Viad Corp (VVI) 2017 Q3 法說會逐字稿

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Welcome everyone to the Viad Corp.

Third Quarter Earnings Conference Call, and thank you for standing by.

(Operator Instructions) This call is being recorded, and if you have any objections, you may disconnect at this time.

May I introduce your speaker for today, Carrie Long.

Please go ahead

Good afternoon, and thank you for joining us for Viad's 2017 Third Quarter Earnings Conference Call.

During the call, you'll be hearing from Steve Moster, our President and CEO; and Ellen Ingersoll, our CFO.

Certain statements made during this call, which are not historical facts, 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 annual and quarterly reports filed with the SEC.

During the call, we'll be referring to certain non-GAAP measures.

Important disclosures regarding these 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 it over to Steve Moster.

Steve?

Thank you for joining us on today's call.

We delivered another quarter of solid results, with Pursuit exceeding the high end of our prior guidance range and GES reporting in-line results.

Both business units continue to perform well and are benefiting from favorable industry dynamics.

At GES, we continue to see healthy U.S. based same-show revenue growth during the quarter of 4.2%, which excludes one event with reduced services due to a venue change.

GES also benefited from new business wins, both internationally and in the U.S. When adjusting for the impact of negative show rotation and a low-margin contract that we did not renew, GES's organic revenue growth was about 9% versus the prior year quarter.

Our actions to position GES as the preferred global full-service provider for live events continues to pay dividends.

With a compelling set of offerings, our team is finding success in the marketplace by attracting new clients and enhancing the scope of existing relationships.

During the third quarter, we helped launch a new bi-annual event, the North American Commercial Vehicle Show, aiming to bringing together truck and trailer OEMs, commercial component and parts suppliers and large fleet managers.

With strong global participation, this inaugural event was a great success, and we look forward to producing it again in the future years.

We're also finding cross-selling success.

By leveraging the strength of existing client relationships on the corporate exhibitor side, we have recently won new corporate event business from a number of existing clients.

Additionally, Bright Star, a corporate exhibitor client that we supported at Mobile World Congress and CES, will be expanding our scope of work in 2018 based on our creative approach, strong execution and our ability to leverage our in-house, audio-visual technology solutions.

Another example is Astellas, where our work at various conferences enabled us to secure this global pharmaceutical company's entire European exhibit program.

To further position us as a preferred global full-service provider, we continue to enhance our event technology platform and have combined our event registration solution with the Poken event engagement technology to offer measurable event insights to organizers, exhibitors and event sponsors.

We continue to see steady interest in our event technology products.

A noteworthy recent win is a global show organizer, Clarion, who awarded us a multishow contract for both event registration and the Poken engagement technology.

Overall, 2017 is shaping up to be a strong year of growth and profitability for GES.

Most of the business is executing at a very high level, and we continue to make progress against our long-term strategic growth initiatives to drive topline growth and margin expansion.

One area that's falling short of our growth expectations is the ON Services audio-visual production business.

Its revenue during the third quarter came in short of our expectations, mainly due to lower-than-anticipated short-term bookings.

Additionally, although we've realized some early revenue and cost synergies from this acquisition, we are finding that cross-selling and insourcing opportunities are taking longer to develop than we originally anticipated.

As such, we have reduced our 2017 full year expectations for ON Services.

We are actively working to systematically improve our visibility into and the capture of both revenue and insourcing opportunities.

As we continue to integrate ON Services into GES, we remain confident in our abilities to leverage its leading audio-visual production services to gain share in the higher-margin corporate event space.

Overall, we remain encouraged by the health of our industry and the progress we're making towards our strategic goals.

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 9 months of 2017, GES has delivered year-over-year revenue growth of 7.6% and a 90 basis point improvement in adjusted EBITDA margin.

Now, let me talk a little a bit about Pursuit.

Pursuit delivered third quarter results that exceeded the high end of our prior guidance range.

Revenue grew 9.8% and adjusted segment EBITDA margins increased by 570 basis points.

During our peak season, we saw significant improvement in our key performance indicators.

Same-store passengers at our attractions increased 4.3%, with revenue per passenger up 20%.

At our hospitality assets, same-store RevPAR increased 4.2%.

These metrics would have been even stronger, if not for the severe forest fire activity that impacted visibility and air quality in the Banff and Jasper markets, and forced the early closure of some of our properties in the Glacier National Park area.

Fortunately, we did not incur any meaningful fire damage and the financial impact on our business was minimal.

However, the fire activity in Glacier National Park disrupted our timeline for the previously announced RV park development.

We now expect to have a partial open for the 2019 season.

Despite many days of poor visibility due to snow, we're very happy to report that the recently renovated Banff Gondola delivered exceptional results.

Compared to the third quarter of last year, revenue increased 42%, on a passenger increase of 3.2%.

The significant upgrades we made to the Gondola's mountaintop experience are garnering terrific guest feedback with strong TripAdvisor ratings.

And with that enhanced guest experience, we are capturing more revenue per passenger from ticket sales, dining and retail at this must-view attraction.

We are also seeing positive guest feedback and strong financial results from the upgraded dining operations at the Glacier Discovery Centre, which serves as the starting point for our iconic Glacier Adventure and Glacier Skywalk attractions in Jasper National Park.

Additionally, our recently acquired FlyOver Canada attraction in Vancouver is performing very well and exceeded our expectations during the peak third quarter.

Our revenue management, sales and marketing efforts are successfully driving an increase in passengers and a higher effective ticket price.

We continue to pursue opportunities to expand this high-margin attraction into new geographies.

Finally, our efforts to reopen the Mount Royal Hotel with an enhanced and upscale offering are well underway.

As I mentioned on the -- our last earnings call, we finalized our insurance claim in July and have now received the full settlement of $36.3 million.

We believe our efforts to upgrade this property will help us realize a higher ADR with continued strong occupancy when the hotel reopens in the mid-2018.

Overall, 2017 is tracking to be a very strong year of growth for Pursuit, which is a testament to the strength of our assets and the team and the power of our Refresh, Build, Buy strategy in combination with our revenue management initiatives.

Given our better-than-expected third quarter performance, we've raised our full year guidance for Pursuit for the second time this year.

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

Ellen?

Thanks, Steve.

As Steve mentioned earlier, our results for the third quarter of 2017 were in line with our prior guidance, with stronger-than-expected performance from Pursuit and in-line results from GES.

Our income before other items was $1.33 per share on revenue of $339.1 million, adjusted segment EBITDA of $64 million and adjusted segment operating income of $48.2 million.

As a reminder, by definition, income before other items adjusted segment EBITDA and adjusted segment operating income exclude restructuring and impairment charges or recoveries, resolution of tax matters and acquisition transaction-related and integration cost.

A reconciliation of these non-GAAP measures to net income can be found in Table 2 of the earnings press release.

As compared to the 2016 third quarter, consolidated revenues decreased $43.4 million, adjusted segment EBITDA decreased by $8.1 million and adjusted segment operating income decreased by $11.3 million, primarily due to negative show rotation at GES.

We also experienced an increase in corporate activities expense of $1.7 million versus the 2016 quarter, primarily due to higher performance-based compensation expense, driven by the increase in our stock price and TSR performance over the last few months.

Moving on to the business group results.

GES's third quarter revenue was $232.1 million, down 19.1% or $54.9 million versus the 2016 third quarter.

On an organic basis, which excludes the impact of acquisitions and exchange rate variances, GES's revenue decreased $65 million or 23.5%.

GES U.S. organic revenue decreased $56.4 million or 25.4%, primarily due to negative show rotation of approximately $63 million.

Additionally, as we had discussed on prior quarters, we experienced a revenue decline related to a low-margin contract for a portfolio of events that we did not renew.

We were able to more than offset the impact of that contract with new business wins and same-show growth.

Organic revenue for GES's international segment decreased $8.3 million or 13.7%, primarily due to negative show rotation of approximately $12 million, partially offset by continued new business wins.

The acquisition of ON Services and Poken contributed revenue of $19.2 million during the third quarter which was $8.9 million more than ON Services contributed during its partial quarter of ownership in 2017.

GES's adjusted segment EBITDA was $3.7 million, down $19.1 million from the 2016 quarter primarily due to high closure and lower revenue from negative show rotation in both the U.S. and international segments.

U.S. adjusted segment EBITDA for the 2017 third quarter also reflects a reduction in performance-based incentive accruals due to lower full-year expectations for ON Services, that Steve discussed earlier, as well as a favorable contract settlement of $2.8 million.

GES's adjusted segment operating results declined by $21 million to a loss of $5.7 million, including incremental depreciation and amortization expense of $1.7 million due to the ON Services and Poken acquisition.

At Pursuit, third quarter revenue was $107 million, up 9.8% or $9.6 million year-over-year.

On an organic basis, which excludes the impact of acquisitions and exchange rate variances, Pursuit's revenue increased $3.2 million or 3.3%.

When adjusting to exclude an $8.1 million decline in travel planning revenue due to our downsizing of lower-margin package tours and a revenue decline of $2.1 million due to the fire-related closure of the Mount Royal Hotel, Pursuit's third quarter organic revenue was up 15.9% or $13.4 million from the prior year.

This growth was driven largely by increased revenue per passenger and passenger volumes at our high-margin attractions.

We also saw improved RevPAR across most of our hospitality assets.

The acquisition of FlyOver Canada contributed incremental revenue of $4.2 million during the third quarter, and favorable currency translation added another $2.1 million in year-over-year revenue.

Pursuit's third quarter adjusted segment EBITDA of $60.2 million increased $11 million year-over-year, primarily due to the strong revenue growth from our high-margin attractions.

Additionally, we recognized a business interruption gain of $1.1 million, which represents lost profits from the Mount Royal Hotel during the quarter.

Pursuit's third quarter adjusted segment operating income was $53.9 million, an increase of $9.7 million year-over-year, including incremental depreciation and amortization expense of about $700,000 from the acquisition of FlyOver Canada.

And now, I'll cover some cash flow and balance sheet items before discussing 2017 guidance.

Viad's consolidated cash flow from operations was $55.4 million for the 2017 third quarter, down from $61 million in the 2016 quarter, primarily due to lower operating income, partially offset by favorable working capital.

Of the $27.3 million of insurance proceeds we received during the quarter, $2.6 million representing business interruptions was included in our cash flow from operations.

The remaining $24.7 million, representing impairment recoveries, was recorded as cash flow from investment activities.

Capital expenditures totaled $12 million for both the 2017 third quarter and the 2016 third quarter and at the end of the quarter, our cash and cash equivalents totaled $53.5 million, debt was $186.3 million and our debt-to-capital ratio was 28.4%.

And now moving on to guidance.

We expect Viad's full year revenue to increase by 7% to 8%.

Adjusted segment EBITDA is now expected to be in the range of $153 million to $155 million as compared to our prior guidance range of $153.5 million to $157.5 million.

As Steve noted, we've adjusted our guidance range downward to reflect our reduced outlook for GES due to ON Services, partially offset by an improved outlook for Pursuit.

We're also now expecting higher corporate expenses due to the impact of the appreciation in our stock price and performance-based incentives, and we have revised our tax rate forecast upward.

As compared to 2016, both business units are expected to post meaningful growth in revenue and EBITDA.

GES's full year revenue is expected to increase by 6% to 7%, with an adjusted segment EBITDA increase of about $7.5 million to $9 million.

Pursuit's full year revenue is expected to increase by 12% to 14%, with an adjusted segment EBITDA increase of about $14.5 million to $16 million.

This year-over-year growth reflects strong underlying business performance as well as contributions from acquisitions that are furthering our strategic growth initiatives.

Our full year cash flow from operations is expected to be in the range of $110 million to $120 million and capital expenditures are expected to be in the range of $62 million to $66 million, which includes about $18 million related to the reconstruction of the Mount Royal Hotel.

For the fourth quarter, we expect a loss per share of $0.35 to $0.25 as compared to a loss of $0.11 in the 2016 quarter, primarily reflecting lower operating results at GES, interest income of $1 million received in the 2016 fourth quarter related to a favorable legal settlement and an increase in corporate expenses of about $500,000 primarily due to higher performance-based incentives, driven by our recent stock price appreciation.

For GES, we expect fourth quarter revenue to be in the range of $250 million to $260 million, as compared to $246.2 million in the prior-year quarter.

This increase primarily reflects strong international revenue growth including favorable currency translation of about $4.5 million and continued U.S. same-show growth, partially offset by negative show rotation of about $5 million.

GES's fourth quarter adjusted segment operating income is expected to be in the range of $2 million to $3.5 million, as compared to $7.9 million in the prior-year quarter.

The expected decline primarily reflects a less profitable mix of revenue with negative show rotation being offset by growth in lower-margin geographies and lines of business and higher overhead costs.

Additionally, we expect an increase in depreciation and amortization expense of about $1 million at GES.

For Pursuit, we expect fourth quarter revenue to be in the range of $13 million to $15 million as compared to $10.3 million in the prior-year quarter.

The expected increase primarily reflects incremental revenue of about $2 million from the acquisition of the FlyOver Canada attraction on December 29, 2016, and continued growth from the recently renovated Banff Gondola.

Pursuit's fourth quarter adjusted segment operating loss is expected to be in the range of $7 million to $5.5 million, as compared to a loss of $8.2 million in the prior-year quarter.

The expected improvement primarily reflects higher revenue from FlyOver Canada and the Banff Gondola.

Additional details regarding our 2017 guidance and the resolution of our Mount Royal Hotel insurance claims can be found in the earnings press release.

Steve, back to you.

Thanks, Ellen.

In closing, I'm pleased by our performance to date.

For the first 9 months of 2017, our teams at both business units have done a good job of driving growth and profitability.

Compared to the first 9 months of 2016, our consolidated revenue grew 8.6%, with a $25.1 million increase in adjusted segment EBITDA and adjusted segment EBITDA margins have improved by 140 basis points to 14%.

We continue to see favorable industry conditions on both sides of our business.

Our teams remain focused on delivering excellent service for our customers, driving strong results for our shareholders and executing on our strategic goals to enhance shareholder values in the years to come.

I want to thank the entire Viad team for their commitment to our strategy and our customers.

And with that, we will open up the call for questions.

Neitz, can you open up the call, please?

(Operator Instructions) Speakers, our first question comes from John Healy.

Steve, just wanted to ask a question about the ON Services business.

A little surprised to hear the commentary.

And was trying to understand -- was hoping to understand that, if that's something that, kind of, just happened in the quarter or were you guys seeing some developments over the last maybe 2 or 3 quarters that made you feel less confident about some of the underpinnings of the business, and it is it something that changed from a product standpoint?

Is there a change in how you sell or package?

Trying to understand what the solution is there.

Sure.

Thanks, John, for the question.

First off, and I'd say as reminder, corporate events have less visibility than, say, our exhibition line of business.

Given that these tend to be 1-year contracts and they can change a lot in terms of location, timing and equipment needs.

So we came short of our expectations in the third quarter in terms of revenue growth.

We still believe, for the full year, we have a mid-single-digit growth year-over-year within the ON Services line of business but short of our expectation for the year.

And we feel that our management team has the right focus on driving these synergies and accelerating the realization of the insourcing synergies that we've talked about this year.

So some of it is really due to the lack of visibility coming into Q3 and Q4, and we also though still firmly believe that this was a very strategic acquisition for us to do and one that we can accelerate the realization of those synergies.

Makes sense.

And then I wanted to ask just when you talk about visibility, I've always felt like this year show -- it dictates a lot of what happens at next year shows.

And when you're, kind of, working with the shows that are concluding and you know you're go into those war-rooms where they're reserving show space for next year and things like that.

Is there any way to talk about kind of what you're seeing in terms of commitments for 2018 shows?

Are shows selling out like they normally have kind of a year out?

Are you seeing any sort of change in exhibitor behavior as you look to '18?

Yes, and specifically, John, within the exhibition side of our business, that's where you see we have more visibility because they tend to be multi-year contracts.

And you're absolutely right that usually at the close of an exhibition, you're already booking the space for the next year.

And so I would characterize the pace similar to what we've seen in the past.

I have not seen or noted any significant change to the pace of bookings for future year exhibitions.

Great.

And then just one final question on the show business.

Is there a way to think about show rotations for 2018?

I think you guys have said there'd be a little bit of a headwind, but is there any way to get an initial view of 2018 and maybe 2019 as to how we might be building our models for show rotation?

Sure.

As we've talked about before, in the U.S. market, there's really 3 primary shows that are non-annual events and drive a majority of that non-annual revenue number.

As we've talked about for 2017, we had a large event in 2017.

That was really the largest one in North America, and so we saw a little bit of decline in nonannual revenue from 2016 to 2017.

In 2018, we have one of those nonannuals taking place.

So you will see a -- another decline in our nonannual revenue.

And then in 2019, none of the 3 occur in 2019.

And as a reminder, they all occur in 2020.

And as Ellen pointed out in her comments, even though we had a decline in the nonannual revenue and other sources, we were able to make up a portion of that through same-show growth and new business wins.

Our next question comes from Marco Rodriguez.

Wanted to kind of come back around here on the ON Services.

Your answer to the prior question kind of seemed to imply that ON Service was specifically targeting or better suited for corporate exhibits versus, I guess, your larger exhibits that move quarter-to-quarter.

Am I understanding that correctly or is that a misinterpretation from me?

Let me just clarify a little bit.

The audio-visual acquisitions that we've made, so Blitz Communications in the U.K. and ON Services in the U.S. market, are focused on the corporate event market and not on the exhibition market.

And so with the exhibition market, you tend to have 3- to 5-year contracts.

You have some good visibility into the revenue of those events.

On the corporate event business, they tend to be single-year contracts and so that lends itself to less visibility about the location of those events, the timing of those events, which is important from an inventory perspective, and also less visibility into the equipment needs for those types of events.

So those are -- the AV businesses are more focused on the corporate event space.

Okay.

So are you then not providing AV services to the exhibits?

We are.

We -- as we've talked about for a while, the rationale for us getting into the audio-visual business is really twofold: The first is to grow market share within the corporate event space, which that we'll do, acquiring these businesses will be a meaningful gain in the market share in that space; and the second rationale is to be able to cross sell that to our existing exhibition clients.

And so we have made progress in that cross-selling opportunity.

So again, I apologize.

I'm a bit confused here.

So the -- you have an internal team on -- that is selling the AV services to the exhibits and then the ON Services is being sold directly to corporate events, and there's no moving back and forth?

Is that correct?

No, Marco, what we did, we originally had a team that was selling audio-visual services to our exhibition clients.

When we did the acquisition of ON Services, we actually combined them under 1 company, so that they could go after both types of clients.

But the majority of the revenue associated with ON Services is tied to corporate events.

Okay.

And is there any sort of focus or plan to where, I guess, their focus is equally split?

Or is that always going to be more of a corporate exhibit focus?

Yes, we are going to focus on both opportunities.

We are going to focus on driving more penetration of our existing organizer clients that are running exhibitions, but we also very focused on growing our market share of the $3.5 billion corporate event business.

Okay.

And then, in your prepared remarks, you guys talked about a low-margin contract that didn't renew in the quarter.

I seem to recall last quarter, there was another contract that you tried to raise the prices on because it was a low-margin.

Was it the same one you're referring to, or is this a different one?

Yes, Marco, it's the same contract with multiple events, and so we're outlining the impact in 2000 -- sorry for this quarter, specifically.

Got you.

Got you.

And then maybe if you could update us on GES and then on Pursuit; just kind of the acquisition landscape or the opportunities.

What are they looking like in terms of numbers?

Are they increasing, staying the same?

Then if you could also provide some, sort of, commentary on what the valuations look like?

Are they stretched?

Are they reasonable?

Are they very attractive?

That'd be much appreciated.

Sure.

What I would say is we have -- we still have very active pipelines on both sides of the business.

As a reminder on the GES side, we are looking for other high-margin services that we can add into our portfolio and really round out that full suite of services that we provide to our clients.

On the Pursuit side, we are looking at other attractions and/or hotel assets that are in iconic destinations, that have very unique experiences attached to them.

So both pipelines are actually pretty full.

From a valuation perspective, things are very similar to the way they were earlier this year and late 2016.

We haven't seen any meaningful appreciation in the valuations that we are seeing in the marketplace.

Speakers, our next question comes from Steve O'Hara.

I'm just curious in regards to the Mount Royal, I guess, reconstruction or renovation.

Can you talk about the positioning in the market?

Maybe where it was before and then where you expect it to be?

And then, how -- I mean, do you expect to maybe take market share.

Is it going to be a similar size to what it was before?

If you could go into a bit more detail there on the plan?

Sure.

Yes, I think that where we are focused on is moving to the upper-mid scale quality of hotel.

In the past, we've been kind of a mid-scale market.

We -- and the way to think about it also is if you just think about the rating or the stars of a property, we were in the 3-star rating previously.

We'll be on the upper end of the 3-star rating.

We believe that we can actually command higher ADRs, higher RevPAR with a better experience with the renovated Mount Royal Hotel.

So the team is very excited about the renovation.

I know the town of Banff is excited about the relaunching of the Mount Royal Hotel, and we're encouraged by where we stand right now and the strategy that we have for that hotel.

Okay.

And then in terms of the additional services or whatever you might have within the property, is there anything that's going to be added that you didn't have before or any -- is it -- will there be additional rooms or are any other amenities?

Sure.

We -- I mean, it's the full rooms and the whole building will be upgraded in terms of experience, but we are also offering -- we are adding a rooftop experience.

It's a lounge with views of the surrounding mountains.

So there are some additional features or attractions to the hotel that we think will drive quite a bit of interest within the local market.

Okay.

Let me just -- and then maybe hitting on ON Services again, it just -- I mean, it seems like you kind of know what you need to do in terms of getting it back on track and it's just going to take a little more time.

Is that the case?

Or is it more -- there is still some question about, maybe, what's going wrong or maybe what's going away from plan?

Yes, we understand what needs to get done and the team there is singularly focused on accelerating those initiatives.

So it's very -- it's transparent stuff in terms of what we need to do, and we're very much focused on bringing that business back in track with what we want.

Speakers, we show no further questions on queue at this time.

(Operator Instructions)

Okay.

So it doesn't sound like there's any other questions.

So I want to thank everybody for the questions and the interest in Viad, and we look forward to talking with you next quarter.

Thank you very much.

And that concludes today's conference, Thank you all for joining.

You may disconnect at this time.