currently have?

Steve, that's a good question.

I think that if you think about the acquisitions we did in 2014, it got us into event accommodations or event housing.

It also brought us into audiovisual and then into registration.

I believe that all three still have a lot of runway in terms of our ability to cross-sell into our existing accounts or take some of these service offerings into new geographies.

And so that is one element of our growth strategy going forward.

However, I still believe that there are other opportunities for us to expand and add additional services or scale going forward.

And earlier in the call I highlighted two, which were audiovisual services and also event technologies.

So those would be two areas that I could see us adding to our portfolio, both in terms of scale and new services going forward.

Okay.

And then the previous caller noted the free cash flow production.

I think you guys seem to be able to generate good free cash flow.

Have you talked about the uses of that cash?

Or would it be a balanced approach, looking for acquisitions and then maybe debt paydown and dividend payments?

I'm just wondering maybe what the priority is there.

It wouldn't seem like your balance sheet is over-levered, so I wouldn't expect that would be a big use of cash.

But maybe you could just talk about that as well?

Right, and we've always had a pretty balanced capital allocation approach with our organic growth, our acquisitions, share repurchases from time to time, and dividends.

I would definitely say the primary use of capital in the future would be related to our growth strategy, but we still do have our dividend.

And we have organic opportunities as well with the Banff Gondola refresh.

Okay.

And then maybe just quickly on that project, can you just talk about the expected returns and maybe your hurdle rates on projects, either in various spaces in the two businesses?

Thank you.

Yes.

For all of our investments across the board, we're looking for a greater than a 15% IRR on any acquisitions or, as Ellen mentioned, organic projects that we may take on, like a Banff Gondola.

And it does meet and exceed our investment criteria.

There's a portion of our investment in the Banff Gondola that is maintenance that's needed to happen.

This building or this facility we've owned since 1999, and it's had minimal capital put into it.

So part of the capital is going towards what I would consider maintenance.

And part of it is really to create just an amazing experience on top of Sulfur Mountain, where we are expanding the footprint by roughly 25%.

We are adding in a lot of interpretive elements to the experience, like a theater, like knowledge and history about the region.

So yes, it definitely exceeds our criteria that we have out there.

But a portion of the capital is for more maintenance and the other portion is towards growth.

Okay, thank you very much.

(Operator Instructions) Greg Eisen, Singular Research.

I'd like to go back to your opening comments about show rotation.

From the way you worded it, it sounded like you were implying that the negative rotation effect in 2015 would be -- we could look at that as a trough level, that the next time around that we have rotation it may not be as great.

Was I interpreting that correctly?

Or would you say show rotation and the negative years going forward will be of a similar size?

Yes, Greg, show rotation is really those non-annual events.

And there's different cycles.

Some non-annuals are every other year; some are every third year and then every fourth year.

So it sets up an interesting dynamic in terms of how big or small show rotation is each year.

2015 was the trough, where those non-annual shows -- very few of them actually took place.

So it was a low point in terms of show rotation.

Over the next three years, we have what I would call higher show rotation.

We've talked about $50 million to $55 million in 2016.

It's slightly lower than that in 2017 and 2018.

And then 2019, again, is where you hit one of those years where there are no major non-annual events happening.

We believe that the next three years, you have the opportunity to have solid show rotation and the ability through the rest of the business to grow along with that and somewhat mute the change.

And then I'd be remiss if I didn't talk about 2020, which is when all of the annual events happen -- the non-annual events happen at the same time in 2020.

It's similar to what happened in 2012, and so -- I'm sorry, 2008.

And so you will see a large increase in 2020 as well.

Okay.

So if I could repeat what you said: 2017 and 2018 will not be negative years on the show rotation side, but you actually won't suffer from that?

2017 and 2018 will be slightly negative compared to 2016.

They step down slightly, but it's not like what you saw coming into 2015.

Okay.

It will be slightly negative versus 2016.

Okay, I get that.

A couple of other questions.

Just going back to the AV services business, it's a startup mode on this side of the Atlantic.

Is that a significantly capital-intensive business?

Or is that --

It is a capital-intensive business.

There are multiple ways of operating that business.

At the scale we are at now, we have not invested in the capital equipment required to do it.

We are still hiring equipment from third parties in the marketplace.

When we reach a scale that's appropriate, either through organic growth or acquisition, we would be investing capital in that going forward.

Okay.

And my last question -- and forgive me; this sounds like I'm a little bit ahead -- the cart ahead of the horse here in being early on asking this.

But I would guess, given the travel and recreation side of your business being on the northern tier, it's probably less exposed to the Zika virus risk than anywhere else a tourist would want to go to.

Is it a fair guess that you might see increased demand because people would say I don't want to go in that direction.

I'll go north instead?

(multiple speakers)

You know, what I would say is that there are positive trends in the visitation to national parks.

They provide a safe haven and natural beauty that drives people there.

I don't know if the virus either in North America or in South America will have an impact on us.

But as I look forward, I'm optimistic about the visitation to our attractions and our hotels in 2016.

Great.

Thanks for answering my questions.

And we show no further questions at this time.

I just want to follow up real quick on John Healy's question about a little bit more color on the quarterly activity.

Since we do have really good leverage at GES in the third quarter, that flow-through is more like 30%.

I said 20% before, but it's more like 30%.

And the travel and rec quarter two will be a bit lower due to the gondola.

Second quarter.

Quarter two; yes, second quarter.

Okay, great.

Thanks, Ellen.

Thanks, everybody, for your questions and your interest in Viad.

We look forward to speaking with you again next quarter.

Take care.

Thank you.

And this does conclude today's conference.

Thank you for joining.

All parties may disconnect at this time.