Welcome to the Viad Corp First 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, Carrie Long. You may begin..

Good afternoon and thank you for joining us for Viad’s 2019 first quarter earnings conference call. During the call, you will be hearing 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.

We will be referring to certain -GAAP measures during the call, including income or loss before other items, adjusted segment EBITDA and adjusted segment operating incomes or loss.

These measures exclude restructuring and impairment charges or recoveries, acquisition transaction-related and integration costs, a legal settlement, and FlyOver startup costs.

Important disclosures regarding these measures, including reconciliations to net income or loss attributable to Viad, can be found in Table 2 of our earnings press release, which is available on www.viad.com. Now I’d like to turn the call over to Steve..

Thank you for joining us on today’s call. I am pleased to report that both of our business units performed well during the quarter and we delivered stronger than expected operating results.

At GES, revenue came in about $5 million above the high end of our guidance range driven by stronger than expected global revenue from corporate clients and the U.S.-based same-show growth of 4%, which exceeded our expectations of low single digits.

Despite the expected softness in certain retail and auto events, GES experienced stronger-than-expected growth in other sectors, which we believe bodes well for the industry as a whole. To help ensure that we are optimally aligned against our best opportunities, we recently organized GES’s global business under two geographical leaders.

And I’m pleased to report that Jay Altizer and Jason Popp, GES President of North America and EMEA, respectively, are making solid progress against GES’s Simplify, Grow, Transform strategy.

Our Simplify strategy is focused on streamlining our business, reducing complexity, improving client satisfaction, making it easier for our team to execute, and lowering our cost to service clients.

The Growth strategy is focused on driving incremental growth in priority areas, delivering innovative new products and services in our core business, as well as expanding into new lines of business.

Lastly, the Transform strategy is focused on modernizing and evolving GES into the preferred full-service provider for live experiences with a greater focus on corporate brand marketers. Last quarter, I indicated that our corporate business was the fastest growing segment at GES, and we continue to see strong growth in this area.

During the first quarter of this year, we were fortunate to partner with major brands like Microsoft, Bell Helicopter, Halliburton, Lockheed Martin, [indiscernible]. As we selectively invest in key areas to accelerate our growth and transformation, we are also sharply focused on capturing productivity gains.

Over the coming months, GES will be implementing several Simplify initiatives in our plan to drive margin expansion within the exhibition business. We will consolidate operating facilities in Las Vegas, bringing our shared service support team and operating business together.

Additionally, we’ll improve our cost structure by eliminating some positions within the exhibition business. We expect these actions will drive annualized cost savings of about $8 million. I want to thank the entire GES team for the hard work and dedication to drive profitable growth and sustainable margin improvement.

Overall, GES is off to a solid start in 2019, and I’m confident in our strategic direction for the business. Now let me switch gears to Pursuit. Pursuit delivered strong organic revenue growth of 14.6% and operating results at the high end of our prior guidance range during its seasonally slow first quarter.

With most of our operations closed, the growth during this period was primarily driven by the Mount Royal Hotel, which continues to receive great guest reviews and realized strong rev par as a result of our renovation of the property.

We were also successful in growing revenues at our other properties, including the Banff Gondola and Grouse Mountain Lodge, by offering innovative experiences and focusing on group events to drive volume during this otherwise-slow period. Across our geographies, the Pursuit team is preparing for a busy tourism season.

Our attractions at the Columbia Icefield in Jasper opened for the season this past weekend. And over the course of the next 6 weeks, we will open our remaining 12 hotels located at Glacier Park in Alaska, as well as our boat tour attractions in Banff and Jasper.

We continue to make progress against our Refresh, Build, Buy strategy to drive shareholder value. Last quarter, I mentioned various Refresh and Build projects that will open in time for the 2019 peak visitation seasons.

All of these initiatives are tracking on time and are expected to contribute $15 million to $17 million in incremental revenue this year. In the Banff Jasper collection, we recently opened the doors to our newly-renovated and reimagined Maligne Canyon Wilderness Kitchen and have received excellent feedback from our guests.

And at the Maligne Lake Chalet, we are on track to open our new indoor-outdoor dining space in late May with an incredible view of picturesque Maligne Lake. We also are preparing for the grand opening of the reimagined Glacier View Lodge at the Columbia Icefield in June.

This one-of-a-kind, all-inclusive hospitality experience will allow our overnight guests to enjoy exclusive activities at our nearby Glacier Adventure and Glacier Skywalk attractions, along with unique dining experiences and entertainment.

In the Alaska Collection, we are gearing up for a June opening of our 36-room expansion of the Seward Windsong Lodge. These new guestrooms and suites increase our bed base and provide an opportunity for a revenue maximization bundle with our popular Kenai Fjord boat tour attraction.

In the Glacier Park collection, we are making final preparations for the opening of our new RV park and cabin village in West Glacier. This new facility is located just outside the park gates and within walking distance to our other businesses in West Glacier.

Finally, in the FlyOver collection, we are nearing the completion of the construction, filming and editing of our new FlyOver Iceland experience, and the team is very excited for its July opening.

We are also making some great improvements to the exterior structure of FlyOver Canada to provide a better sense of arrival to our guests, along with the addition of new food and beverage and retail space to drive incremental revenue.

In February, we announced plans to expand our high-margin FlyOver collection into the popular tourism market of Las Vegas. We have secured a great location on the Las Vegas Boulevard and expect to begin construction at the end of this year.

FlyOver Las Vegas will provide guests with an exhilarating flight experience over the American Southwest’s most iconic locations, picturesque scenery and natural wonders. We expect it will open in 2021. In summary, 2019 is off to a strong start for Pursuit, with many exciting projects coming online this year.

We expect another solid year of growth and profitability from our collection of assets, and we remain focused on expanding Pursuit’s iconic and high-margin collections through our Refresh, Build, Buy framework. And now, I’ll turn it over to Ellen to provide more color on our financials.

Ellen?.

Thanks, Steve. For the first quarter, we reported a loss before other items of $0.51 per share on revenue of $285.6 million, adjusted segment EBITDA of $2.1 million, and an adjusted segment operating loss of $11 million. We had previously guided for a loss of $0.75 to $0.85 per share.

The upside relative to our guidance was primarily driven by stronger revenue and operating results at GES, a more favorable tax rate for the quarter, and lower corporate expenses.

On a GAAP basis, our net loss attributable to Viad was $0.89 per share, which included an after-tax charge of $6.4 million related to a legal settlement at GES involving a former industry contractor.

Although we were confident in our legal position, we recently reevaluated the claim based on additional information and determined that it was preferable to resolve the dispute ahead of a pending jury trial.

As compared to the 2018 first quarter, our consolidated revenue increased $2.9%, or $8.2 million, adjusted segment EBITDA decreased by about $400,000, adjusted segment operating results decreased by about $500,000, and our loss per share before other items increased by $0.02.

Before I move on to segment results, I want to point out that we have redefined our reportable segments for GES to align with some recent changes in organizational and internal reporting structures. Previously, our two GES segments were the U.S. segment and the international segment, which included Canada and EMEA.

Canada has now been combined with the U.S. to form the North America segment, leaving EMEA to stand as its own reportable segment. We have provided historical quarterly financial information for these two new segments in Table 2 of our earnings press release.

Now on to segment results, for the 2019 first quarter, GES posted total revenue of $274.9 million, adjusted segment EBITDA of $10.9 million, and adjusted segment operating income of $1.7 million. As compared to the 2018 quarter, revenue increased $7.2 million.

On an organic basis, which excludes the impact of unfavorable exchange rate variances, the revenue increase was $11.3 million, or 4.2%.

Organic revenue for the North America segment increased $1.9 million primarily due to continued base same-show growth of 4% and growth from corporate clients, partially offset by negative share rotation of approximately $6 million.

Organic revenue for the EMEA segment increased $8.8 million, or 18% primarily due to new business wins, underlying growth, and positive share rotation of approximately $4 million. GES’s adjusted segment EBITDA and adjusted segment operating income improved by approximately $500,000 and $1.1 million respectively from the 2018 quarter.

These increases were primarily driven by higher revenue, partially offset by higher compensation expense, including performance-based incentives, as well as the timing of expenses.

Pursuit posted first quarter revenue of $10.7 million, adjusted segment EBITDA of negative $8.8 million, and an adjusted segment operating loss of $12.8 million during its seasonally slow first quarter. As compared to the 2018 first quarter, revenue is up $945,000.

The organic revenue increase, which excludes unfavorable exchange rate variances, was $1.4 million, or 14.6%, driven mainly by our Mount Royal Hotel, which reopened last July after being closed due to fire damage in December 2016. In addition, we continued to drive revenue growth through our revenue management and refresh efforts.

We were successful drawing additional guests to the Banff Gondola and Grouse Mountain Lodge by offering unique experiences in group events. As shown in our earnings press release, we did see a drop in our same-store passengers metric during the quarter.

This was driven by softer visitation at FlyOver Canada primarily due to market conditions in Vancouver, but we were still able to drive revenue growth at that attraction through dynamic pricing.

Pursuit’s adjusted segment EBITDA decreased by about $870,000 versus the 2018 first quarter, primarily reflecting additional costs to support ongoing growth initiatives and the timing of expenses.

Adjusted segment operating results decreased by $1.6 million, reflecting higher depreciation expense primarily related to the reconstruction of the Mount Royal Hotel. Now I’ll cover some cash flow and balance sheet items before discussing 2019 guidance.

Our consolidated cash flow from operations was $8.2 million for the 2019 first quarter versus an outflow of $3.4 million in the 2018 quarter. This improvement was primarily due to changes in working capital. Capital expenditures totaled $19.5 million for the quarter versus $26.6 million in the 2018 quarter.

The decline was primarily due to higher prior-year investments at Pursuit, including the rebuilding of the Mount Royal Hotel and the purchase of the building that we recently reopened as the Maligne Canyon Wilderness Kitchen.

At March 31, our cash and cash equivalents totaled $43.5 million, our debt was $251 million, and our debt to capital ratio was 36.6%. And now, moving on to guidance, our full year outlook remains essentially unchanged.

We continue to expect consolidated revenue to increase at a mid-single digit rate from 2018 with an increase in adjusted segment EBITDA of approximately $6 million to $12 million.

Depreciation and amortization expense is expected to increase by $3 million to $5 million primarily as a result of the reopening of the Mount Royal Hotel and other capital investments to support growth and efficiency gains.

Full year adjusted segment operating income is expected to be in the range of $92 million to $98 million as compared to $89.7 million in 2018. At GES, full year revenue is expected to increase at a low single-digit rate from 2018 with comparable EBITDA.

We expect continued same show growth and new business wins to offset an expected revenue headwind of about $30 million from the combination of show rotation and exchange rate variances. At Pursuit, we expect full year revenue to grow by 15% to 17% from 2018, with an increase in adjusted segment EBITDA of about $7.5 million to $10.5 million.

This guidance includes approximately $15 million to $17 million of new revenue from various growth investments we are making. We expect to realize mid- to high-single digit revenue growth across the rest of Pursuit’s business, reflecting our ongoing revenue management efforts.

We expect our full year cash flow from operations to be in the range of $110 million to $120 million, and we expect capital expenditures to be in the range of $95 million to $100 million, which includes approximately $50 million of growth CapEx at Pursuit and about $10 million of growth CapEx at GES.

For GES, we expect the second quarter revenue to be in the range of $335 million to $350 million as compared to $315.3 million in the 2018 quarter. We expect this growth to be driven by positive share rotation of about $20 million and new business wins, partially offset by unfavorable exchange rate variances.

We expect GES’s adjusted segment operating income to increase by approximately $4 million to $7 million primarily due to the increase in revenue, partially offset by higher performance-based incentive expense and additional resources to drive growth and particularly in high-value areas.

As Steve mentioned earlier, we’re planning for a facility consolidation in Las Vegas and some staffing reductions that should yield annual run rate savings of about $8 million once fully implemented. We expect to begin realizing the savings this quarter, and those savings have largely been factored into our 2019 full-year guidance.

In connection with these actions, we anticipate recording a restructuring charge of about $4 million during the second quarter, which will be excluded from our reported income before other items. For Pursuit, we expect second quarter revenue to be in the range of $54 million to $57 million, up from $48.4 million during the 2018 quarter.

This strong growth reflects the benefit of various refresh and expansion projects that Steve discussed earlier.

We expect adjusted segment operating income to be in the range of $10 million to $12.5 million as compared to $10 million in the prior year quarter, reflecting higher revenue, as well as additional cost to support Pursuit’s expansion and higher depreciation expense.

Our second quarter income before other items is expected to be in the range of $1.28 to $1.43 per share, up from $1.20 per share in the 2018 quarter.

Please note, this range is expressed on a before other items basis and therefore does not reflect an expected restructuring charge of about $4 million at GES related to the planned staffing reductions and facility consolidations nor does it include the potential charge related to our expected withdrawal from the Central States Pension Plan that we discussed during our last earnings conference call.

We are still working with the Chicago Teamsters and other industry participants to finalize the terms of the withdrawal. Assuming it does take place, it will trigger a withdrawal liability that is currently estimated at a net present value of approximately $14 million payable over the next 20 years.

Additional 2019 guidance can be found in the earnings press release. And with that, I will turn it back to Steve..

Thanks, Ellen. In closing both of our businesses got off to a strong start in 2019 and our teams are working hard to drive profitable growth this year and into the future. Pursuit’s growth will be amplified by the various investments we have been making and continue to make to expand and enhance our collection of experiences.

And at GES, we continue to align our resources against key growth areas, while also focusing on margin improvement actions. Additionally, we have a solid pipeline of acquisition and new growth opportunities that we are actively pursuing. I want to thank the entire Viad team for their dedication to driving long-term shareholder value.

I’m confident in our strategy, and I’m excited about the many opportunities that lie ahead for our company. And with that, let’s open up the call for questions.

Operator, could you please open up the call?.

Thank you [Operator Instructions] our first question will be from the line of Tyler Batory of Janney Capital Markets. Your line is now open..

Hi good afternoon. Thanks for taking my questions. Just a couple from me, and I wanted to start on the 4% U.S.-based same-show growth.

Is there anything significant worth calling out that was driving that strength in the first quarter?.

As I mentioned during the call, there are a few sectors that performed better than we had anticipated, specifically in technology and in food, food and beverage. And so those did very well for us in the quarter. As we expected and we anticipated, the auto and retail space were in line with our expectation, which was down from prior year..

And then, a few questions for you on the FlyOver collection.

Starting in FlyOver Las Vegas, can you frame for us maybe the size and the investment and how that location might compare with Vancouver and Iceland? And I’m also curious, too, as you look towards new potential locations for FlyOver, do you have any sense of cadence as far as how many you might announce per year? Do you have any goals internally as far as how many of these announcements you’d like to make?.

Yes, Tyler, let me talk about the scale of the various FlyOver opportunities that we have. So currently, the FlyOver Canada is about a 60-seat capacity experience. What we’re planning and what we’re about to open up in Iceland is roughly 40 seats, and Las Vegas will be our largest at around 80 seat capacity.

And really, the size of the ones that we consider really depends on the size of the tourism market in any particular geography. And so, with Las Vegas having 42 million to 45 million visitors every year, it’s our largest by far.

The second part of your question was pacing, and we’ve talked a long time about building out a platform or a network of FlyOver experiences around the world. And we continue to make progress on that. We have a short list of locations where we would like to go and where we think it’s a very viable product, and we continue to execute against that list..

That’s helpful. And then, I also wanted to ask about the $8 million of cost savings in GES.

Is there a timeline you can provide on when you’re going to start to see those? And did you mean EBITDA cost savings?.

Yes, it’s EBITDA cost savings, and it’s a series of actions that will all take place in the second quarter. So, you’ll see it come in during the second quarter, but there are multiple actions that have different timing within the quarter..

That’s helpful. And then last question from me, just capital allocation. Can you talk a little bit about the M&A, acquisition pipeline right now? And I don’t know if you have any updated thoughts as far as how you’re thinking about potential acquisitions and balancing that against maybe some share buybacks..

Sure. We continue to have active acquisition opportunities or pipelines across both businesses. I’m encouraged by what’s out there. I think there’s opportunity for us to do M&A, going forward, for both businesses. We do balance that against internal investments. You saw we talked a lot on the call today about the Refresh and Build projects.

I’m very excited about bringing those online. And when we think it’s appropriate, or we don’t have either one of those lined up, we always evaluate the potential for a buyback. So, we’re encouraged by the position we’re in across both acquisition, Refresh and Build strategies, as well as share buyback..

That’s all for me. Thank you..

Thanks Tyler..

Thank you. Our next question will be from the line of Kartik Mehta of Northcoast Research..

Just maybe a big picture question, seems like you started off well with GES, sort of off well with Pursuit. GES, you’re seeing better same-store growth than expected.

And just wondering maybe change in guidance, or maybe your thoughts on how the year is shaking out, seems like things are going better than expected?.

What I would say is we had a very good first quarter, encouraged by what I see in the business that we executed for the first quarter for GES. And I’m encouraged by what we have from a pacing perspective in regards to Pursuit’s business.

So, I’m bullish going into Q2 and the full year, but it’s still first quarter, and we have a lot of runway to go through the balance of the year. So, I’m very pleased with where we stand today and excited for the rest of the year..

And then, Steve, I noticed, I think there’s been a change in show rotation, maybe what expectations are today versus at the end of the year.

Why did that change? Is it just timing? Or did something change within the business?.

Nothing’s changed within the business, but you do see small fluctuations in the rotation shows and the size of that non-annual rotation each quarter. It’s just changes in the overall business. And in a full-year perspective, it looks very similar to what we’ve guided. There is just some nuances from quarter-to-quarter..

And just maybe one last question, Steve. As you look at the GES business, maybe GES is better at this than Pursuit, I’m not sure.

But if there is weakening of the economy, where would you see it first? And any signs that maybe the economy or demand could be slowing?.

When you think about a downturn in the economy, it’d probably be seen most at GES. But there is a delayed effect, and the delayed effect is caused by the fact that exhibitors tend to book their space for a trade show or for an event pretty far in advance of that event. Sometimes it’s 9 months, sometimes it’s a year in advance of the event.

And so, they’re locked in from a budget perspective for that event, certainly for the space for that event. So, we tend to have a little bit of a lag. Maybe it’s 9 months of a lag to any economic downturn. And it first shows up on an event through essentially fewer attendees coming to the event, and then that’s followed through.

Once the exhibitors see that, then it impacts the exhibitor number, as well. So, we start seeing it across all lines of business within GES about 9 months after something happens.

What I’ve seen so far, though, Kartik, is same-show growth in certain sectors was lower than prior year and in line with our expectations based on the dynamics within those industries. But I’m encouraged by what I see from the other sectors, providing them, at least in the first quarter, a pretty healthy same-show growth number..

Steve, I lied.

I guess, just based on the answer, what sectors have you seen maybe a little bit of a slowdown? What sectors have you seen continued growth, just big-picture?.

Big-picture, as we’ve indicated on prior calls, the auto sector and also the retail sector have both been challenged at the end of last year, and we expect that to continue through 2019. And they’re for really different reasons.

I think the retail sector has some challenges from obviously e-commerce and the impact that has on retail space, as well as retailers in general. From an auto perspective, they’ve had a great run over the last several years, and we’re just seeing that tail off a little bit.

Other sectors seem to be performing well, kind of in the mid-single digit growth for GES. And there’s a few standouts, which I mentioned earlier in the first quarter, around food and then also technology..

Thanks, Steve. I really appreciate it..

Thanks, Kartik. Take care..

Thank you. Our next question will be from the line of Steve O’Hara of Sidoti Company. Sir your line is open..

Yes, hi good morning good afternoon sorry. Just going back to the guidance real, quick, in terms of your outlook for the full year, there hasn’t been any deterioration in your view on the rest of the year, right? You’re maybe being cautiously optimistic.

Obviously, it wasn’t that big of a differential between guidance and the results, but, I mean, you’re still kind of this your, feeling about the balance of the year is still kind of intact..

Yes. I feel very strong going into the second quarter. As I mentioned, GES had a strong first quarter. I’m encouraged by what we saw from a same-show growth perspective being at 4%, and I’m encouraged by the new opportunities we had with corporate clients at GES.

And then, when I look at the pacing reports for our Pursuit business, I’m encouraged about the upcoming tourism season. So, nothing has fundamentally changed from my view for the balance of the year. I think that it’s always wise to have a sense of where you are in the baseball game, and we’re still in the early innings..

That makes sense. And then, one of the things I’ve heard recently is this concern about visitors from Asia, and I guess China specifically, into Canada and some of the parks.

I’m just wondering if you have any insight into maybe how big of a portion of travelers into Banff or anything like that that might be with kind of some tensions between Canada and China maybe higher than last year. I’m just wondering if that could be a negative going into the peak travel season..

You know what I see, Steve, going forward, is a healthy pipeline, both from the independent traveler as well as group travelers. So, I’m not seeing any impact in the pacing reports that I have for not only our Canadian assets but also the ones in Alaska and in Montana. So, at this point, I don’t see any impact that that’s having on our business..

Thanks. I’ll jump back in queue..

Thanks Steve..

Thank you. Our next question will be from the line of Peter Rabover from Artko Capital. Sir your line is now open..

Hi guys. Hi Steve, I was wondering, maybe you could talk a little bit more about your corporate segment outreach within GES, maybe update us on any wins or on how you’re feeling about your positioning there. Any color would be appreciated. Thanks..

Sure. Peter, it’s been a focus of ours for the last couple years to focus more on corporate clients, both brand activations that they might have on a trade show, but also corporate events that they may do at a unique venue. We have consistently grown that business. I was really happy with the performance last year.

It was one of the fastest-growing segments of the GES business. We continue to see strength in that side of our business, both in the U.S. and in EMEA.

And so, we were able to bring on a few new logos, or new clients, into the fold, and we continue to build up that business from a resources perspective, which means bringing in the right talent, bringing in the systems to support those teams. And we’re excited about the growth, and it’s a key area for us at GES..

And I guess I’ll ask a tough question that comes up about once a year from me. But as we’re getting closer to your $250 million revenue target for Pursuit, just discuss the reasons why maybe you haven’t pursued a split.

I know you’re going to say your Board reviews it and everything like that, but I’m just curious, given such a significant discount to its peers, why haven’t we thought about more strategic transactions, I guess, both from [indiscernible] recapitalizing or splitting it out. Thanks..

Sure. We continue to make good progress against the growth strategy that we laid out a few years ago. We’re pleased, very pleased, with what we’ve been able to do in the last 4 years from a shareholder return perspective. We continue to be focused on progressing in the growth strategy.

And we look at it in terms of other strategies we could pursue, or other ways to drive shareholder value. But right now, this is the path that we’re on, and we’ll continue to evaluate it as we make progress..

I won’t dig in any further. Thanks. I appreciate your time..

Thank you. At this time, speakers, there are no questions in queue. [Operator Instructions] At this time, speakers, there are no questions in queue. You may continue..

Alright. I appreciate it. Okay, thanks, everybody, for your questions and your interest in Viad and we look forward to speaking with you next quarter. Goodbye..

Thank you, speakers and that concludes today’s conference. Thank you for joining everyone. You may now disconnect..