Viad Corp (VVI) 2018 Q2 法說會逐字稿

Welcome to the Viad Corp Second Quarter Earnings Conference Call.

(Operator Instructions) This call is being recorded.

If you have any objections, you may disconnect at this point.

Now I will turn the meeting over to your host, Ms. Carrie Long.

Ma'am, you may begin.

Good afternoon and thank you for joining us for Viad's 2018 Second Quarter Earnings Conference Call.

During the call, you'll hear from Steve Moster, our President and CEO; and Ellen Ingersoll, our Chief Financial Officer.

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 our annual and quarterly reports filed with the SEC.

Additionally, we'll be referring to certain non-GAAP measures during the call, including income or loss before other items, adjusted segment EBITDA and adjusted segment operating income or loss.

These measures exclude restructuring and impairment charges or recoveries, acquisition- and transaction-related and integration costs as well as FlyOver Iceland start-up costs.

Important disclosures regarding these measures, including reconciliations to net income attributable to Viad can be found in Table 2 of our earnings press release, which is available on www.viad.com.

With that, I will turn the call over to Steve.

Thanks, Carrie, and thanks for joining us on today's call.

We delivered another quarter of solid results with income per share before other items of $1.20, coming in above our expectations.

Overall, our teams executed well and we continue to drive progress against our strategic goals.

At GES, revenue came in at the high end of our prior guidance range, reflecting strength in short-term bookings and continued same-store growth.

Through strong execution and cost management the GES team delivered better-than-expected adjusted segment operating income of $29.1 million with margins of 9.2%.

Overall, I'm pleased with the progress we're making towards our strategic goals and bolstering GES' competitive position in the marketplace.

With an enhanced set of offerings, our teams are deeply engaged with clients to provide solutions that enhance the attendee experience and strengthen the partnerships we have built.

One such example is our recent work on the annual meeting for the American Society of ( sic ) [for] Radiation Oncology.

In 2017, we started providing strategic consulting and marketing services to enhance the annual meeting experience.

The 2018 event is the first in our 3-year road map to increase engagement with the meeting participants and drive repeat attendance.

In addition to expanding our scope of work, we were successful in renewing this contract through 2021.

We also continued to gain traction in the $3.4 billion higher-margin corporate events space.

We recently expanded our relationship with a leading technology company and we'll produce 2 of its large corporate events in the third quarter of 2018.

Additionally, we won the corporate event business for Bright Horizons Family Solutions, a leading provider of preschool and early education services throughout the U.S. and U.K. This past quarter, we provided stage design, audio, video and lighting technology services, along with supporting breakout sessions and an exhibit area for Bright Horizons leadership event.

This is one of a series of 5 events that we will produce for Bright Horizons this year.

We continue to believe that our investments in audiovisual production capabilities positions us well to capture additional share in the under penetrated corporate events segment.

Earlier this year, we announced that we were expending our venue-based audiovisual production services through a new contract with the San Diego Convention Center.

During the second quarter, ON Services took over as the preferred provider of audiovisual services and exclusive provider of production rating services.

We have successfully delivered a number of events at this important West Coast venue and look forward to growing our services in the future.

I'm also happy to report that we recently were selected to be the new exclusive audiovisual supplier at The Brewery, which is a popular event venue in Central London.

This adds to our growing list of venues in the U.K. and the U.S. where we provide in-house services.

Holding the in-house position at venue not only provides a nice stream of revenue in itself, but it's also strategically important for us as we seek to grow in the corporate events space.

More specifically, it provides us with the visibility into various corporate events taking place at the venue and enables us to establish relationships with event organizers that we can leverage to win additional business from them in the future.

Another high-margin growth area for GES is the events technology segment where our smart products and solutions continue to garner a lot of interest and traction within the industry.

This past quarter, we won a contract to provide engagement technology solutions at the Youth Olympic games in Buenos Aires later this year.

Our team will provide a unique engagement experience through a gamification approach that will create networking opportunities and richen for interactions among the attendees at the games.

Recently, at the prestigious AEO Awards, we were honored with 2 coveted awards for our smart technology products: the best use of technology award and the innovation of the year award.

We also received the sustainability award, which recognizes our ongoing commitment to sustainable business practices.

I'm very proud of these achievements that validate the hard work and dedication of our team to position GES as the preferred global, full service provider of live events.

Overall, our team is making good progress expanding existing relationships and identifying new opportunities.

The addition of audiovisual and event technology services is strengthening our competitive position, helping to differentiate GES in the marketplace and providing new avenues of growth.

Now let me switch gears to Pursuit.

At Pursuit, our team delivered healthy second quarter results with revenue growth of 8.3%.

This was a little below our prior guidance range due to a less favorable exchange rate impact than we had previously anticipated.

In addition, some of our attractions were affected by inclement weather during the quarter that hampered passenger counts.

Our team responded well to the changing demand environment and delivered adjusted segment operating income that was in line with our prior guidance.

Excluding the impact of exchange rate variances, Pursuit's second quarter revenue grew 6% year-over-year, reflecting growth across most of our attractions and hospitality properties.

Although same-store passenger volumes were down slightly due to weather conditions, we delivered strong growth in same-store revenue per passenger and RevPAR, which were up 7.5% and 6%, respectively.

Our focus on revenue management, combined with the upgrades we are making in connection with our Refresh strategy, are enabling us to capture a higher per guest across all revenue categories: ticket sales, rooms, food and beverage and retail.

The renovated Banff Gondola continues to receive great reviews and its new Sky Bistro is a guest favorite that is consistently recognized as one of the top restaurants in the area.

Later this year, we expect to begin upgrading our food and beverage and retail operations at Maligne Lake and Maligne Canyon for an enhanced guest experience beginning in 2019.

I'm also happy to report that we recently completed another major refresh project, which was the reconstruction of the Mount Royal Hotel in downtown Banff.

The upgraded property reopened on schedule and is seeing strong demand.

Early guest feedback has been extremely favorable and we expect a strong contribution from this asset going forward.

On the build side of our growth strategy, things continue to progress well with both the construction of the new RV Park and the Glacier National Park area and our new FlyOver Iceland attraction in Reykjavík.

Both are on schedule to open during 2019.

And we continue to evaluate additional expansion locations for the FlyOver concept.

On the buy side, we have now completed 2 tuck-in acquisitions this year, the first one is the Maligne Canyon restaurant and gift shop, which I discussed last quarter.

And just recently, we closed on a 6-acre parcel of land adjacent to our Seward Windsong Lodge in Alaska.

We expect to begin construction of 36 additional rooms on that parcel later this year.

Our acquisition pipeline remains strong as we seek to add meaningful scale to the Pursuit business.

Overall, our Refresh, Build, Buy strategy and our revenue management initiatives continue to yield solid results and we remain excited about the opportunities ahead of us.

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

Ellen?

Thanks, Steve.

As Steve mentioned earlier, our results for the second quarter of 2018 were stronger than our prior guidance.

Yes, that is primarily driven by stronger operating income at GES as well as a lower tax rate that added about $0.02 to our earnings per share relative to our prior guidance.

For the second quarter, our income before other items was $1.20 per share on revenue of $363.7 million, adjusted segment EBITDA of $54.2 million and adjusted segment operating income of $39.1 million.

Primarily as a result of negative share rotation at GES, our second quarter results declined slightly from 2017.

Consolidated revenue decreased by $1.1 million, adjusted segment EBITDA decreased by $1 million and adjusted operating results decreased by $1.6 million.

Moving on to the business group results.

GES posted second quarter revenue of $315.3 million, adjusted segment EBITDA of $38.7 million and adjusted segment operating income of $29.1 million.

As compared to the 2017 second quarter, revenue was down 1.5% or $4.8 million.

On an organic basis, which excludes the impact of favorable exchange rate variances, the revenue decline was $9.3 million or 2.9%, which was driven by a negative share rotation of about $15 million.

U.S. segment organic revenue decreased slightly by $792,000 as negative share rotation of about $5 million was mostly offset by continued same-store growth and new business wins.

Our U.S.-based same-store revenue, which represents 30.2% of U.S. revenue during the quarter, grew by 1.2% year-over-year.

We had 2 outlier events that significantly impacted this metric: the first was a large retail sector event where we experienced significantly large discretionary revenue from exhibitors versus its 2017 occurrence; and the second was a large food sector event that experienced strong year-over-year growth, both from an additional organizer spend and exhibitor spend.

If we exclude these 2 outlier events, the same-store growth metric adjusts to 2.7% for the quarter.

Organic revenue for GES' International segment decreased by $9.3 million or 10.9%, primarily due to negative share rotation of approximately $10 million partially offset by new business wins.

GES' adjusted segment EBITDA and adjustment segment operating income decreased $1.3 million and $1.6 million, respectively, from the 2017 quarter.

On an organic basis, those declines were $1.8 million and $1.9 million, respectively, primarily driven by lower revenue.

Pursuit posted second quarter revenue of $48.4 million, adjusted segment EBITDA of $15.4 million and adjusted segment operating income of $10 million.

As compared to the 2017 second quarter, revenue was up $3.7 million.

The organic revenue increase, which excludes favorable exchange rate variances was $2.7 million or 6%, driven mainly by continued growth from our attractions and hospitality assets.

Through continued revenue management efforts, we realized a 7.5% increase in same-store revenue per passenger and our same-store RevPAR grew by 6% versus the prior year.

Pursuit's adjusted segment EBITDA increased by $357,000 while adjustment segment operating income was essentially flat to the 2017 quarter.

These results reflect higher revenue during the quarter partially offset by some additional personnel costs to support our strategic growth initiatives across Pursuit.

Now we'll cover some cash flow and balance sheet item before discussing 2018 guidance.

Viad's consolidated cash flow from operations increased to $34.9 million for the 2018 second quarter from $27 million in the 2017 quarter, primarily due to changes in working capital.

Capital expenditures totaled $21.5 million for the quarter, up from $12.8 million in 2017, primarily due to investments at Pursuit, including approximately $9 million related to the rebuilding of the Mount Royal Hotel, which is being funded primarily by insurance proceeds we received in 2017.

During the quarter, we repurchased a little over 175,000 shares of Viad stock for $9.1 million.

At an average price of about $51.75 per share, we believe this was a compelling investment of our available capital.

And while we continue to give first priority to investments that will grow our business and increase our future cash flows, we will also continue to evaluate opportunities to buy back our stock at attractive valuation.

At June 30, 2018, our cash and cash equivalents totaled $49.4 million, our debt was $240.2 million and our debt-to-capital ratio was 35.5%.

And now moving onto guidance.

Our full year outlook remains relatively unchanged with the exception of revised expectations for exchange rates and our effective tax rate.

From the recent months, the Canadian dollar and British pound have devalued versus the U.S. dollar.

Our new guidance assumes USD 0.76 per Canadian dollar and USD 1.33 per British pound.

Previously, we assumed an exchange rate of $0.79 and $1.41, respectively.

As the result of translating Pursuit's Canadian results at a lower rate, we reduced our adjusted segment EBITDA guidance range by $2 million, and we now expect that Pursuit's revenue will grow at a high single-digit rate versus 2017 and this is versus our prior guidance outlook for high single- to low double-digit growth.

Our outlook for a GES revenue growth has also been reduced largely due to the weaker -- relatively weaker British pound.

However, we're holding to our prior guidance range for GES' EBITDA as the related exchange rate impact is not expected to be material.

At the bottom line, the impact of this revised exchange rate outlook is partially offset by a more favorable tax rate outlook.

Last quarter, we discussed that we expected to incur additional tax to the GILTI provisions of tax reform.

Based on additional research and interpretation of the new tax reform rules, we've determined that the additional GILTI tax will be fully offset by foreign tax credits generated.

As a result, we are now expecting a full year effective tax rate of about 28% to 29% versus our prior guidance of about 30% and this is our best estimate at this time.

I will also point out that we have reduced our GES same-show growth outlook to low single digits based on our year-to-date experience.

Previously, we guided for low to mid-single-digit growth.

And we currently expect this will be overcome by a stronger sales pipeline for fourth quarter revenue opportunities.

Our outlook for operating cash flow and CapEx remains unchanged from our prior guidance.

We continue to expect full year cash flow from operations to be in the range of $105 million $115 million with capital expenditures in the range of $92 million to $98 million.

This CapEx guidance includes approximately $19 million to complete the restoration and renovation of the Mount Royal Hotel and approximately $10 million for development of our FlyOver Iceland attraction.

The Mount Royal Hotel expenditures are being funded primarily by the property insurance proceeds we have received during 2017.

And the Flyover Iceland expenditures are being funded primarily out of our 2017 capital contribution related to the Flyover Iceland project.

For the third quarter, we expect income per share of $1.77 to $1.92 as compared to $1.33 in the 2017 quarter, and the expected increase reflects growth at both GES and Pursuit.

For GES, we expect third quarter revenue to increase by about $30 million to $40 million from the 2017 quarter primarily as a result of positive share rotation revenue of about $25 million, continued same-show growth and new business wins.

GES' third quarter adjusted segment operating income is expected to increase by about $5.5 million to $8.5 million versus the 2017 quarter primarily driven by higher revenue.

And just as a reminder, GES' 2017 third quarter results included income of $2.8 million related to a contract settlement.

When adjusting to exclude that nonrecurring income, our expected year-over-year increase in adjusted segment operating income is $8.3 million to $11.3 million, reflecting strong throughput on the revenue increase.

For Pursuit, we expect third quarter revenue to increase by about $5 million to $10 million from the 2017 quarter largely driven by our continued focus on revenue management and the investments we've made to enhance and grow our collection of attractions and hotels.

Pursuit's third quarter adjusted segment operating income is expected to increase by about $3 million to $5.5 million primarily driven by higher revenue.

Additional 2018 guidance can be found in the earnings press release.

And Steve, back to you.

Thanks, Ellen.

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

Both Pursuit and GES are on pace to deliver solid performance this year.

I'm proud of the continued effort of the entire Viad team to deliver strong financial results and great service to our customers and guests while also relentlessly pursuing our strategic goals to drive shareholder value over the long term.

I'm confident in our strategy and I'm excited about the opportunities that lie ahead for our company.

Now with that, let's open up the call for questions.

Operator, can you please open the call?

(Operator Instructions) Our first question comes from the line of [Bezel Kna] of Northcoast Research.

I have -- my first question is regarding the GES segment and the breakdown of revenue between the core services, event technology and audiovisual.

I was wondering if you're seeing growth in the 2 segments compared to the core services?

So I think if you look at the breakdown between our core services and some of the new services, we continue to put an emphasis on growing our new services, which are higher margin than our core services.

I don't think we've broken it out...

We haven't.

For the quarter specifically.

(inaudible) But we do see growth.

But we do see growth and it's, again, it's a focus of ours since we've brought these new services online over the last couple of years.

Okay, great.

And compared to the -- I know you guys said that you saw a decrease in the Pursuit's because of weather conditioning.

Well, I was taking a look at the press release and based on numbers I see, is it the decrease is only by 0.1% compared to last year of total number of visitors?

And passengers.

Yes, in terms of the passenger volume, that is correct.

You do see where we were able to capture significantly higher revenue per passenger across all revenue streams.

But the weather did impact the volumes, which is why we are a little bit lower than our prior guidance range.

Sometimes at the beginning of a season, the weather can be a little touchy, and when it's raining or snowing, the interest in going to -- on a boat ride or on the gondola sometimes diminishes.

Our next question come from the line of Marco Rodriguez of Stonegate Capital Markets.

I was wondering if we could circle back here on GES and the same-show growth rates.

I wasn't able to catch all of what the explanation was for the 1.2% growth rate in Q2, which is on the lower end.

I think I heard something about 2 shows that had some issues there?

Yes, so again, our same-show growth for the quarter was 1.2%.

There were a couple of shows, one that was significantly higher than what we had expected and one that was lower than we had expected.

The one that was lower was really tied to the retail space, which is consistent with what we had seen in the first quarter as well.

So we took those 2 outliers, both the positive and the negative one, out of the mix and then that average then goes to about 2.7%, which is a lot closer to kind of what our expeditions are in terms of mid-single digit.

Got you.

And then in terms of the guidance, you guys mentioned in the prepared remarks that the base show -- same-show guidance for fiscal '18 came down versus what it was before.

Was this specific just because of the Q2 number?

Or are you expecting some changes in Q3 or Q4 as well?

Well, it's year-to-date so far plus we do see some of those retail events again in the second half of the year and so it's a combined impact of what we've seen already and what we expect from a couple of those retail events, larger retail events.

The thing to keep in mind in this is that it represents about 30% of revenue for the quarter.

And we did see strong growth from the rest of the portfolio that doesn't necessary qualify as a same-show, meaning it's not an event that happens each year in the same quarter in the same geography.

So the rest of the portfolio or the rest of the business performed well.

It's just those events that we deem as same-show growth were a little wider than we expected.

Got you, okay.

So some light headwinds, if you, will, from the retail space that has kind of lowered the base show growth rate for the second half of '18 if I'm -- is that correct?

Correct, that's correct.

Okay, got you.

Can you maybe talk a little bit more about potential acquisitions on the GES side?

If you can maybe talk to the pipeline opportunities, is it increasing, is it decreasing and what do the valuations kind of look like?

We continue to keep our focus on a few areas.

So we're still interested in audiovisual event technologies and also creative services.

And we have a good pipeline of opportunities from an M&A perspective as well as from an organic perspective that we'll be pursuing.

From a valuation perspective, it's not something that we've seen a lot of movements over the last couple of quarters.

In other words, we're seeing fairly priced assets out there.

Some of them fit strategically, some of them don't with our goals, but we haven't seen any significant changes in valuation.

Got you.

And would you characterize your pipeline as maybe, I guess, some becoming closer to fruition?

Or is it kind of a status quo where -- because of the valuations is just maybe not as attractive at the moment?

What I would say is that, as I've said before, we have good pipeline of acquisition opportunities.

We continue to evaluate them more around their strategic fit with what our goals are and we'll continue to pursue that.

Fair enough.

And then shifting gears here to Pursuit.

The Mount Royal opening -- or reopening, sounds like things are tracking pretty well there.

Would you characterize them as being ahead of schedule, if you will, in terms of your expectations?

Or just kind of matching it?

First off, we're incredibly excited to reopen the hotel.

I had a chance to visit a couple of weeks ago before it actually opened and it is a phenomenal facility and we're very proud of what the team was able to accomplish there.

In terms of the booking pace and what we've seen so far, we're very optimistic about what we've seen.

It's garnering a very strong RevPAR, specifically compared to the 2016, which was pre-renovation.

We're seeing a steep uptick in the RevPAR versus pre-renovation.

So we're happy with kind of the performance.

It still -- we're only roughly a month into this, we opened on July 1, but we are bullish about the opportunities for the balance of the year for Mount Royal.

Got you.

And last quick question, I'll jump back in the queue.

On the Pursuit side, the FlyOver Iceland and the RV park, I know those are fiscal '19 events.

Can you maybe provide a little bit more color in terms of first half, second half or a quarter as far as when they start to generate revenues for you guys?

Really towards the second half of 2019, which aligns very well with kind of visitation patterns, specifically the Glacier National Park or at least West Glacier, a lot of that will be closed obviously during the first quarter and most of the second quarter.

So again, we plan on opening them up for the second half of the year to really be in stride with the visitation pattern.

Our next question comes from the line of Peter Rabover of Artko Capital.

So I've got a few questions today, one I ask about every year, but what's your kind of visibility on the GES side on the economic landscape?

Is it still a year or two ahead?

And what are guys seeing, any slowdown or anything of note?

Yes.

We, again, Peter, we have long-term contracts.

So there are 3- to 5-year contracts we have in place.

Roughly $1 billion worth of revenue is contracted going forward.

So we have pretty good visibility into kind of the years ahead.

And a lot of times we will reflect what happens in the overall global economy.

And so given some the strength that we've seen in the U.S. economy specifically, we're encouraged about what happens going forward.

Great.

And then maybe comment a little bit about your corporate wins that you mentioned earlier in the press release and maybe what has helped you win those?

And what's your corporate pipeline, et cetera, and maybe I'll follow up on a couple more on those.

Sure.

We're really excited some of the clients that we picked up recently.

During the call, I mentioned about Bright Horizons and the events that we're doing for them this year.

This is a classic marrying of some of our core services as well as audiovisual together.

And Peter, that's what makes me really excited about where we are and some of the work that I've seen recently on a number of different clients where we've really done a great job on integrating both core services and new services together to provide a unique solution for some of our clients.

So I feel good about the outlook in terms of our work with corporate clients on corporate events.

It's one of our strategic imperatives.

And I feel good about the positioning that we have going forward as that 1 provider or single provider across multiples service lines.

And I assume on the ones that you've won, you were up against your usual competitors?

Is that -- Or would you those just kind of...

In some cases, we are.

In some cases, we are going against new competitors.

Peters, as we've mentioned this is a relatively new market segment for us, a larger one than the exhibition market and its set of competitors is slightly different.

There are other suppliers, there are other agencies that are in the competitive landscape for us.

And so the -- unlike the exhibition piece, there's whole set of competitors that we're competing against in the corporate events space.

Okay.

And then maybe on the acquisition space/competitor space, you had a big, I guess, competitor [club] get taken out.

And I know you said that the multiples have not, you haven't seen the prices go up, but has that kind of changed your acquisition strategy at all?

Which acquisition are you referring to?

PSAW (sic) [PSAV].

PSAV.

PSAV is in the AV industry or sector, primarily focused on venue services, which is a part of our business, but more of our work is on the staging side.

What I would say is that, it doesn't necessarily change the landscape for us in terms of what we're trying to accomplish.

And it hasn't changed our strategy or kind of what we're seeing in the marketplace for growth opportunities for us.

So congratulations to Mike and the PSAV team for their acquisition, but it hasn't necessarily changed what we are doing.

Okay.

Great.

And then I guess, I just had a bigger question.

I had the opportunity to go to Mall of America and do the FlyOver America and FlyOver Canada ride as well, which I thought was phenomenal.

So I had a bunch of question with that.

Now do you guys get paid when they do FlyOver Canada?

Who owns the rights to that?

And then, more importantly, why -- that seemed like a pretty good right with pretty good economics.

So I'm just curious why there isn't and more of these FlyOver New York or FlyOver Los Angeles or whatever national park?

Seems like a pretty good business, pretty fun ride with really good reviews.

So maybe you can expand on that.

I like the way you think, Peter.

We -- so the model is we own the intellectual property of the film and they are good businesses that's why we're excited about not only FlyOver Canada but FlyOver Iceland coming online in 2019.

And as I've mentioned on prior calls, we believe this is a potential growth platform for us and so we are actively looking for new locations where we can do something similar to this.

So it's something that you have to stay tuned for, but we've like the business, we like the concept and we think we can have a first mover advantage bringing the FlyOver concept to multiple locations.

Right.

And then once you get 2 or 3 or 4 of these, you can show these films in almost every location, right, to kind of keep the utilization doing pretty high?

Correct.

I mean, it's a wonderful opportunity to bring, for example, the FlyOver Iceland film to Vancouver and allow the local market to explore the landscape of Iceland or have school trips down to our location in order to see what Iceland is all about.

So we think that as we build out a network, we will be able to move that intellectual property of the film around -- the films around to multiple locations.

And we think that will really build a fantastic network and really a barrier around the business that we have.

Okay.

And then you guys get paid on the FlyOver Canada being shown in America?

Yes, we own the rights to the FlyOver Canada film and so when it's used in other locations, we do receive a licensing fee.

Our next question comes from the line of Stephen O'Hara of Sidoti & Company.

This is Frank (inaudible) from Sidoti on for Steve.

Pretty much what I was going to ask is has already been asked, I just had another quick one.

You called out the devaluing of the Canadian dollar relative to the U.S. dollar.

I was just curious if at some point there could be an offsetting impact, I guess, for U.S. customers?

Would that maybe make your Canadian attractions more, I guess, attractive for them?

And anything you could speak to among others.

Sure, sure.

I think the lowering value of the Canadian dollar against the U.S. could have a slight impact on visitation to Canada.

We don't expect that to be tremendous, given that we've seen these levels of foreign exchange before.

So we don't anticipate a large impact, but it certainly could drive the potential of more visitation.

Okay, well, with that, I think we'll bring the call to an end.

I appreciate all the questions and your interest in Viad.

And we look forward to speaking with you again next quarter.

Thank you very much.

Goodbye.

Thank you, speakers.

That concludes today's conference.

Thank you for participating.

You may now disconnect.