Welcome to the Viad Corp Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode until the question-and-answer session of today’s conference. [Operator Instructions]. This call is being recorded. If you have any objections, you may disconnect at this time.

May I introduce your speaker for today, Carrie Long, please go ahead..

Good afternoon and thank you for joining us for Viad’s 2019 third 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.

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.

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. With that, I’ll turn the call over to Steve..

Thank you for joining us on today's call. Our third quarter was an important quarter with solid execution at both of our businesses. At Pursuit, we opened several new experiences that will accelerate our growth and drive strong returns. At GES we continue to realize strong growth within the corporate market and take actions to simplify the business.

Across Viad, our teams are working hard to drive shareholder value through successful execution of our growth strategies. Pursuit delivered third quarter revenue growth of 20% and adjusted segment EBITDA margins of 55.6%. These results reflect the strength of our Refresh, Build, Buy strategy and Pursuit’s strong hospitality culture.

On the Buy side, our recent acquisitions of seven Mountain Park Lodges properties in Jasper National Park and Belton Chalet near Glacier National Park are performing very well. These properties are a great set with our existing experiences, and we are delivering faster growth in RevPAR than we had initially expected.

Additionally, we continue to see opportunities to further enhance the return on these investments for future refresh projects and continued revenue management efforts. On the Build side, we successfully open to new experiences during the third quarter, including our much anticipated FlyOver Iceland attraction in Reykjavik.

This virtual flight ride over the amazing scenery of Iceland is receiving great guest reviews and continues to gain awareness and interest from tourists and our travel trade partners.

We also opened our newly constructed West Glacier RV Park & Cabin village, which is ideally situated at the West entrance to Glacier National Park near our existing food and beverage and retail offerings. We received strong guest reviews in our inaugural year and we look forward to building upon our initial success during the 2020 season.

Finally, our 36 room expansion of the Windsong Lodge in Alaska, which opened at the end of the second quarter continued to perform very well during the third quarter peak season. With the addition of these new rooms, we were able to increase the cross-sell of our popular and high margin Kenai Fjords marine sightseeing tours.

On the Refresh side, we're very happy with the fantastic physical transformation of our Glacier View Lodge at the Columbia Icefield which was recently listed among the five best Canadian hotels by Fodors, as well as our food and beverage and retail offering at Maligne Canyon and Maligne Lake in Jasper and FlyOver Canada in Vancouver.

We continue to enhance the overall guest experience across all of these locations to ensure we are capturing maximum value from our investments. Our proven success with other refresh projects such as a Banff Gondola and Mount Royal Hotel, give us confidence.

These projects will continue to develop nicely as our team members manage them to their highest and best use. Across Pursuit’s existing assets, we continue to drive strong performance through our focus on delivering great guest experiences, revenue management, and diligent cost management.

On a same-store basis we realized RevPAR growth of 8.1% at our hospitality properties, a 5.6% increase in effective ticket price and an 11.1% increase in total revenue per visitor at our attractions. This was our first year of utilizing dynamic pricing. And we are very much in the early stages of capitalizing on that initiative.

We rolled it out at the Banff Gondola and FlyOver Canada this year and realized a healthy increase in effective ticket price at both attractions. The Gondola is on track to produce its strongest year ever in terms of revenue and revenue per visitor, while also maintaining a very high guest experience scores.

In fact, the Gondola was ranked as the number one attraction Banff and its Sky Bistro fine dining restaurant recently reached the number one ranking of restaurants in Banff on TripAdvisor. At FlyOver Canada, our dynamic pricing efforts enabled us to hold overall revenue in line with 2018 despite lower long haul visitation to the Vancouver market.

This high margin attraction remains very popular with a TripAdvisor ranking of number four in its category in Vancouver. Overall, Pursuit delivered organic revenue growth of 9.5% during the third quarter.

This reflects great execution by the team, especially considering the effort required to deliver on the various organic growth projects and the integration of Mountain Park Lodges. Now, I'll ask Ellen to comment on Pursuit’s financial results for the quarter.

Ellen?.

Thanks Steve and good afternoon everyone. For the third quarter Pursuit’s revenue was $135 million, adjusted segment EBITDA was $75.1 million and adjusted segment operating income was $67.6 million. As compared to the 2018 quarter, revenue increased $23 million or 20.5%.

The acquisitions of Mountain Park Lodges and the Belton Chalet contributed revenue of $13.1 million during the quarter. On an organic basis which excludes the Mountain Park Lodges and Belton Chalet acquisitions and unfavorable exchange rate variances, revenue increased $10.6 million or 9.5%.

This group was mainly driven by the opening of our new build projects, the West Glacier RV Park & Cabin village and a 36 room expansion of Seward Windsong Lodge in Alaska, as well as stronger performance from our existing assets as a result of our refresh projects and our revenue management efforts.

Pursuit’s adjusted segment EBITDA and adjusted segment operating income improved by $12.6 million and $11.8 million respectively from the 2018 quarter. This growth was primarily due to the increase in revenue.

The acquisitions of Mountain Park Lodges and Belton Chalet contributed adjusted segment EBITDA of $7.4 million and adjusted segment operating income of $6.1 million during the quarter. And back to you Steve. .

Thanks, Ellen. Now let me switch gears to GES. The team at GES is focused on a strategy to simplify, grow and transform the business with the ultimate goal of achieving a more favorable revenue mix and stronger margin profile.

One of our best opportunities to grow at GES both top-line and profit margin is within the large and fragmented corporate event space. And I'm happy to report that we continue to drive strong revenue growth in that area. During 2018 corporate events represented about 14% of GES’ total revenue.

So far this year, our revenue from corporate events is up almost 10% year-on-year. The third quarter was especially strong for us, with some notable new clients including Starbucks and CloudBees.

On the exhibition and conference side of our business which still represents the majority of GES’ revenue, we saw lower year-on-year revenue due to negative share rotation during the third quarter. This was expected and was primarily the result of two large biannual events that took place in 2018 third quarter.

We will produce these events again in 2020. In general, we continue to see revenue growth from the exhibitions and conferences we produce. We did have one large retail focused exhibition during the quarter that experienced a notable decline, which created a drag on our overall base same-show growth metric.

Setting that outlier aside, our base same-show revenue growth was low single-digit, reflecting a combination of continued industry growth, pricing, and our ability to capture exhibitor discretionary spend at the events we produce. Simplify is another key tenant of GES’ strategy.

Here we're focused on streamlining our business, improving client satisfaction, making it easier for our teams to execute and lowering our costs to serve clients. Earlier this year, we undertook some restructuring actions, including facility consolidations in Las Vegas and various smaller U.S. operations.

During the third quarter, we took some additional simplification actions to further strengthen our operational efficiency, including rationalizing our facility footprint in Canada, and streamlining our organizational structure in EMEA. Through our year-to-date restructuring actions, we've removed about $10 million from our cost structure.

We're also pursuing numerous other simplification initiatives across GES that are driving benefits. One example is a growth investment that we made earlier this year to introduce a new standardized registration counter system for check in at events that is both visually impactful and easier for us to deliver.

It's been well received by our clients, offering better service to event organizers and a better exhibitor experience, while also enabling us to be more efficient. This is just one example of how smaller simplification projects can bring systematic value to GES.

I commend the GES team for taking a balanced approach capitalizing on growth opportunities, while also finding ways to improve the business’ cost structure. There is truly driving fundamental improvements that will transform GES’ brand market position and financial profile. And now, I’ll turn it back over to Ellen for some more financial commentary. .

Thanks, Steve. For the third quarter GES’ revenue was $227.4 million, adjusted segment EBITDA loss was $2.8 million and adjusted segment operating loss was $11.6 million. As compared to the 2018 quarter, revenue decreased $18.7 million or 7.6%.

On an organic basis, which excludes the impact of unfavorable exchange rate variances, the revenue decrease was $16.5 million or 6.7%.

Organic revenue for the North America segment decreased $8.7 million or 4.3%, primarily due to negative share rotation of approximately $29 million, which was largely offset by continued growth from our corporate clients and other new business wins.

In EMEA, organic revenue decreased $4.4 million or 9.2%, primarily due to negative share rotation of approximately $9 million, partially offset by a new client wins and growth from the underlying business.

GES’ total adjusted segment EBITDA loss and adjusted segment operating loss increased by $13.4 million and $12.8 million respectively from the 2018 quarter. These increases were primary driven by higher performance based incentives and lower revenue.

For Viad as a whole, we reported consolidated adjusted segment EBITDA of $72.3 million, which was down 1.1% from the 2018 third quarter as lower results at GES were mostly offset by growth at Pursuit.

Our consolidated cash flow from operations was $61.6 million for the quarter and we reinvested $14.4 million back into the business through capital expenditures. We continue to maintain a strong balance sheet with a leverage ratio of 2.3 at September 30th.

Our debt was $326.2 million and our cash and cash equivalents totaled $56.6 million at the end of the quarter.

Our GAAP basis net income attributable to Viad on was $1.53 per share for the third quarter which included after tax restructuring charges of $1.3 million primarily related to simplification actions at GES, FlyOver start up costs and acquisition related costs totaling about $800,000 after-tax and favorable tax matters of $2.1 million.

Our third quarter income before other items was $1.56 per share as compared to $1.72 per share in the 2018 third quarter, the lower per share earnings versus 2018 primarily reflects an increase in income attributable to non-controlling interest, lower adjusted segment EBITDA and a higher effective tax rate in the quarter.

Our income per share before other items was also lower than our prior guidance range driven primarily by softer group visitation and the delayed completion and ramp-up of certain builds and refresh projects at Pursuit as well as a higher effective tax rate during the quarter.

Next, I’ll quickly cover guidance for the remainder of 2019 before turning it back to Steve. We've updated our full year outlook to reflect our lower than previously anticipated third quarter growth at Pursuit as well as the reduced fourth quarter growth outlook at GES, which is based on visibility into our current sales pipeline for the quarter.

We now expect our consolidated segment -- adjusted segment EBITDA to be in the range of $153.5 million to 157.5 million as compared to $146.3 million in 2018. We had previously been expecting it to be in the range of $159 million to $166 million.

We expect Pursuit full-year revenue and adjusted segment EBITDA to grow by about 20% year-over-year, reflecting the strength of our refresh, build, buy investments and hospitality culture combined with our revenue management efforts.

And at GES we expect low single-digit full year revenue growth through clients -- new client wins and growth in corporate events that more than offset expected negative share rotation. We expect adjusted segment EBITDA at GES to be in the range of $71.5 million to $71.5 million to $74.5 million, which is down from $77 million in 2018.

And the primary driver of that decrease is our expectation that GES will earn performance based incentives in 2019, versus none earned by GES under our 2018 management incentive plan. 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 $82 million to $89 million, which includes approximately $42 million growth CapEx at Pursuit, and about $10 million of growth CapEx at GES. Additional guidance for both our full year and fourth quarter can be found in earnings press release. And with that, I'll turn it back to you, Steve. .

Thanks, Ellen. Entering this year, we had aggressive plans at both Pursuit and GES. Although we're coming up a bit short on those initial expectations, I'm very proud of what our team has accomplished so far this year. I'm even more excited about our future prospects.

At GES, we're having success growing in the corporate event space, while we continue to take simplification actions that are improving our cost structure to make it easier for our team members to do their job and to focus on our clients.

The GES team is focused on closing out 2019 on a strong note, while also preparing for what will be a very busy 2020. Next year GES will produce all three of its major non-annual events CONEXPO-CON/AGG during the first quarter, and IMTS and MINExpo during the third quarter.

In total we expect to realize incremental revenue from positive share rotation of about $100 million in 2020, while we continue to gain share in corporate events and drive growth in our base same-shows. At Pursuit the theme remains very busy executing against our Refresh, Build, Buy growth strategy and continued implementation of dynamic pricing.

We're finalizing our plan for new organic growth investments we will undertake for 2020. And we continue to make good progress on some of the longer range field projects that are expected to open in 2021 and 2222, including FlyOver Las Vegas, FlyOver, Canada, Toronto, and the new geothermal lagoon in Iceland.

We remain very active on the corporate development front, both in evaluating additional FlyOver locations as well as attraction and hospitality acquisition targets, in iconic, unforgettable and inspiring locations.

I want to thank the entire Viad team for their tireless effort to continually increase shareholder value through our proven growth strategies. I'm excited about what we've accomplished and the new growth opportunities that we are actively pursuing. And with that, we will open up the call for questions.

Simon, can you please open the call?.

Absolutely, thank you so much. We will now begin to question-and-answer session. [Operator Instructions]. And we have our first question coming from the line from Kartik Mehta from Northcoast Research. Kartik, your line is open. .

Steven and Ellen, I wanted to focus a little bit on the GES business. Steve, you talked a little bit about the $100 million share rotation in 2020. I think in the past you've talked about that $100 million possibly generating incremental margins around 30%.

And if you look at GES today and maybe some of the restructuring you've done, do you think that's still a valid number for margins for that incremental revenue you’re going realize in 2020?.

Yes, thanks for the question Kartik. We're very excited about 2020 and producing the non-annual events that are coming up. So we still believe it'll be $100 million or so in terms of incremental revenue. And still on those events that, is that incremental revenue will have about a 30% flow through to the bottom.

So the team is very excited, we've been gearing up for some of the activity that will happen in first quarter of next year. And we're excited about going into 2020. .

And then Steve, just to stay on GES, one of the things you mentioned is maybe the sales pipeline slowing down.

And I'm wondering what the waterfall of those sales are, how much of that impacts 2019 versus it impacting 2020?.

Really Kartik, when we came into this year, we were very focused on offsetting some of the negative share rotation that we had coming in. So on a full year basis, we have kind of $15 million to $20 million of negative share rotation that was going to impact us.

I'm really happy that we were able to not only offset that but continue to grow beyond that. So as we enter into the fourth quarter, we took a look at our sales pipelines. And we recognized that our expectations were a little bit high for the business, and we've made the adjustment. So it's really an impact in '19, and not in 2020..

And then just one last question, Steve, just on the Pursuit business, you had strong organic growth at 9.5% but just a little bit less than we were expecting. Park attendance seems to be very strong.

As you look at the business, was the softness as a result of what you just said, long haul flights or was there anything else or was the attendance maybe less than you thought?.

We had a really strong 2019 at Pursuit. The organic revenue growth was around 10%. These are a lot of the projects that we've talked about for really the last year, excited to get those off the ground and implemented.

The organic growth that they drove kind of is a testament to the strong experiences that we've created and some of the awards that -- and recognition that we talked about during the call. So -- but we did continue to see lower travel trade volumes at specific locations within the Pursuit network.

So specifically at the Icefields or the Glacier Adventure, where we saw less travel trade participation.

We also saw lower long haul visitation into Vancouver, but Kartik in a lot -- in the business, we were able to offset a big portion of that based on some of the results that we talked about in the call, like the revenue per passenger at our attraction, through some of the dynamic pricing as well as some of the new pieces we brought on, as well as the increase in RevPAR for our hospitality asset.

So, when I look at the underlying business, there's a lot of really strong activity happening that we're super excited about. We weren't fully able to overcome some of the things like the travel trade and lighter visitations but we feel really good about some of the underlying parts of the business. .

Our next question is coming from line of Tyler Batory from Janney Capital Markets. Tyler, your line is open..

Just a few questions from me on the Pursuit side of things. Steve, can you talk a little bit more about what you're seeing with the Mountain Park Lodge properties? I think you mentioned faster RevPAR growth than you initially expected.

But can you talk about what you're seeing there? And then also, I'm not sure if you can discuss any changes, specifically that you've implemented on the revenue management side of those properties.

I know it’s early days, but just curious what you guys have been able to do there since you've owned them?.

Sure. Thanks, Tyler. First of on the Mountain Park Lodge properties. As I mentioned, during the call, we're seeing greater RevPAR increases than we expected. And as a reminder, we acquired these properties right before the peak season started. So our main emphasis was just on executing against the peak season.

We were fortunate that we're able to take price increases and fill up the hotels during the season. So that was a high point in kind of beat our expectation. And we believe that this strategic acquisition will really serve us well going into the future from a revenue management perspective.

You specifically mentioned dynamic pricing, which we really are only doing at a couple locations at this point in time, most of the RevPAR increases that we did with Mountain Park Lodges were more revenue management just moving prices along to match what the demand look like.

So it is less about dynamic pricing, and more about just revenue management. .

Okay, perfect. That's helpful. And then I also want to ask about FlyOver Iceland. Now that that's been open for a few months now.

Can you give a little more detail how that is performing and what you're seeing over there?.

Yes, we're very excited about what we're seeing so far from the guest reviews. We started a little later than we anticipated because of construction delays, but it's getting a five star rating from all the visitors that are commenting on TripAdvisor. We've seen a really good pick up.

It's actually fun to read some of the reviews from local Icelanders who are saying they’ve never seen their country presented in such a fascinating way. So we're very excited about the response we're getting. And we're excited about going into the 2020 high season in Iceland. .

Okay, great. And then switching gears to the GES side of things. Can you talk a little bit more about the margin in that business? I think Ellen you'd mentioned the performance based incentives that's influencing the EBITDA margin in that business.

So is there anything else going on with the cost side of things within GES?.

Well, we did quite a bit of cost takeouts during the year, as Steve talked about, but the big year-over-year margin difference was due to performance based incentives. GES did not earn incentives in 2018, so basically that year incentives wiped out. So there is an impact from that and that's the primary difference that the margin decreased. .

Okay, great. And then just last question from me. Any changes to how you're thinking about capital allocation, I mean obviously the CapEx is going to be ramping up here with some of these FlyOver projects.

But any thoughts on how you're thinking about balancing some of that spending versus potential share repurchases and then M&A as well?.

Well, I think you're right. So our capital will ramp up as new assets come online and as we go into 2020 with GES’ non-annual rotation. So it sets us up for several good years of capital.

Now when we look at the allocation, obviously we look at our track record and we understand that we have a very strong track record in the investments that we've made in the business as well as businesses that we have acquired. So that will be a priority.

But obviously, there will be a balanced approach between investments in the business and looking at share repurchases when we feel it's appropriate, and obviously, our dividend as well..

Thank you. [Operator instructions]. Now our next question is coming from the line of Steve O’Hara from Sidoti & Company. Steve, your line is open. .

Just a question. So performance based incentives were up in 2019. I guess GES is down year-over-year in 2019.

Is it just kind of resetting the deck in terms of ratcheting maybe the high watermark a little bit lower given nothing was earned in 2018 or are there different things other than bottom-line things like that I guess factored in?.

No, the incentive the target categories as the same year-over-year we look at, operating income, margin and revenue. When the plan was set for 2018 the targets were not achieved so the incentives were zero though, mostly in the third quarter of last year which is why you see the big year-over-year and no incentives in the fourth quarter of last year.

For '19, the targets were set based on the '19 plan and GES is in the money on those targets so far for the forecast that we have right now..

Okay. So that -- it means -- and I haven't looked too closely at it, but in terms of the guidance, the guidance is lower but is that -- that's more due to pursuit.

Is that right?.

Well, guidance is lower and the main difference in the EBITDA guidance is the performance based incentives. So we were able to overcome the rotation from a revenue perspective, but the -- we weren't able to overcome the incentives delta. .

Okay. .

And one of the differences in the 2019 plan is we obviously anticipated and knew about some negative share rotation that was going to impact the business and we're pleased to have kind of grown -- to offset that and even grow beyond that. So that's one of the major differences in the business between 2018 and 2019..

Okay. And then just going to the Mountain Park Lodges and pricing there. I mean can you just give me a quick idea of in terms of the pricing actions that you took.

I mean, were the -- I guess I'm just -- I mean it seems like it's positive, I just -- I'm wondering kind of why the prior management team apparently left money on the table in the past or what -- or was it a matter of them not marketing the maybe the properties effectively or you guys being able to do kind of small updates to maybe boost pricing a little bit here and there.

Just wondering -- I guess I'm just curious about that dynamic?.

Sure. In terms of Mountain Park Lodges we were not able to do any refresh projects or anything like that given the timing of when we acquired the properties. We do think that's an opportunity going forward.

But the success that we've had in revenue management at Glacier National Park is really it's due to the demand in the Jasper market, which has been strong for the last several years and it's about feeling comfortable about taking price.

And we believe that our centralized revenue management team that looks over all of our properties and all of our attractions from a revenue management perspective that they do a very job. We anticipated during our acquisition that we would have upside to the RevPAR and we've exceeded our own expectations.

So we're very happy about where we stand and we think that there is a further room ahead, given that in 2020, we'll have the opportunity to potentially do some refresh or some changes to the properties. So we think we've started kind of on a good trail for that acquisition. .

Okay.

And is there a way to think about where pricing can go without any refresh, and then maybe with the refresh or maybe even returns that you’d expect to generate if you refresh certain properties et cetera?.

Sure. Steven it's pretty early in the cycle. We just finished operating the peak season of an acquisition that we took ownership of right before the peak season. So we're still evaluating what those refresh opportunities are and how we move forward.

But I would just point to the success we've had and I think you've seen firsthand at the Alcan Avenue and the Mount Royal Hotel. I'm not saying that we're going to reach that level of refresh, but it does point to the fact that we believe there is untapped potential in these properties. And we're going to take advantage of that over time. .

Okay. And did you say in terms of the pricing, maybe what the differential was in this year and last year in that portfolio? And was there any kind of money left on the table in June. I mean I know kind of July and August are the big months.

But I think that's more of a year around market maybe I’m incorrect?.

I did not mention the increase that we experienced year-over-year. But know that it beat our expectation and our acquisition model. And we're pleased with the outcome. They are year around properties. And so we'll continue to use revenue management throughout the full year. .

Thank you. There are no questions in the queue as of this time. [Operator Instructions]. We show no further questions at this time. .

Alright, thanks Simon. Thanks everybody for your questions and your interest in Viad. And we look forward to speaking with you again next quarter. Good bye. .

Thank you. And that concludes today's conference. Thank you for your participation. And you may now disconnect..