Pursuit Attractions and Hospitality, Inc. (PRSU) Q2 2015 Earnings Report, Transcript and Summary

Welcome to the Viad Corporation Second Quarter Earnings Conference Call. Your lines have been placed on a listen-only until the question-and-answer session. [Operator Instructions]. This conference is being recorded. If you have any objections please disconnect at this time. I will now turn the call over to Ms. Carrie Long. Ma’am, you may begin.

Good afternoon and thank you for joining us for Viad’s 2015 second quarter earnings conference call. During our call you will 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 Viad’s annual and quarterly reports filed with the SEC. Additionally we’ll be referring to certain non-GAAP measures during the call. A discussion and reconciliation of those measures can be found in table two of our earnings press release which is available on our website at www.viad.com. With that, I'll turn it over to Steve.

Thank you for joining us on today’s call. We had a very strong second quarter. I’m very proud of our results. Our income per share before other items was a $1.18, compared to $0.45 in the second quarter of last year and exceeded our prior guidance of $0.78 to $0.88 per share. Both business groups performed well and benefited from strong industry fundamentals driving better than expected operating results and substantial revenue growth. GES’ performance was largely driven by strong growth in the U.S. business, that resulted in significant upside to our prior guidance for the quarter. The growth was broad based across three main categories; first, our U.S. based same show revenue growth was about 7.4% for the quarter versus our forecast of about 5%. This marks the second consecutive quarter with same show growth above 7%. In June CEIR, which is the Center of Exhibition Industry Research released the 2015 first quarter data for its annual CEIR Index Reporter. Despite the severe winter the total index posted its highest increase in the last eight years with growth in exhibition space, number of exhibitors and attendance. Second, GES had significant success in winning new in the year exhibition clients for 2015, resulting in near record levels of revenue in the second quarter of short term bookings. And third our revenue from corporate clients increased considerably, reflecting some new client wins and increases in client spending, particularly from our pharmaceutical clients. We benefited from our clients’ increased spending levels to support their new product launches. I'm very proud of the GES team for delivering significant revenue growth and operating efficiently. For the quarter GES posted an operating margin of 10.5% which is the highest it’s been since the second quarter of 2007. The 2015 second quarter was an important one for GES as it represents the largest quarter for the year. We needed to deliver solid performance and we did. Given the significant upside to our second quarter results we considered increasing our outlook for the full year but thought it would not be prudent to do so at this time. We still have a half the year to go with some unsecured business that we need to win. That said, the risk is manageable and our solid execution and favorable industry conditions give me confidence in our ability to deliver on our full year revenue and operating income targets. On the longer view and term we continue to make progress on our growth strategy for GES. Our position as the global full service partner for live events is resonating with our client base and continues to result in cross-sell wins and growth in live events. For example, the [indiscernible] Industries of America and Helicopter Association International, two long standing GES clients both selected GES for event accommodation services. We also won the event accommodation in audio-visual services for Endocrine [ph] society’s events. All three of these contracts will begin in 2016 and additionally we picked up the data and registration services for our portfolio of European events organized by Mack Brooks Exhibitions. Our core exhibition business also had some nice wins, including multi-year renewals with the Helicopter Association International, The International Production Processing Expo and [indiscernible] and Boeing chose to consolidate its event program with GES in an expanded multi-year renewal. As part of our strategy we’re focused on growing our presence in other segments of live events like corporate events and I am very pleased with our progress. Recently we produced Infosys Confluence 2015, a premier technical conference in San Francisco and Tableau [ph] extended our contract to produce its annual U.S. customer conference through 2017. Expanding into other segments of live events provides GES with a broader customer base and a significant growth opportunity. I am proud to say that the integrations of our recent acquisitions of onPeak, N200 and Blitz Communications are on track and meeting our financial expectations. More importantly these acquisitions are creating a true growth platform for our business that is setting us apart from the competition and driving shareholder value. Now let me switch gears and talk a little bit about our Travel and Recreation Group where we also had a strong second quarter. Revenue was at the midpoint of our guidance range with operating income slightly above the range. We experienced revenue growth in both our attractions and hospitality properties where we saw increased demand and higher effective rates resulting from our yield management efforts. Passenger counts were up 7.9% at our attractions with an increase in revenue per passenger of about $5 or 17.2% on a same store constant currency basis. At our hospitality properties the same store RevPAR was up 5.3%. In addition to strong growth from our higher margin lines of business, travel and recreation operating income also benefited from cost management efforts to minimize expenses during the seasonally slow part of the second quarter. Additionally we continue to make progress on our refresh build buy strategy. During the second quarter we completed the renovations of about a third of the rooms of the Banff International Hotel. We received positive guest comments regarding the completed renovations and we’ve realized significant increase in ADR for the updated rooms. The remaining rooms and public spaces will be renovated during the next off season starting in October of 2015 and continuing through May 2016. The West Glacier Properties that we acquired in July of 2014 are fully integrated and exceeding our financial expectations. Warmer weather drove strong visitation to Glacier National Park during the month of June. Our West Glacier Properties benefited from the increased visitation with revenue growth of about 25% from our retail and food and beverage properties. As you may be aware there is currently a forest fire burning at the opposite side of the park that has temporarily closed the East entrance and a portion of the Going-to-the-sun-Road. Fire crews have made great progress containing the fire and all of our properties are fully operational. We have seen some shift of bookings at our Saint Mary Properties which is located at the East entrance. Aside from having a number of our rooms rented out to fire crews it’s pretty much business as usual. I am also excited to announce that we are finalizing our plans for a major renovation at the Banff Gondola attraction. We purchased the Gondola 1999 and it’s been a tremendous asset for us, welcoming over 5,000 visitors annually and consistently rated the number one attraction in Banff. We will invest about C$25 million into the upper terminal of the Gondola. The planned renovations will increase the square footage by more than 25%, improve the layout, optimize the food and beverage and retail space, add in new interpretive area and experience element and address some required maintenance. Construction is planned for this coming off season beginning in September with the completion target of mid-2016. The financial impact of the construction activity will be minimized by limiting operation closures to our seasonally slow months. We’ve a great plan that we ensure Gondola’s ongoing success as the must do attraction in Banff and position it for optimal returns and I am really excited to get started on it. I do want to thank the entire team for driving solid results and for their commitment to our strategic direction. And now I would like to turn the call over to Ellen for some additional color on the financials and after that we’ll open up call for your questions.

Thanks Steve. For the 2015 second quarter we reported income before other items of $1.18 per share, adjusted segment operating income of $36.6 million which excludes acquisition integration cost and total revenue of $317 million. These results were better than our prior guidance as Steve discussed earlier and up significantly from the 2014 second quarter. Both business groups posted year-over-year growth driven by favorable industry conditions and strong underlying fundamentals, that more than offset unfavorable exchange rate variances. GES posted total revenue of $286.6 million for the second quarter with a 10.6% adjusted segment operating margin and a 13% adjusted segment EBITDA margin. This is the highest quarterly operating margin that GES has achieved in the past eight years. On an organic basis, which excludes the acquisitions and unfavorable exchange rate variances, GES' second quarter revenue was $274.7 million, which is up $48.2 million or 21.3% from 2014, primarily reflecting strong growth in the U.S. and positive share rotation for the international segment. Organic revenue for the U.S. segment grew $28.1 million or 16.6% reflecting broad-based growth across base same-shows, short term event bookings and spending by our corporate clients. Organic operating income for the U.S. segment increased $8.2 million primarily due to strong flow through on the revenue growth. GES' international segment posted an organic revenue increase of $22.4 million or 35.3% primarily driven by positive share rotation revenue of about $15 million and new business wins. Organic operating income for the international segment increased by $7 million primarily reflecting higher revenue with strong throughput as well as the $1.3 million gain related to exiting a venue services agreement in the UK. The acquisitions of onPeak and N200 added revenue of $21.6 million for the quarter with adjusted segment operating income of $7.4 million. Adjusted segment EBITDA for the acquisitions was $9.7 million with an EBITDA margin of 44.8%. Currency translation had an unfavorable effect on GES' second quarter revenue and operating income of approximately $9.8 million and $1.2 million respectively versus the prior year. The Travel and Recreation posted total revenue of $30.5 million for the second quarter with the 20.4% segment operating margin and 27.8% adjusted segment EBITDA margin. On inorganic basis, which excludes the West Glacier acquisition and unfavorable exchange rate variances, Travel and Recreation Group's second quarter revenue was $32.7 million, which is up $2.9 million or 9.8% from 2014. This growth was driven mainly by our attractions and hospitality assets which got off to the strong start to the 2015 peak season. Passenger counts at our attractions were up 7.9% and we've realized a 17.2% increase in the revenue per passenger on a constant currency basis. Hospitality revenue was up about 11% on a same-store constant currency basis, including a 5.3% increase in RevPAR and growth in ancillary revenue for food and beverage and retail. Organic segment operating income increased $2.1 million, reflecting the benefit of growth in our higher margin lines of business and strong cost management. The West Glacier properties which were acquired in July 2014 added revenue of $1.1 million for the quarter with adjusted segment operating income of just under $100,000. Adjusted segment EBITDA for West Glacier was $213,000 with an EBITDA margin of 18.8%. As a reminder the West Glacier properties are closed during the off-season. They open in late-May and are off to a strong start for the peak season. Currency translation had an unfavorable effect on Travel and Recreation Group's second quarter revenue and operating income of about $3.4 million and $1.1 million respectively. Corporate activity expense for the second quarter was $2 million which included acquisition transaction related cost and shareholder nomination and settlement agreement costs totaling $677,000 in the aggregate. These costs are excluded from income before other items. Net interest expense increased by $405,000 from the 2014 second quarter due to higher debt levels resulting from our recent acquisitions. During the quarter we generated cash from operations of $19.7 million versus $3 million in the 2014 quarter with an increase being driven primarily by higher income. Capital expenditures were $7.9 million in both the $2015 and 2014 second quarter and we returned a total of $2 million to shareholders in the form of regular quarterly dividend payments of $0.10 per share. Net debt payment were $4.8 million bringing our debt at the end of the quarter to $133.3 million with a debt-to-capital ratio of 27.5%. Cash and cash equivalents were $64.9 million at June 30, up $7 million from March 31st. Now moving on to guidance, as we have previously disclosed our third quarter results will be affected by negative share rotation of about $50 million. This will result in lower year-over-year revenue, segment operating income and income per share as compared to the 2014 third quarter. GES’ third quarter revenue is expected to be in the range of $175 million to a $185 million as compared to $226.7 million in the 2014 quarter. The decline primarily reflects negative share rotation and unfavorable currency translation, partially offset by additional revenue from the acquisitions made during 2014. Those three factors are expected to account for a net revenue decline in the range of $46 million to $48 million. Our revenue guidance range also anticipates a reduction in revenue from non-recurring events that will be at least partially offset by continued game show revenue growth. We expect GES to close the third quarter operating loss in the range of $16 million to $18.5 million as compared to income of $2.4 million in the 2014 quarter. This decline primarily reflects lower organic revenue as well as a reduction of $3.5 million to $4 million from the acquisitions which will have a seasonally slow quarter. For the Travel & Recreation Group we expect third quarter revenue to be in the range of $68 million to $73 million which is comparable to 2014 third quarter of $73.1 million. Our revenue guidance range anticipates unfavorable currency translation of about $8 million and continued grow in the underlying business. Segment operating income for the Travel & Recreation Group is expected to be in the range of $29.5 million to $31.5 million as compared to $30.6 million in the 2014 quarter. Our third quarter income before other items is expected to be in range of $0.25 to $0.35 per share as compared to a $1.11 per share in the 2014 third quarter. For 2015 full year our outlook is essentially unchanged. We continue to expect full year consolidated revenue to be comparable to 2014, as growth in the underlying business and our recent acquisitions offset significant headwinds from negative share rotation about $70 million and unfavorable currency translation of about $40 million. We expect total adjusted segment EBITDA to be in the range of $89 million to $93 million versus $91.3 million in 2014. Depreciation and amortization is expected to be in the range of $36 million to $38 million, which is up from $30.8 million in 2014 due to the recent acquisitions, Acquisition integration expenses which are excluded from adjusted segment EBITDA are expected to approximate $1.5 million. Our full year cash flow from operations is expected to be about $60 million and capital expenditures are expected to be about $35 million. This is up $5 million from our prior guidance as we now expect to commence renovation work at the Gondola later this year. The timing of that project was previously uncertain and therefore not included in our prior guidance. Additional guidance for our business units can be found in the earnings press release. And with that we’ll open the call up for questions.

Thank you. We will now begin the question-and-answer session [Operator Instructions]. Speakers your first question is coming from Mr. John Healy with Northcoast Research. Mr. Healy your line is open.

Thank you. Steven, just wanted to ask a little bit about some of the new wins in the quarter, [indiscernible] but it sounded like there’s a lot more there than there normally is and I just kind of wanted to get a better understanding of what seemed to be driving that. Is it some sort of a change in the strategy, is it the added benefit of some of the audio-visual stuff or is it just things happened to align up this quarter?

Yeah John, thanks for the question. So I think the growth we had in the second quarter, that really is reflected in these three items. So the first is we’ve done a very good job of cross selling some of our new services with our existing base of clients. A lot of that revenue and those contracts were actually taken back to next year, was not necessarily some those cross selling opportunities are not reflected in the results of the second quarter but that actually happened in the second quarter. Those results are driven by what we would call short-term bookings and these are events that are not contracted coming into the year, but they are sold in the year. They typically have 90 day sales cycle to them and we were very successful in selling more of those within the second quarter than we had anticipated and a lot of that is a reflection of the sales team and the value proposition that we are putting out there is really resonating with our clients.

Okay. And just wanted to ask a quick question on the M&A side of thing I know you guys have been pretty active this year. I mean is there any sort of view on what the pipeline looks like?

Yeah, so John we’ve been -- obviously we did a lot at the end of 2014. We have been busy with integration and making sure we get that right. I am very pleased to say that the acquisitions we’ve done have been fully integrated and they are hitting the kind of the financial targets that we put out there for the businesses. We continue to look at deals and opportunities that come across. We have a full pipeline and we’re ready to continue looking at those opportunities as they come up.

Okay. And then just one quick question on the CapEx side of things. I know you kind of outlined a project that might be taking place next year, mostly the Gondola activity. Any thoughts on what that might cost?

Yeah so the Gondola will actually start at the end of this season and continue through mid-2016 when the Gondola is typically at the slower months for that attraction. Our investment is about C$26 million.

And John that will be about C$7 million this year and about C$19 million next year. So we’ll start later this year.

Okay. Is that just kind of like a normal recurring EBITDA upgrade things or does it change the experience much?

Yeah, John there is some of it which is required maintenance that we have to do. Again we’ve owned the attraction since 1999 and there is some required maintenance that we need to put into it. But they gave us an opportunity to really change the overall experience and as I mentioned during the copy [ph] points we’re increasing the square footage pretty significantly. That allows us to do a lot with the space in terms of food and beverage, retail and also bring in those experiencial elements. We’ve worked very closely with [indiscernible] in order to develop unique content that will be part of the experience within the attraction.

Okay, great. Thank you so much.

No, problem. Thanks John.

Thank you. At this time there are no further questions.

Okay, thanks Cindy. Thanks everyone for your questions and your interest in Viad. I am very excited about the strategic direction and the progress that we’re making. We are seeing strong underlying performance from both our Travel and Recreation and GES, and expecting substantial growth in 2016, that’s amplified by positive share rotation in addition to the growth of our core businesses and newly acquired businesses. We remain focused on meeting our targets for 2015 and delivering greater shareholder value in the years to come. We look forward to speaking with you again next quarter. Thank you very much.

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