Pursuit Attractions and Hospitality, Inc. (PRSU) Q1 2017 Earnings Report, Transcript and Summary

Welcome to the Viad Corp First Quarter Earnings Conference Call. At this time, all participants will be 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. Now I would like to turn the call over to your Carrie Long. Ma'am you may now begin.

Good afternoon and thank you for joining us for Viad's 2017 first quarter earnings conference call. During the call, you will hear from Steve Moster, Viad's President and CEO; and Ellen Ingersoll, Viad's 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 Viad's Annual and Quarterly Reports filed with the filed with the SEC. During the call we'll be referring to certain non-GAAP measures. Important disclosures regarding these measures can be found in the table 2 of the earnings press release, which is available on our website at viad.com. With that I'll turn it over to Steve.

Thank you for joining us on today's call. Viad starts 2017 on a strong note with GES exceeding our prior guidance and Pursuit delivering results near the high end of our range. Overall, Viad generated income per share before other items of $0.33 and revenue of $325.8 million which was up 35% from the 2016 first quarter. GES had a strong first quarter. Revenue grew by 34.6% year-over-year and an adjusted segment operating income increased by $22.8 million. GES continues to experience solid industry fundamentals and our team continues to execute well. We've realized our 16th straight quarter of same-store growth with the healthy 4.1% increase in the U.S. based same-store revenue during the first quarter and CONEXPO-CON/AGG one of our clients and the largest exhibition in the Western Hemisphere posted record breaking square footage and strong attendance. GES's overall revenue growth was broad based. In addition to positive show rotation and growth in our core services, we generated stronger than expected audio-visual production services revenue from ON Services and our International operations delivered an organic revenue increase of 27.4% or $14.8 million primarily from new business wins and same store growth. The team also did a great job executing on our first quarter events to drive strong EBITDA flow through of about 30% on a revenue growth. I'm also pleased to say that our strategy for position GES as a full service provider and gaining traction in the marketplace. The investments we've made to broaden our suite of event services are helping to differentiate GES and drive profitable revenue growth. We've recently extended our relationship with [Panmedia] to our multiyear renewal of our core contracting and event accommodation services for its portfolio of 19 events through 2022. We also recently renewed our core services contracts with the American Academy of Oral and Maxillofacial Surgeons and added audio-visual production to the scope of our work. These renewals validate the confidence our client have in both our core services and our new offering. Another great example of the cross-selling success is Heli-Expo, which is one of the largest helicopter industry events and a long time exhibition client. For this year's event, we produced core contracting services audio-visual production and event accommodation services and we're awarded a multiyear contract renewal. With the compelling full service offering in global reach, our sales teams are also having success winning new clients like GSMA, Mobile World Congress Americas. After a record show attendance in Spain in March, this premier global event for the mobile industry will have at the American debut in San Francisco later this year. GES has a long history working corporate clients at GSMA's international events and we're honored to be chosen as a trusted partner for its first ever U.S. based event. Another win for the year is the American College of Surgeons Clinical Congress. This educational event is one of the largest surgical meetings of its kind and reached audience of over 8,000 in the U.S. and international healthcare professionals. Our team will provide core contracting and combination services for this event. These wins and our improving financial performance provide validation that our growth strategy is driving enhanced shareholder value and we continue to make progress towards our longer term strategic goals. The integration of ON Services is progressing well and we’re starting to realize the anticipated cross-selling and in sourcing synergies from this acquisition. The high quality audio-visual production services that ON Services provide, has enhanced our ability to gain share in the large and profitable corporate events space. During the quarter, our corporate event secured several new wins and continues to build a strong pipeline of the future opportunities. To further strengthen our high margin event technology platform, we recently purchased a cloud-based technology solution is called Poken. This small and exciting acquisition is a powerful complement to our existing registration in data platform. Poken provides us industry leading and proprietary events and engagement technology. And when integrated with our registration software will provide even more insight for analytics and reporting to drive enhanced event performance. Overall, the live event industry continues to perform well and I’m very pleased with GES progress and the results during the first quarter. Our solid execution and favorable industry conditions give me confident in our ability to deliver on our full year revenue and operating income targets for GES. With the healthy sales pipeline and a strong personal and value added offerings, we’re well positioned for successful 2017. Now we switch gears to Pursuit, which is the recently launched umbrella brand for our collection of Travel & Recreation assets. Our team at Pursuit delivered solid results for a seasonally slow first quarter that near the high end of our prior guidance range. Our recent acquisition of FlyOver Canada is performing well, and we’re confident this attraction will continue to drive under the leadership of the Pursuit team as we leverage our existing sales and marketing teams and acquired revenue management tactic to accelerate growth. Additionally, we continue to seek opportunities to expand the concepts into additional markets. Across the Pursuit business, our teams are preparing for a busy peak season in this summer. With part of our attraction and 12 our lodging properties being seasonally closed for the winter, getting these assets open and ready for guest is the primary focus of the Pursuit team right now. During late March, our [Indiscernible] began operating the season and just a couple of weeks ago, we opened our Columbia Icefield operation, which includes our Glacier Adventure, Glacier Skywalk and the Glacier view end. Over the course of the next six week, we open our remaining 11 hotels located at Glacier and in Alaska as well as our Canadian virtual attraction in Banff and Jasper. Successfully activating all of these properties in such a short period of time is an amazing thing and I want to thank the Pursuit team for always ensuring, we’re ready and to welcome our guest at the start of each season. As we prepare for the peak season, we’re encouraged by the strength of pacing recorded, which point to a very strong year in 2017. We have a number of available drivers going for us. Parks Canada will be celebrating Canada’s 150 years anniversary with three admissions in the Parks for Canadian and U.S. citizens. This coupled with the relatively weak Canadian dollar should driver strong visitations of the Canadian Parks. Additionally, relatively low fuel prices and the trend towards experiential travel to safe designations could bode well for all of our geographies. Before I turn over to Ellen to comment on our financials, I'd like to provide an update on the important renovation activities that support our refresh build buy growth strategy to for Pursuit. Our newly renovated Banff Gondola is performing well and was the key driver of revenue growth during the first quarter. The upgrade experience is enabling us to drive growth in both passengers and revenue per passenger. Because the Gondola was closed for renovation during the 2016 first quarter, I'll provide some comparisons to the 2016 first quarter which provides a good benchmark for its pre-renovation performance. Revenue increased 20%, passengers were up 13% and we realized a 6.5% increase in revenue per passenger. The Banff Gondola continues to receive positive guest feedback and its new upscale mountain top restaurant [indiscernible] was recently made one of the top restaurants with the view by open table and online dining reservations specialist. The Gondola renovation is proving to be a highly successful refresh project. Drawing upon the insights [Indiscernible] from the Gondola renovation, we recently completed similar upgrade to the restaurant at our Glacier discovery center. This center located at the remote Colombia Icefield welcomes over 1 million visitors annually and services with a starting point for Pursuit's iconic Glacier Adventure Tour and Glacier Skywalk. The renovation of the dining facilities has completely changed the guest experience with an incredible Glacier View restaurant in a warm and inviting fast casual dining space that drove inspiration from the mountain and glacier surroundings. The dramatic improvement in both atmosphere and quality of food and service are receiving great reviews from our guest and enabling us to capture a higher spent for guest. Another major renovation project that we're preparing to undertake is the upgrading and reopening of the Mount Royal Hotel located in downtown Banff. As we've previously announced, the hotel has been closed as a result of a fire this past December. Due to the extent of the damage and given its strong location in downtown Banff, we are planning to completely renovate the property to provide an upgraded guest experience that enables us to drive stronger RevPAR and return. We currently expect the hotel to reopen sometime during 2018 and we will provide additional updates as the year progresses. We continue to work closely with our insurance providers to finalize our property and business interruption insurance claims. 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 2017 came in better than our prior guidance. Our income before other items were $0.33 per share and revenue of $325.8 million, adjusted segment EBITDA of $25.7 million and adjusted segment operating income of $13.6 million. As a reminder, by definition income before other items adjusted segment EBITDA and adjusted segment operating income excludes restructuring and impairment changes or recoveries as well as acquisition transaction related and renovation cost. A recondition of these non-GAAP measures to net income can be found in Table 2 of the earnings press release. As compared to the 2016 first quarter, our income before other items increased by $0.63 per share from a loss of $0.30 per share to income after the $0.03 per share, primarily due to increasing revenue of GES. Consolidated revenue increased 35% or 84.4 million, adjusted segment EBITDA increased by 23.6 million and adjusted segment operating income increased by 19.8 million. Moving onto the business group results, GES’s first quarter revenue was 317.9 million, up 34.6% or 81.7 million versus the 2016 first quarter. On organic basis which excludes the impact of acquisitions and exchange rate variances, GES first quarter revenue increased 31.1 million or 30.4%. U.S. segment and organic revenue increased 57.9 million or 31.8%, primarily due to positive show rotation of about 52 million, continued base same-show growth and new business wins. Organic revenue for GES’s International segment increased 14.8 million or 27.4%, primarily due to new business wins and show growth and positive show rotation of about 3 million. The acquisition of ON Services contributed incremental revenue of about 17.5 million during the first quarter, which is partially offset by a $5.1 million revenue decline from unfavorable currency translation. GES delivered strong flow through of about 30% on the first quarter revenue growth. Adjusted segment EBITDA was 32.2 million or 25.3 million from the 2016 quarter. U.S. adjusted segment EBITDA increased 22.9 million and international adjusted segment EBITDA increased 2.4 million, primarily due to higher revenue and solid operating leverage. GES’s adjusted segment operating income was 23.1 million, an increase of 22.8 million versus the prior year quarter, including incremental depreciation and amortization expense of 2.5 million, primarily to the ON Services acquisition. Pursuit's first quarter results came in near the high end of our prior guidance range with revenue of 7.9 million, up 2.7 million year-over-year, and an adjusted segment operating loss of 10 million versus 6.5 million in the prior year quarter. The revenue growth during the seasonally slow quarter was primarily driven by Banff Gondola, which was closed for renovation during the 2016 quarter and the FlyOver Canada acquisition. These positive contributors were partially offset by the closure of the Mount Royal Hotel. The higher adjusted segment operating loss is primarily due to full quarter seasonal loss from CATC, which was acquired in March 2016 and seasonally closed for most of the first quarter. On an organic basis, Pursuit loss increased $0.9 million primarily due to higher repairs and maintenance costs, incurred during the quarter and the timing of certain other expenses. The acquisitions of CATC and FlyOver Canada contributed 1.5 million of revenue with seasonal adjusted segment operating loss of 3.1 million. The revenue is primarily generated by FlyOver Canada while the operating loss was primarily from CATC. As Steve mentioned, FlyOver is performing well and in line with our expectations thus far. For the full year, we continue to aspire to generate revenue of 9 million to 10 million with adjusted segment EBITDA margin of about 55%. Our first quarter year-over-year performance was also ffected by the closure of the Mount Royal Hotel as a result of the fire that occurred at the end of last year. Last year, we generated $1.1 million in revenue with an operating profit of little over $200,000 at the property during the first quarter. As Steve noted, we will continue to work with our insurance carriers to reach a full and final settlement of our property and business interruption insurance claims. Today, we have received a total $9 million of interim insurance proceeds including $2.7 million that was received in early April. The remaining $5.3 million was received during the first quarter and was accounted for as follows. 2.2 million was allocated to reinsurance receivable recorded at the end of 2016, 2.4 was recorded as an impairment recovery related to construction and progress, capital expenditures incurred during the first quarter, and 0.6 million was recorded as contract spent to offset non-capitalized low cost incurred by the Company during the first quarter. And the remaining 0.1 million was recorded a business interruption gains for the recovery of loss process. We expect to reach a full and final settlement with our insurance carriers during the second quarter, which will include proceeds to cut the both property damage and loss profits. And now, I'll cover some cash flow and balance sheet items before discussing 2017 guidance. Viad's consolidated cash flow from operations was 34.8 million for the 2017 first quarter, and this was up from 17 million in 2016 primarily due to higher income net income. Capital expenditures totaled 14.7 million, up from $7.3 million in the 2016 quarter primarily due to investments in new audio-visual and electrical equipment to support business growth and timing of capital spent at GES. At March 31, our cash and cash equivalents totaled $25.4 million and our debt was $238 million with the debt-to-capital ratio of 38.6%, and we also paid $1.7 million for the acquisition of Poken during March 2017. Now moving onto guidance, our overall full year outlook remains unchanged. We continue to expect consolidated revenues to increase by approximately 5% versus 2016 with growth in adjusted segment EBITDA of 14.3 million to 18.3 million. Depreciation and amortization expense is expected to increase by 11 million to 14 million primarily reflecting the acquisition of ON Services and FlyOver Canada. Our full year cash flow from operations is expected to be in the range of 110 million to 120 million and capital expenditures are expected to be about 44 million to 48 million. For GES, we continue to expect full year revenue to increase at a mid single digit rate, as the ON Services acquisition and continued growth in the underlying business more than offset unfavorable currency translation and negative share rotation. GES's adjusted segment EBITDA is expected to grow by about 8.5 million to 11.5 million versus 2016. Our full year guidance for ON Services remained unchanged and we expect the Poken technology platform to grow revenue of about $2 million with the small loss this year. For Pursuit, we continue to expect full year revenue to grow at a mid single digit rate and the renovated Gondola of the FlyOver Canada acquisition and our revenue management initiatives combined with FlyOver Canada's 150 year Canadian anniversary more than offset the impact of Mount Royal Hotel closure and our continued downsizing of packaged stores. Pursuit's adjusted segment yield is expected to grow by about $5 million to $7 million versus 2016. Note that this outlook for Pursuit does not include any income including additional business interruption gains or capital expenditures related to the Mount Royal Hotel as the timing and amounts have not yet been determined. We will provide an update once you reach the full and final settlement with our insurance carriers. As a reminder, our business interruption policy will cover lost profits in the hotel closure. During 2016, the hotel generated 2.7 million in adjusted segment EBITDA. For the second quarter, we expect income per share of $0.88 to $0.99 as compared to $1.04 in the 2016 quarter. We expect to decline high depreciation, amortization and interest expense, as a result, the acquisition of ON Services and FlyOver Canada. Adjusted segment EBITDA and revenue are both expected to increase versus the 2015 quarter. For GES, we expect second quarter revenue to increase by approximately a 11.5 million to 21.5 million from the 2016 quarter, which included 16 million to 18 million from the acquisition of ON Services and Poken. We expect positive show rotation during the quarter to be offset by unfavorable currency translation. Continued same-store growth and new wins are expected to help offset from non-recurring business that we produced during the 2016 second quarter. GES’s second quarter adjusted segment operating income is expected to decline about 500,000 to 3.5 million versus the 2016 quarter, which reflects initial depreciation and amortization expense of approximately $3 million. For Pursuit, we expect second quarter revenue to increase by 1.5 million to 4.5 million from the 2016 quarter, which includes 1.5 million to 2.5 million from the acquisitions of FlyOver Canada. We expect the revenue headwinds of about $9 million from the combination of our continued downside in packaged tours, Mount Royal Hotel closure and unfavorable currency translation. Pursuit's second quarter adjusted segment operating income is expected to be in the range of $6.5 million to $8 million as compared to 7.4 million in 2016 quarter. We expect initial depreciation and amortization expense of about 1.5 million year-over-year. Additional 2017 guidance can be found in the earnings press release. And Steve back to you.

Thanks, Ellen. In closing, we continue to see favorable industry conditions on both sides of our business, and with the solid first quarter under our results we are squarely focused on delivering strong performance over the balance of the year. The investments we have made to scale Pursuit and improve GES’s competitive position continue delivered strong returns and create opportunities for future growth. We remain committed to our strategy into driving enhanced shareholder value in the years to come. I want to thank the entire Viad team for their commitment to our strategy and to our customers. And with that, we’ll open the call out for questions. Carrie, can you open the call please?

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is coming from Marco Rodriguez of Stonegate Capital Markets. Your line is now open.

I was wondering, if you can talk a little bit more about GES. In your prepared remarks, you’re talking about ON Services where you’re starting to see some pretty good success on the cross-selling aspects. I was wondering if you can maybe dive down a little bit deeper into that as far as what you're kind a seeing there and how you're kind a tracking that?

Sure, Marco. This one of the things we've talked after we did the acquisition. There is really two primary drivers of value. The first is we believe and what we see is the ability to cross-sell, meaning that the GES team has presented new opportunities to ON services for audio-visual production. And in return, the ON Services team has provided new opportunities for GES event team to go after, and so the combination of those synergies is really what has helped out in the first quarter and helped us they talked about before build the strong pipeline for future opportunities. And then the second value creation is around in sourcing. If you remember, GES has started an organic audio-visual department but we cannot have it either at the time any equipment when we started the business. So in sourcing is basically taking those projects and using the existing equipment that is part of the ON Service acquisition which helps lower the overall cost of execution. So we're seeing good traction on both of those synergies.

And it kind a seem to imply at least from your comments and perhaps I just interpret this correctly that it's kind of just now starting to bear fruit and something that cross-selling or is this just kind of the continuation?

Yes, so the acquisition we did it was August of 2016, and so there were some ramp up around the integration of the two businesses. There is also a natural cadence to when contracts come up for renewal. So, typically exhibition contacts for audio-visual services are either three or five year tenure, so at any point you get 20% to 30% of the available contracts will come out in a year. So, there is a natural cadence to it. So, I think we are in our stride now and it's about where we planned in terms of timing of it.

And talking about Poken here your recent acquisition, maybe you can talk a little bit about the potential you see there? It kind of implied based on your guidance that might add an incremental $2 million to this fiscal year on a revenue basis? And if also, you might be able to talk about the complexity or lack the -- that is of integrating that cloud based solution into your current technology offerings?

Sure and we're very excited about the acquisition. It's a smaller acquisition in terms of the capital outlook, but strategically it's a very important one for us. We -- Poken has worked with our registration platform over the last several years, and there are already components that were integrated before we even did the acquisition. So we believe that the integration and further integration between Poken and our registration platform will be relatively easy for us to do. We're working on them now and we believe that that will overall strengthen the proposition we have for our registration platform and the services that Poken provides. So, we're very excited about this. It's a small acquisition but strategically it was the right move for us.

And then in terms of the reported revenues for GES from same-store -- or rather excuse from the share rotation. You had an additional $5 million that came through above kind of guidance. Can you talk a little bit about where that kind a came from?

So beyond the share rotation, you saw broad based growth across our platform and this is we're speaking about the U.S. specifically. So you saw future growth of 4.1%, you saw other services contribute to that over deliver and revenue requirement and with the large rotation piece within the quarter.

Right. I guess, what I was trying to ask and I apologies for my miscommunication. But I’m not mistaken I thought their show rotation was supposed to add about 50 million this quarter in Q1, I think it came in at 55?

Yes. That is growth as I mentioned in my comments that CONEXPO-CON/AGG one of our clients for long-term over delivered in terms of the size about that. They have record square footage and also A very strong attendant. So that one event is what drove the lot of 5 million.

Thank you. Our next question is from Steve O'Hara of Sidoti Company. Your line is now open.

Can you just -- going back to the Mount Royal, and I guess you say there was a charge in the quarter from -- I don’t know writing down the assets or something like that and there was a reversal or was that in the fourth quarter. I just -- can you just tell me what that?

We have recorded an insurance recovery at the end of the fourth quarter ’16. So, when we proceeds in ’17 part of that satisfied that receivable, but then we also had further recoveries in the first quarter. So, this season our P&L has impairment recoveries.

Okay. And then…

No charges for this recovery.

And then the plans for the spot and the property, I mean, how far along are you in terms of the planning and I mean do you expect, they were not something kind of midyear timeframe. Is that your goal?

So, we've been parallel passing both the insurance claim for our business interruption and property and equipment. At the second time, we’ve been designing an upgraded experience that we can have at the Mount Royal Hotel. So, we’ve been parallel attracting both of these. We believe that we can open the Mount Royal Hotel sometime in 2018, and we're getting more operation around the settlement with the insurance company as well as our plans for the results when those become more concrete and we’ll be able to share that with our investors.

Okay. And then is it, I thought I've heard, say the EBITDA was 2.6 million or something in 2016 for the property. And to me that sounded like low, but I mean was that -- was the building kind of rundown for the depreciation line? Is that what, why was low or maybe I guess I had understanding of the property?

Yes. Steve, it’s about 6 million in revenue and 2.7 million in EBITDA in 2016.

Okay, okay. And have you kind of talk about the improvement and the investment, you think you can make I mean should we be thinking something along the lines of that recent investments we’ve made and the Glacier Skywalk or something like that. I mean those types of returns what you’re looking at or is there something more subdued?

I think when we designed the new Mount Royal Hotel. You'll see a very similar in terms of the quality and the financial performance or something like a condo or what we've just finished as a Glacier Discovery Center. So, there is a certain market that we're targeting and we believe we can hit that and it's an ideal location in Banff. We believe that it will have strong returns.

Our next question is from Jamies Yacco [ph] of [indiscernible] Partners. Your line is now open.

Could you just give us a sense of how on events and FlyOver did on a year-over-year basis?

From a first quarter perspective, both were actually above first quarter of 2016 from a revenue and property income perspective.

And for FlyOver, this is I guess for both this is a seasonally weak quarter as well or?

Yes, most of the visitation traffic in Vancouver is Q3 little bit in Q2, but -- and Q4, there is a strong holiday attraction as well. So, most of that's in Q3 and Q4, so this is seasonally light.

Thank you. We show no further question at this time. [Operator Instructions] Thank you. We show no further questions at this time speakers.

All right, thanks Carrie. Thank you everyone on the call for your questions and your interest in Viad. We look forward to speaking with you again the next quarter. Bye bye.