Carrie Long - Investor Relations Steve Moster - President and Chief Executive Officer Ellen Ingersoll - Chief Financial Officer.

Steve O'Hara - Sidoti Company Marco Rodriguez - Stonegate Capital Markets Peter Rabover - Artko Capital Jamie Yackow - Moab Partners.

Presentation:.

Welcome to the Viad Corp Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen only mode. [Operator Instructions]. This call is being recorded. If you have any objections, you may disconnect at this point. I’ll now turn the meeting to your host Ms. Carrie Long. Ma’am you may begin..

Thank you and thank you to all of you for joining us for Viad's 2017 fourth quarter and full-year 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 the 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. 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 the call over to Steve..

Thank you for joining us on today’s call. We delivered another year of solid growth and profitability as we continue to make progress towards our strategic goals. On a consolidated basis, our revenue grew 8.5% and our adjusted segment EBITDA margin improved 90 basis points to 11.7%.

This performance was driven by strong organic growth and strategic acquisitions at both business units. At GES, we reported better-than-expected fourth-quarter revenue growth, our U.S.-base same-show revenues were up 6.2%, and our international segment revenue grew by 23% on an organic basis.

Although our revenue performance was strong, operating income came in near the low end of our prior guidance range. This was largely a function of higher than anticipated cost at ON Services as we continue to integrate this acquisition and align our resources to maximize synergies. For the full-year, GES revenue growth was 7.4%.

We saw continued business strength and contributions from our recent acquisitions that more than offset a revenue headwind of about $37 million from the combination of a low margin contract that we did not renew in 2016, negative share rotation, and unfavorable exchange rates.

With the broadened suite of live event services, our teams are finding success in the marketplace. The addition of ON Services to our mix of offerings is strengthening our position as the preferred global full-service provider for live events and leading the cross-selling wins.

We added audiovisual services to our scope of work for a number of clients, including the association of oral and natural facial surgeons, the Academy of Nutrition and Dietetics (corrected by company later) and the Food & Nutrition Conference & Expo.

I’m also happy to report that we recently re-signed the biannual international manufacturing technology show through 2024 and we renewed our multi-year contract with the International Council of Shopping Centers.

In addition, we remain focused on gaining share in the large corporate event space with two recent noteworthy wins, Red Hat Summit 2018 and Caterpillar. For Red Hat, we will be the full-service provider for its user conference and other select events.

For Caterpillar, who have trusted us to support its grand at exhibitions for many years, we were able to leverage this relationship to win new corporate work for them. This year, we will deliver an educational experience for key Caterpillar viewers in America's, and we will create a new business visitor center experience at its headquarters.

On the international side, we deepened our relationships with some of Europe's leading event organizers, with multi-year contract renewals. These renewals have a combined lifetime contract value of approximately $100 million and our proof of the strong collaborative partnerships that we have built with the organizer clients.

We have seen great success growing our revenue from corporate clients by leveraging our global full-service capabilities to support their event program needs across the EMEA region.

We also made good progress integrating ON Services and taking actions to position it for improved growth and profitability, including changes in leadership team and the consolidation of facilities. With those changes now behind us, and a stronger sales pipeline, we’re excited about 2018.

In fact, ON services started this year on a very positive note winning a five-year contract to be the preferred provider of audiovisual services and the exclusive provider for production rigging services for the San Diego Convention Center.

Overall, GES is well positioned to continue to capitalize on the momentum that we’ve created over the past three years. For 2018, we expect to drive continued strong underlying business growth to help offset negative share rotation revenue of approximately $40 million. Now, let me switch gears to Pursuit.

Pursuit delivered fourth quarter results that were in-line with our prior guidance for the seasonally slow quarter. For the full-year, revenue grew 13.4% with adjusted segment EBITDA growth of 30.9%.

We saw significant improvements in our key performance indicators, same-store passengers at our attraction increased 12.5% with revenue per passenger up 27.3%. At our hospitality assets, same-store RevPAR increased 6.8%. This great performance reflects the power of our Refresh, Build, Buy strategy and revenue management initiatives.

Our Refresh investments to renovate the Banff Gondola, delivered results that have far exceeded our expectations. As a reminder, we committed $22 million to complete a major renovation of the leading attraction.

And its first full-year of operations following the renovations, its revenue grew 57% over the prior pre-renovation period with passenger growth of 20% and a 31% increase in revenue per passenger from ticket sales, retail, and dining.

Following the success of our new Sky Bistro restaurant at the Banff Gondola, we completed similar renovations of our dining services at the Glacier Discovery Centre, which provides ticketing and guest services for our Glacier Adventure Tour and Glacier Discovery Centre, Skywalk Attraction.

Our team was also busy during 2017 with the reconstruction of the Mount Royal Hotel, which was damaged by fire in late 2016.

Utilizing our insurance proceeds of about $30 million and an additional $5 million investment, we are undertaking a complete renovation of the property with its ideal location downtown Banff, at an enhanced guest experience, we will be able to drive stronger RevPAR and return from this asset.

The project is progressing well and we’re on pace to reopen the hotel by mid-year 2018. On the Build side of our strategy, we commenced the development of an RV Park and Cabin Village on approximately 100 acres of undeveloped land that we acquired as part of an acquisition in 2014.

This new development will have approximately 100 full-size RV Flips and 20 guest cabins. We expect to have the RV Park at least partially online during the 2019 season. And our growth from our Buy initiatives during 2017 was fueled by our acquisition of FlyOver Canada at the end of 2016.

This attraction performed well during the first year of our ownership and delivered growth that was in-line with our expectations. In addition to being a fantastic attraction on its own, we like the FlyOver concept because it provides us with a new growth platform. And in November, we announced the expansion of this high margin attraction to Iceland.

FlyOver Iceland is currently in development and we expect it to open in 2019. We continue to evaluate additional locations for this type of concept. In summary, 2017 was a year of significant accomplishments and growth for Pursuit and reported to continued growth in 2018.

And now, I'll turn it over to Ellen to give us some more color on the financials..

Thanks Steve. For the fourth quarter, our loss per share before other items was $0.26 versus our prior guidance for a loss of $0.35 to $0.25. This figure does not include the impact of tax reform, which I’ll comment on a bit later.

Our consolidated fourth quarter revenue increased 8.1%, with organic growth of $12.2 million or 5% at GES, and $1.3 million or 13.1% at Pursuit. Exchange rate variances favorably impacted fourth quarter revenue by $5 million and the acquisitions of FlyOver Canada and Poken contributed revenue growth of $2.3 million during the quarter.

Consolidated adjusted segment EBITDA decreased $2.7 million from the 2016 fourth quarter. GES adjusted segment EBITDA decreased $5.4 million, primarily reflecting a less favorable mix of revenue and higher year-over-year cost at ON Services partially offset by lower performance-based compensation expense.

Pursuit adjusted segment EBITDA increased $2.7 million, primarily due to revenue growth from high margin attractions.

Our income before other items, adjusted segment EBITDA, and adjusted segment operating income, exclude restructuring charges, impairment charges and recoveries, acquisition transaction-related and integration cost, the impact of tax reform and other tax matters, and start-up costs related to the development of our FlyOver Iceland attraction.

A reconciliation of these non-GAAP measures to net income can be found in Table 2 of the earnings press release. As you can see in Table 2, we recorded a net charge of $16.1 million, related to tax reform during the fourth quarter. This charge is comprised of 8 million related to the remeasurement of our deferred tax assets, due to lower U.S.

corporate tax rate. The remaining $8.1 million related to the deemed repatriation of unremitted earnings of foreign subsidiaries, which is due to the IRS and instalments over the next eight years.

We have not completed our accounting for the effects of tax reforms and the charges we recorded reflect our best estimate based on information available at this time.

For the full-year, our income before other items was $2.62 per share and revenue of $1.3 billion, adjusted segment EBITDA of $152.6 million, and adjusted segment operating income of $97.7 million.

As compared to 2016, our full-year income before other items increased by $0.24 per share or 10.1%, primarily due to an increase in adjusted segment operating income, partially offset by an increase in net interest expense and increased corporate expenses, driven largely by higher accruals for performance-based incentives resulting from the increase in our stock price during 2017.

Our consolidated full-year revenue increased 8.5% or $102 million. Adjusted segment EBITDA increased by $22.4 million or 17.2%, and adjusted segment operating income increased by $10 million or 11.5%. And now, I’ll move on to the business group results. GES’ full-year revenue of $1.1 billion increased 7.4% or $78.4 million versus 2016.

Revenue from the U.S. segment increased 5.5% or $45.7 million, including incremental revenue of approximately $41 million from the acquisition of ON Services, new business wins, and continued base same-show growth, partially offset by negative show rotation of approximately $11 million.

Revenue from our international segment increased 15.8% or $34.2 million, primarily due to new business wins, same-store growth, and positive show rotation of $3 million, partially offset by unfavorable currency translation of approximately $7 million.

GES’ full-year adjusted segment EBITDA was $87.4 million, up $7 million from 2016, while adjusted segment operating income decreased by $0.7 million to $50.1 million, primarily reflecting additional depreciation and amortization associated with acquisitions. U.S.

adjusted segment operating income decreased $6.5 million, primarily due to $7.1 million increase in depreciation and amortization expense associated with ON Services. U.S.

adjusted segment EBITDA increased $1.1 million, primarily due to contributions from ON Services, income of $2.8 million related to a contract settlement, and lower performance-based incentives, partially offset by a less profitable mix of revenue, and cost increases.

International adjusted segment operating income increased $5.8 million, primarily due to higher revenue. Pursuit posted full-year revenue of $173.9 million, up 13.4% or $20.5 million versus 2016.

Acquisitions and continued organic growth across the majority of our attractions and hospitality assets were the key drivers of our strong year-over-year growth. The acquisitions of FlyOver and CATC contributed incremental revenue of $10 million.

Organic growth, which excludes the impact of acquisitions and exchange rate variances accounted for $8.8 million of the revenue increase and was driven mainly by higher passenger volumes and revenue per passenger at our attractions in particular to Banff Gondola and stronger RevPAR across our hospitality assets.

Our same store revenue per passenger increased 27.3%, and same store RevPAR grew by 6.8% versus the prior year. Pursuit’s full-year adjusted segment EBITDA was $65.2 million, up $15.4 million or 30.9% from 2016. And adjusted segment operating income was $47.6 million, up $10.7 million or 29.1% from 2016.

These increases were primarily driven by revenue growth from our high margin attractions. And now I’ll cover some cash flow and balance sheet items before discussing 2018 guidance. Our consolidated cash flow from operations was $113 million for the 2017 full-year, up from $100.3 million in 2016, primarily due to favorable working capital.

And CapEx totaled $56.6 million, up from $49.8 million in 2016, primarily driven by the reconstruction of the Mount Royal Hotel. At December 31, our cash and cash equivalents totaled $53.7 million, debt was $210.2 million, and our debt-to-capital ratio was 31.8%. And now moving on to guidance.

For the first quarter, we’re expecting a loss per share of $0.57 to $0.47 as compared to income before other items of $0.33 in the 2017 quarter. This change primarily reflects negative show rotation at GES.

For GES, we expect first quarter revenue to decrease by approximately $48 million to $58 million from the 2017 quarter, with an adjusted segment operating income decrease of approximately $21 million to $23 million.

This decrease primarily reflects negative show rotation revenue of about $55 million, certain non-recurring business, partially offset by favorable exchange rate variances of $6 million. Additionally, we’re expecting low single digit same show revenue growth during the first quarter, which is below our recent experience due to one event.

We expect to return to a mid-single-digit same show growth rate over the balance of the year. Pursuit revenue is expected to be essentially flat to up about $2 million, during the seasonally slow first quarter, with a decline in adjusted segment operating results of 500,000 to 2.5 million.

The increased operating loss, primarily reflects higher overhead expenses, due to additional cost to support continued growth of the business, as well as the timing of certain expenses.

For the 2018 full-year, we expect consolidated revenue to increase at a low-single-digit rate from 2017 with an increase in adjusted segment EBITDA of approximately $4 million to $8 million.

Depreciation and amortization expense is expected to increase by $5 million to $7 million, primarily as a result of the reopening of the Mount Royal Hotel, and other capital investments to support growth and efficiency gains.

Adjusted segment operating income is expected to be in the range of $95.5 million to $99.5 million, as compared to $97.7 million in 2017.

This guidance anticipates that exchange rate variances will have a positive impact of about $23 million on consolidated revenue, $1.5 million on consolidated adjusted segment operating income, and about $0.06 on income before other items per share. These impacts assume exchange rates of $0.81 for the Canadian dollar and $1.39 for the British pound.

A $0.01 change in the Canadian dollar would affect our full-year revenue by about $2 million and a $0.01 change in the British pound would affect our full-year revenue by $1.5 million. At GES, full-year revenue is expected to be up slightly from 2017 with comparable EBITDA.

We expect to continue same show growth, new business wins, and favorable exchange rate variances to offset negative show rotation revenue of about $40 million. At Pursuit, we expect full-year revenue growth at a high single digit to low double-digit rate from 2017 with an increase in adjusted segment EBITDA of about $6 million to $8 million.

This guidance for Pursuit includes incremental revenue of about $5 million from the Mount Royal Hotel, which is expected to reopen in mid-year 2018. As a reminder, we received payment for our business interruption insurance claim during the 2017 third quarter.

The portion relating to 2017 loss profits was recognized as income during 2017, and the remainder, which relates to 2018 lost profits will be recognized in income during the first half of 2018.

Additionally, I want to point out that the start-up cost related to the development of our FlyOver Iceland attraction which is expected to open in 2019 are not included in these guidance ranges.

FlyOver Iceland start-up costs are expected to approximate $1 million during 2018, and will be excluded from our adjusted segment EBITDA, adjusted segment operating income, and income before other items.

We expect our full-year cash flow from operations to be in the range of $105 million to $115 million, and we expect capital expenditures to be about $92 million to $98 million, which includes approximately $90 million to complete the restoration and renovation of the Mount Royal Hotel and approximately $10 million to begin development of the FlyOver Iceland attraction.

The Mount Royal Hotel expenditures will be funded primarily from the property insurance proceeds we received during 2017. The FlyOver Iceland expenditures will be funded out of our 2017 capital contribution to acquire the controlling interest in Esja, the Icelandic entity that is developing the FlyOver Iceland attraction.

For 2018, we currently expect our full-year effective tax rate to be approximately 28% to 29%, and we expect our effective rate to be higher than the 21% U.S. federal corporate tax rate, due to our foreign earnings and higher rate jurisdictions. The increase in non-deductible expenses and an increase in our effective state tax rate.

Again, this is our best estimate based on information at this time. Additional 2018 guidance can be found in the earnings press release. Steve, back to you..

Thanks Ellen. In closing, I’m very proud of our accomplishments in 2017 and excited about our strategic direction and the progress we’re making. In early 2014, we laid out a growth strategy centered around enhancing shareholder value to improve growth and profitability at both business groups.

Since that time, we have completed five higher margin complementary acquisitions that added leading audiovisual event registration and accommodation services at GES.

These acquisitions combined with our global presence, are enabling us to gain share in adjacent and under penetrated areas of live events that offer higher margins and strong growth prospects. At Pursuit, we completed five acquisitions that have expanded our business in current markets and taken us into new geographies.

We have also made key investments that have grown and enhanced our high margin attraction portfolio, including the opening of the Glacier Skywalk, and the renovation of the Banff Gondola. Our strategy to scale the Pursuit business, while maintaining strong EBITDA margin, remains a key focus going forward.

In summary, in the investments we have made in acquisitions and organic growth projects are providing exciting avenues of growth with enhanced profitability. I’m very happy with our progress and I'm excited about the opportunities that lie ahead.

I want to take this opportunity to thank the entire Viad team for driving strong results and for their commitment to our strategy. And with that, we can open up the call to questions..

Thank you. [Operator Instructions] Mr.

Steve shall be begin?.

Steve Moster:.

Thank you. Our first question comes from the line of Steve O'Hara from Sidoti Company..

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Our next question comes from Marco Rodriguez from Stonegate Capital Markets..

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[Operator Instructions] Our next question comes from the line of Peter Rabover from Artko Capital. Your line is now open..

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Our next question comes from the line of Jamie Yackow from Moab Partners. Your line is now open..

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[Operator Instructions] Our next question comes from the line of Steve O'Hara from Sidoti Company. Your line is now open..

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I apologize, I was on mute. [Operator Instructions].

Okay. Thanks for your questions and your interest in Viad, and we look forward to speaking with your again next quarter. Thanks a lot. Bye-bye..

And that concludes today's conference. Thank you for participating. You may now disconnect..