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

Marco Rodriguez - Stonegate Capital Markets Steve O'Hara - Sidoti Company.

Welcome to the Viad Corp First 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. And I would like to turn the call over to Carrie Long. You may begin..

Thank you and good afternoon and thanks to all of you for joining us for Viad's 2018 first quarter earnings conference call. During the call, you'll be hearing from Steve Moster, our President and CEO; and Ellen Ingersoll, our Chief Financial Officer.

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.

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 transaction related and integration costs and FlyOver Iceland [ph] 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 thank you for joining us on today's call. We delivered solid first quarter earnings, which were lower than prior year due to negative share rotation. Both business units reported results that were in line with our expectations.

At GES, we continue to see healthy industry fundamentals and realized our 20th straight quarter of same-show growth. Our U.S.-based same-show revenue growth was 3.7% for the quarter, which was a bit softer than our recent trend of mid-single digit growth.

This was expected and was primarily due to one event that experienced the net square footage decline compared to its prior occurrence. Our efforts to position GES as the preferred global full-service provider for live events continues to drive results.

Our [indiscernible] services are strengthening our competitive position and helping to differentiate GES in the market place. The strength of our offering was recently validated by Reed Exhibitions, one of the world's largest event organizers.

Looking to enhance the attendee experience, REED renewed our registration services contracted for our portfolio of shows in Dubai and added an expanded suite of technology offerings.

Our new contract includes our software as a service registration platform, NFC-enabled smart badges and touch points, a lead capture app and an intelligent dashboard to drive engagement on the show floor and maximize the experience for all stakeholders.

It's extremely rewarding to deliver innovative tools and services that drive unique value for our customers. As further validation, we were once again recognized as the best supplier to exhibitors at the 2018 Exhibition News Awards for our leading event technology solutions.

We've won this prestigious award 3 of last 4 years and it's an honor to receive this recognition. I'm also happy to report that our ON Services audio-visual production business met our expectations for the quarter and captured in-sourcing benefits that drove margin improvement across several events.

We're also seeing solid cross-sell opportunities and strong leads across an array of sectors. Recently, we won and produced the EarthX Conference, which is the world's largest environmental event.

In just two months, our ON Services team went from initial discussions with the client to executing on this complex event that included conference sessions, festivities and entertainment with over 800 exhibited spread across three buildings.

With our sustainable event planning offering, GES was a natural partner for EarthX, which showcases the latest initiatives, discoveries, research, innovation, policies and corporate practices that are reshaping the future of our planet.

Audio-visual production services is a key component of our growth strategy, particularly as we work to gain additional share in the higher-margin corporate event space, and we continue to solidify and grow our position in that area.

Last month, we partnered with Q2, a leading provider of secured experience-driven digital banking solutions to produce its flagship event Connect 18 in San Antonio.

For this event, we designed, built and executed the general session, the breakout sessions, Excel, hub and design lab, effectively creating an environment that encourage conversation for learning, networking and innovation. We also recently resigned Tableau Softwares [ph], annual conference for an additional 3-year period.

We will provide creative strategy and planning, environmental and graphic design and production, show services and interactive installations for Tableau’s event.

And another corporate event client Plexus Worldwide has chosen to partner with GES for a second year to help strategize and design and produce its 10th Annual Plexus Legacy Convention later this year.

Our partnership with the Plexus has included product launch designs and strategy, a creation of a full retail store within the convention center hall and mapping out of the attendee flow for 13,000 Plexus ambassadors. Our exhibitions team also had an important renewal recently with the resigning of CONEXPO-CON/AGG and IFPE for its 2020 occurrence.

This tri-annual show is a long-standing GES client and the largest exhibition in the Western Hemisphere. Overall, we're encouraged by the health of our industry and the progress that we're making towards our strategic goals.

By adding complementary and higher-margin services to our suite of offerings, we are strengthening our position in the marketplace and we're poised for a successful 2018. Now let me switch gears to Pursuit. Our team at Pursuit delivered strong organic growth of 17.7% during a seasonably slow first quarter.

This trend was primarily driven by our revenue management initiatives, coupled with the investments that we've made towards our Refresh, Build, Buy strategy. With most of our operations close, the growth during this period was primarily driven by the Banff Gondola and the FlyOver Canada attraction.

Our Banff Gondola continues to exceed expectations with revenue up more than 20% from the 2017 quarter. The improvements we made to its mountaintop experience, including the new Sky Bistro and most [ph] interactive exhibit and theater and the rooftop observation deck have truly enhanced our guest experience.

In addition, our team is doing a great job driving higher visitation during otherwise off-peak periods at the Gondola through programming. For example, we recently offered a northern lights viewing package that was a great success. As a result, we're experiencing very strong visitation and capturing higher revenue per visitor.

Our other all season attraction, FlyOver Canada, also performed well during the quarter. Through our revenue management initiatives and bundling of unique film content, our team was able to drive passenger growth of 8% and a 13% increase in revenue per passenger. Our development of the FlyOver Iceland attraction is progressing as planned.

Last week, we commenced construction with an official groundbreaking ceremony that attracted local media's interest. We're also excited to open this new flyover location in 2019.

Closer to home, we added to our Banff, Jasper, collection with the purchase of a building that serves as a restaurant and gift shop in the Maligne Canyon area of Jasper National Park. This facility sits at a popular trailhead, about 10 minutes outside of the town of Jasper and along the route to our iconic Maligne Lake tourist attraction.

With a great location and views that overlook the scenic Maligne River, we see strong potential to refresh this asset and drive higher revenue with an improved guest experience. This operation is a perfect complement to our collection of assets in the Jasper area, providing our guests with idyllic stop to dine and relax on their travel adventures.

We're also making good progress towards our upcoming and reopening of the Mount Royal Hotel this peak season. The upgraded property is scheduled to open on July 1, and we're staying strong initial demand. We believe that our efforts to upgrade this hotel will help us realize a higher ADR with continued strong occupancy.

In addition to those exciting projects, our teams are busy preparing for guests ahead of our peak summer tourism season. Overall, we're off to a great start at Pursuit, and we expect another strong year of growth and profitability from our collection of assets. And now, I'll turn it over to Ellen to provide some more color on the financials.

Ellen?.

Thanks, Steve. As Steve mentioned earlier, our results for the first quarter of 2018 were in line with our prior guidance. Our loss before other items was $0.49 per share on revenue of $277.4 million, adjusted segment EBITDA of $2.5 million and adjusted segment operating loss of $10.5 million.

Compared to the 2017 first quarter, consolidated revenue decreased 14.8% or $48.4 million, adjusted segment EBITDA decreased by $23.1 million and adjusted segment operating results decreased by $24 million. The expected decline is relative to the 2017 first quarter primarily reflecting the impact of negative share rotation of $56 million at GES.

Moving on to the business group results. GES posted first quarter revenue of $267.7 million, adjusted segment EBITDA of $10.4 million and adjusted segment operating income of $641,000. As compared to the 2017 first quarter, revenue was down 15.8% or $50.2 million.

On an organic basis, which excludes the impact of favorable exchange rate variances, the revenue decline was $56 million or 17.6%. U.S. segment organic revenue decreased $53.3 million or 20.7%, primarily due to negative share rotation of about $52 million and certain nonrecurring business, partially offset by continued base same-show growth of 3.7%.

Organic revenue for GES' international segment decreased by $2.5 million or 3.9%, primarily due to negative show rotation of approximately $4 million, partially offset by new business wins. GES as adjusted segment EBITDA and adjusted segment operating income decreased $22.2 million and $22.9 million, respectively, from the 2017 quarter.

On an organic basis, those declines were $22.4 million and $22.8 million, respectively, primarily driven by negative show rotation. Pursuit posted first quarter revenue of $9.7 million, adjusted segment EBITDA of negative $7.9 million and an adjusted segment operating loss of $11.2 million.

As compared to the 2017 first quarter, revenue was up $1.8 million year-over-year or $1.4 million on an organic basis. Revenue growth during this seasonally slow quarter was primarily driven by higher passenger volumes and revenue per passenger at the Banff Gondola and Forever Canada attractions and certain RevPAR from a hospitality assets.

Our same-store revenue per passenger increased 12% and same-store RevPAR grew by 12.2% versus the prior year. Pursuit's adjusted segment EBITDA and adjusted segment operating results decreased by 936,000 and $1.2 million, respectively.

On an organic basis, those declines were 801,000 and 940,000, respectively, which were primarily due to additional cost to support continued growth initiatives across Pursuit, as well as the timing of certain expenses. And now our cash flow and balance sheet items before discussing 2018 guidance.

GES consolidated cash flow from operations was an outflow of $3.4 million for the 2018 first quarter versus an in flow of $32.2 million in the 2017 quarter, primarily due to lower income and changes in working capital.

Capital expenditures totaled $26.6 million for the quarter, up from $14.7 million in 2017, primarily due to investments at Pursuit, including the rebuilding of the Mount Royal Hotel and the purchase of a restaurant and gift shop at Miller Canada.

GES opened at higher growth CapEx during the quarter, primarily within eBay [ph] including equipment to service our new contracts with the San Diego Convention Center. At March 31, 2018, our cash and cash equivalents totaled $42.3 million, our debt was $232.2 million and our debt-to-capital ratio was 35.1%. And now moving onto guidance.

Our full year outlook remains relatively unchanged. We continue to expect consolidated revenue to increase at a low single digit rate versus 2017 with adjusted segment EBITDA of about $156.5 million to $160.5 million.

For GES, we continue to expect full year revenue to increase slightly from 2017, but the ON Services acquisition and continued growth in the underlying business more than offset negative show rotation of approximately $40 million. GES' adjusted segment EBITDA is expected to be in the range of $85 million to $88 million.

For Pursuit, we continue to expect full year revenue to grow at a high single-digit to low double-digit rate with adjusted segment EBITDA in the range of $71 million to $73 million. This guidance for Pursuit includes incremental revenue of about $5 million for the Mount Royal Hotel, which is expected to reopen in July.

Our full year cash flow from operations is expected 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 $19 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 by the property insurance proceeds we received in 2017. The FlyOver Iceland expenditures will be funded at our 2017 capital contribution to acquire the controlling interest in Esja, the Icelandic entity that is developing the FlyOver Iceland attraction.

I also want to point out that we now expect our full year effective tax rate to be approximately 30% for 2018. This is slightly higher than we previously guided as we now expect to be subject to the GILTI tax on our foreign earnings.

Our effective rate will be higher than the 21% year so corporate tax rate due to our foreign earnings and higher rate jurisdictions, the increase in non-deductible expenses, the GILTI tax and an expected increase in our effective state tax rate. This is our best estimate based on information available at this time.

For the second quarter, we expect income per share of $1 to $1.15 as compared to $1.22 in the 2017 quarter. The expected decline lower revenue GES, driven by negative show rotation. Adjusted segment EBITDA and revenue are both expected to decrease versus the '17 quarter.

For GES, we expect second quarter revenue to decrease by approximately $5 million to $20 million from the 2017 quarter, primarily as a result of negative show rotation of approximately $15 million.

GES' second quarter adjusted segment operating income is expected to decline about $3.7 million to $6.7 million versus the 2017 quarter, primarily due - driven by the lower revenue.

For Pursuit, we expect second quarter revenue to increase by $4.3 million to $7.3 million from the 2017 quarter, largely driven by our continued focus on revenue management and refresh efforts across our attraction and hospitality portfolio.

Pursuit's second quarter adjusted segment operating income is expected to be in the range of $9.5 million to $12 million, as compared to $10 million in the 2017 quarter and reflects additional cost to support continued growth initiatives. Additional 2018 guidance can be found in the earnings press release. Steve, back to you..

Thanks, Ellen. In closing, we are off to a solid start for 2018. And I'm proud of the continued effort of the Viad team to deliver strong financial results, while also relentlessly pursuing our strategic goals. The investments we made in acquisitions and our organic growth projects are highly exciting avenues of growth with enhanced profitability.

I'm very happy with our progress, and I'm excited about the opportunities that still lie ahead. And I want to thank the entire Viad team for driving strong results and for the commitment to our strategy. And with that, we will open up to questions.

Kristen, can you please open the line?.

Thank you. [Operator Instructions] And your first question is from Marco Rodriguez [Stonegate Capital Markets]. Your line is now open..

Good afternoon, guys. Thank you for taking my questions. I was wondering if you might be able to talk a little bit more in regard to the cross-selling opportunities, you mentioned you in your prepared remarks on the GES side.

It is there anyway even kind of quantify it, whether it's like growth rate in terms of potentials or backlog numbers or anything that kind of gives us a sense as far as what those opportunities look like?.

Yeah. One of the reasons why we got into these additional services is we did feel like we were under-serving some of our clients' needs and we wanted to break into new segments, specifically the corporate event segment. And so by adding those new services, we've been able to do that.

We've always felt that there is a strong opportunity for us and that we're in the early stages of realizing some of that opportunity. We've made solid progress in terms of some of the cross-selling, but I still believe that there is a lot of room ahead of us..

Okay.

And is there any sort of anecdotal comments or feedback you received from clients or existing clients with these type of additional services that you've been able to add?.

Yes, I think our existing clients are very excited about us being able to provide them that one stop shop. That's the cornerstone to our strategy, and I think it's very well received by our clients. It's an easier way to do it one partner versus a variety of partners.

But as we mentioned in our prepared remarks, it also comes to being able to provide a suite of technology services that allow them a better opportunity to capture data for their events. So the positive - we've received positive feedback from our clients about not only the ease of dealing with us, but how they're leveraging our full range of services.

So we're very encouraged by that, and we continue to be on the marketplace making progress..

Got it. And when you do approach your existing clients or even some new clients, which I'm assuming sales like will be a little bit longer.

If you can maybe talk a little bit about how you guys approach the clients in terms of illustrating to them your capabilities with these new services and kind of what is the process look like? Are there any changes to their decision-making, anything of that nature?.

Well, our current client base, Marco, is usually the same decision-maker that is making decisions across multiple services for that event. And so we've really repositioned ourselves through a series of campaigns to really illustrate the full depth of the services that we offer.

And I think it's been very successful in terms of opening eyes of our full capabilities set. So I'm encouraged by how the team has addressed it.

I'm encouraged by the response that we've had from our clients, and I really think the way we're positioning ourselves with these new services has really taken a hold with our client base, both new and the current clients and prospects..

Got you. Okay. And then shifting gears to Pursuit, just wondering if you can talk a little bit more about the building. I think it was a restaurant and gift shop that you guys acquired in the quarter.

Can you just talk a little bit about the rationale and what your expectations are for that?.

Yes. It's a small tuck-in acquisition that we did. And as you can imagine, within the Jasper National Park being able to find unique asset when they come along, we really want to be able to be in a position where we can take those up.

It's not only supports our other assets in the area, which is obviously, the Maligne Lake tours, but also the ice adventures, the Glacier Adventure that we have.

So it's of course, our current assets, plus we believe that it's a market where an opportunity for us to provide higher-end experience for dining and it really helps us corner that Maligne Canyon area. So we're excited bringing on board.

This will be our first year of operating it and it'll probably make some enhancements after we finish this year - this year's peak season..

Got you. Okay. And just to make sure I understood also in your prepared remarks, it's kind of sounds like FlyOver Iceland is kind of progressing as planned. We're still looking at 2019 open, any possibility of it accelerates or….

You know, we would love to have it open earlier. However, this - experiences like this takes time to develop both from construction of the facility. So this is a new build that we're doing and just outside of [indiscernible] It also takes a while to film the contents. So we're creating a new FlyOver Iceland film, and we're capturing all seasons.

So that's what is creating some of the lead time as well, Marco. So we're still on schedule for 2019. So we really can't - some of the lead time keep us from opening earlier than that..

Got you. Thanks a lot guys. I appreciate your time,.

Thanks, Marco..

Thank you. [Operator Instructions] Next question in queue from Steve O'Hara [Sidoti Company] Your line is now open..

Hi, good afternoon..

Hi, Steve..

Just on the - I just want to make sure I understood. In terms of the guidance, it looks like it's pretty much unchanged from the beginning of the year when you provided it. Aside from taxes, I guess, the tax rates going to be a little bit higher.

Is that more or less correct?.

Correct. It's relatively unchanged. The additional taxes that Ellen mentioned its kind of came up recently. That's the only really minor thing that we've seen..

And there's a just a minor FX changes as well, Steve..

Okay. Okay.

Far more positive, is that right?.

No..

Okay, okay. I know you guys have talked about the development of an RV park. I think it was outside Jasper maybe I heard that wrong.

Can you just talk about where that stands and what you're seeing in terms of maybe leisure demand, broadly with maybe fuel prices rising, do you think that helps you guys or hurts you guys in that area of the business?.

Right. So the RV Park that we're putting in Glacier National Park is actually on the west side of it west glacier is where we’re locating. It will be open in 2019. So we're waiting for the snow to melt to start construction and get that project underway.

In terms of trends, we feel like Glacier National Park, particularly the west side of glacier National Park is an underserved market from an RV and cabin perspective. And so not thinking about the macro trends, but just the local trends, we think that is the prime opportunity for us and that's why we have initiated this project.

In terms of the macro trends, fuel prices have gone up over 2017, but we still see strong demand. We think that the RV park industry is really heading strong record years over the last couple of years. So we think that will continue despite the increase in gasoline prices..

Okay. And then just. I think maybe - I think you provided a little bit more detail on the Banff Gondola in one of the recent 8-Ks.

I'm just wondering is that kind of – do you expect will be providing more attraction level detail or is that kind of more kind of just showing that improving the model works and as an example of what you're thinking you can do going forward? You're saying you're going to replicate that type of return, but maybe not sure..

We don’t anticipate providing a attraction level detail going forward.

The primary reason why we share that information is, our primary job here is to be good stewards of capital and capital allocations, and we wanted to make sure that our investors and those following Viad understand some of the returns that we're getting specifically on larger investments like the Banff Gondola as an example..

Okay. All right. Thank you very much..

Thanks, Steve..

Thank you. And that's the last question in queue. [Operator Instructions].

All right, Kristen. I think that sounds all the questions. I just want to thank everybody for the questions and their interest in Viad, and we look forward to speaking with you, again, next quarter. Bye-bye..

Thank you. That concludes today's call. Thank you for your participation. You may now disconnect..