Viad Corp (NYSE:VVI)
Q1 2016 Earnings Conference Call
April 28, 2016 17:00 PM ET
Carrie Long - IR
Steve Moster - President and CEO
Ellen Ingersoll - CFO
John Healy - Northcoast Research
Ian Corydon - B. Riley & Company
Marco Rodriguez - Stonegate Capital Markets
Welcome to the Viad Corp First Quarter Earnings Conference Call. Your lines have been placed on a listen-only mode until the question-and-answer session [Operator Instructions]. This conference is being recorded. If you have any objections you may disconnect at this time.
Now I'll turn the meeting over to your host Ms. Carrie Long. You may begin.
Good afternoon and thank you for joining us for Viad's 2016 First Quarter Earnings Conference Call. During the call, you will be hearing from Steve Moster, Viad’s President and CEO; and Ellen Ingersoll, Viad's Chief Financial Officer.
Certain statements made during this 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.
We’ll be referring to certain non-GAAP measures during the call today. Important disclosures regarding 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 the call over to Steve.
Thanks, thank you for joining us on today's call I'm pleased to report that our first quarter financial results were in line with our prior guidance with continued strength in key metrics like same store growth for GES and advanced bookings for the Travel and Recreation Group, and we continue to make significant progress against our growth strategies for both businesses. During the quarter we acquired Maligne Lake Tours and CIRI Alaska Tourism Corporation or CATC. These acquisitions add significant scale to our Travel & Recreation business, increasing our total room count by about 40% and adding two more world class attractions with approximately 180,000 passengers per year to our portfolio. Together, we expect these acquisitions will contribution $30 million to $32 million in revenue and $9 million to $11 million of adjusted EBITDA to our 2016 full year results.
Additionally, our $20 million renovation of the Banff Gondola is progressing well, and we’re on track to reopen the Gondola this Sunday, and we look forward to unveiling the full upgraded experience in August, once all of the interior work is complete. Also in the first quarter GES launched our registration and data analytics services in the United Arab Emirates. We have already secured 17 projects in that market and the team is working hard to develop additional functionality for the platform to support our planned launched in the U.S. market later this year.
This is a great example of how we’re able to leverage our investments and global reach to drive growth and it supports the key strategic goal to expand our services and capabilities within advanced technologies and audio-visual services. We continue to have robust pipeline of potential acquisitions from both business groups, and we remain bullish on our opportunities to further strengthen the competitive position of GES and to add meaningful scale to the Travel & Recreation business.
With respect to our first quarter financial performance, both business groups delivered operating results that were in line with our prior guidance. The declines versus the 2015 first quarter were expected and largely reflect negative share rotation at GES. Overall, the live events industry continues to perform well. And GES, U.S. based same share revenue growth came in at 5.3% for the first quarter, which was in line with our expectations.
Total revenue for GES was a little lighter than we expected due to a shift in timing for certain corporate account projects and short term even bookings. Our full year revenue outlook remained strong and unchanged, with healthy sales pipeline and favorable share rotation during the balance of the year. Additionally, the acquisitions that we integrated during 2015 continue to perform well, and we’re seeing good traction in both our new service offerings and under country segments of live events. Those factors give us confidence in our ability to deliver on our previously stated full year growth targets for GES.
In our Travel & Recreation Group, the expected decline in the first quarter results was primarily due to the closure of the Banff Gondola for renovation, as well as seasonal operating losses from our newly acquired businesses. As I mentioned earlier, the Gondola project is progressing very well, and we’re excited to unveil the full upgrade experience later this year.
The Travel & Recreation team is also making great progress integrating our newest acquisitions, which include marine sightseeing tours in Jasper and Kenai Fjords National Parks and three lodges located near Kenai Fjords and Denali National Parks. We’ve added these new award winning assets to our sales and marketing efforts and have included them in our packaged offering. The operational integration have also gone well, and we’re ready for the busy peak season of visitors.
The strong U.S. dollar and low fuel prices should continue introduce travel and tourism. We expect those macro factors combined with our recent acquisition and our focus on driving growth in RevPAR and effective ticket prices to result in revenue growth of 20% to 25% from our Travel & Recreation Group for the 2015 full year.
And now, I’ll turn it over to Ellen to provide more color on the financials. Ellen?
Thanks Steve. Our first quarter loss before other items was $0.30 per share on revenue of $241.4 million and an adjusted segment operating loss of $6.2 million. It’s after this seasonal operating loss from CATC which was acquired in March 2016 and not contemplated in our prior guidance range, our loss before other items would have been $0.28 per share at the midpoint of our prior guidance range of 23 to 33. As a reminder by definition our loss before other items excludes restructuring charges and acquisition transaction graded and integration cost. A reconciliation of the loss before other items to the loss from continuing operations can be found in table two of the earnings press release.
As compared to the 2015 first quarter, our income before other items decreased by $0.18 per share and adjusted segment operating results, which excludes acquisition, integration cost decreased by $0.5 million on a revenue decrease of $23 million or 8.7%. GES’s first quarter revenue was $236.1 million, down $20.8 million from the 2015 quarter, primarily due to negative share rotation of about $11 million and unfavorable currency translation of $2.6 million. The remaining decrease was largely due to the shift in the timing of revenue from corporate clients and short term event bookings, partially offset by U.S. based same share revenue growth of 5.3%.
GES’s first quarter adjusted segment operating income was $293,000, down $2.8 million from the 2015 quarter, primarily due to lower revenue and throughput on revenue decline was about 18% which is lower than we typically experience reflecting solid cost management during the quarter. The Travel and Recreation Group posted first quarter revenue of 5.2 million down 2.2 million from the 2015 quarter on an organic basis which excludes unfavorable currency translation of about 400,000 and 52,000 in revenue from the acquisitions of Maligne Lake Tours and CATC.
The revenue decline was 1.99. The organic decline was due to the closure of the Banff Gondola for renovations. Travel and Recreation Group adjusted segment operating loss was 6.5 million for the seasonally slow first quarter down 1.7 million from the 2015 quarter. On an organic basis the decline was 1.3 million primarily reflecting the Gondola closure.
Now I'll cover some cash flow and balance sheet items before discussing guidance. We have consolidated cash flow from operations with 17 million for the quarter down from 18.3 million in the 2015 quarter primarily due to lower net income partially offset by favorable working capital. Capital expenditures totaled 7.3 million and approximately 60 million was spent on acquisitions. At March 31st our cash and cash equivalence totaled 41.3 million, debt was 164.5 million and our debt to capital ratio was 32.9%. Now moving on to guidance. For the second quarter we're expecting income per share of $0.73 to $0.86 as compared to a $1.18 in the 2015 quarter. We anticipate lower second quarter results from both business groups which are expected to be more than offset over the balance of the year.
For GES we expect second quarter revenue to decrease by approximately 11 to 21 million from the 2015 quarter with a decrease in adjusted segment operating income of approximately 4.5 to 7.5 million. These declines are expected to be driven mainly by [indiscernible] of about 10 million in revenue and unfavorable currency translation of about 5 million in revenue versus the 2015 quarter. Additionally you may recall that we had historically high level of revenue from short term event bookings during the 2015 second quarter.
While we do have a strong pipeline our guidance does not anticipate the same level of expense receipt this quarter. We're also expecting lower year-over-year revenue from our Harry Potter activation as it will be in transit from Shanghai to Brussels during much of the second quarter. Travel and Recreation Group's second quarter revenue is expected to increase by 4.5 to 7.5 million with a drop in operating results of 1.7 million to 3.2 million. There are four main factors driving these changes. The acquisitions of CATC and Maligne Lake Tours are expected to contribute revenue of 9 to 11 million and adjusted segment operating income of 500,000 to 1 million.
Renovation closures at the Gondola are expected to result in declines of 2 to 2.5 million revenue and 1.5 to 2 million in operating income. Unfavorable exchange rate variances are expected to impact teenage revenue on operating income by about 1.5 million and 500,000 respectively. And we anticipate increased SG&A overhead expenses as a result of additional personnel investment to support revenue maximization and strategic growth initiatives. For the 2016 full year we are revising our guidance to include the CATC acquisitions and to reflect a stronger forecast for the Canadian dollar.
Our prior guidance had assumed an exchange rate of $0.70 and we now assuming it will be $0.75. As a result of these two factors we've increased our full year guidance for the Travel and Recreation Group as follows. We now expect full year revenue to increase by 20 to 25% from 112.2 million in 2015 versus our prior guidance for a low single digit decrease. We now expect full year adjusted segment EBITDA to be in the range of 42 to 46 million versus 35.8 million in 2015 and our prior guidance of 34 to 36 million. And we now [indiscernible] our adjusted segment operating income to be in the range of 28.5 to 32.5 million.
Our full year guidance on GES remains unchanged, we continue to expect revenue to increase by high single digit rate with adjusted segment EBITDA in the range of 77 to 80 million and adjusted segment operating income in the range of 51 to 54 million as compared to 27.7 million in 2015. Overall revenue is expected to increase at a high single digit rate from 2015 driven by positive share rotation of about 50 million continued underlying growth at GES and the acquisitions of CATC and Maligne Lake Tours partially offset by unfavorable currency translation of approximately 19 million and a revenue reduction of 8 to 10 million related to the streamlining of Brewster's Transportation and Package Tours lines of business and renovation closures at the Banff Gondola.
Consolidated adjusted segment operating income is expected to be in the range of 79.5 million to 86.5 million, the midpoint of this range reflects growth of about 50% relative to 2015. And we expect consolidated adjusted segment EBITDA to be in the range of a 119 to 126 million which is up 28.5 to 35.5 million from 2015. And our full year cash flow from operations is expected to be in the range of 85 to 95 million and capital expenditures are expected to be about 48 to 52 million. Additional 2016 guidance can be found in the earnings press release.
Steve, back to you.
Thanks, Ellen. In closing, we have a lot of great things happening in our business, and our industry is continued perform well. I am excited about the progress we’re making against our growth strategy with the recent acquisitions on the Travel & Rec side of our business, and also the expansion of data and registration services to new markets at GES. I want to take the opportunity to thank the entire Viad team for their contributions to our success and commitment to driving shareholder value.
And with that, we will open up the call for questions. Laurina, can you open the call please?
Yes sir, thank you. At this time, we will begin the question-and-answer session of the conference [Operator Instructions]. Our first question comes from John Healy with Northcoast Research. You may ask your question.
Steve I wanted to ask a big picture question on the M&A front. In the last week or two, there has been some news about private equity taken around that competitor and see that side to you. Just want to get your thoughts as you’re seeing new entrance coming to the deals that you’re looking at on the marketing and event side? And if the environment for deals and multiples is changed, or is this just a one off thing that’s jumped out of the news recently?
Yes, and I am actually here referring to the [Civa] acquisition that took place last week and first I’d say congratulation to Reji and [Civa] team on the transaction and the valuation of the yacht. In my mind it validates that the full market potential for event technology. I think that there are new entrants that have entered into the market, both large events and also in the smaller events and meeting space. We haven’t seen a crazy increase in valuation of the targets that we’ve gone after. We’re challenged in our approach of how we approach new technologies and we’re going to stay true to what we believe the valuations are.
And then just wanted to ask a little bit on some of the restructuring efforts and I know you guys are completely consistent with rightsizing the operations and looking to be more efficient. But almost million dollars of spent in the first quarter considerably higher than what you guys did a year ago. Is that a sight of things to come as the year goes on or is that just timing or any color there?
Yes. A lot of achievements we made actually were in the first quarter were related to the changes we did in our corporate development team. And we don’t see that as an ongoing charge going forward for the rest of the year.
Thank you. Our next question is from Ian Corydon with B. Riley & Company. You may ask your question.
You mentioned some weakness in corporate and short term bookings in the first quarter versus what you expected. Are those events pushed out or did some of those events that you expected to get just taken by other operators?
Ian thanks for the question. The majority of that weakness or softness is really timing, a shift to timing of this corporate project they’ve shifted from out of the first quarter into the balance of the year.
And I am wondering if you could give us a sense for the magnitude of increase that you’re seeing in Travel & Rec bookings? And typically how good a predictor is that of what you’ll see during the season?
It typically is a good predictor, and there is two sides of travelers, you have the group traveler and you have the individual traveler. And what we’ve seen in our pace reports year-over-year is high single digit year-over-year growth in that pacing report. So, it's still early. We’re going into the high season here shortly, but we’re confident going into the season.
Thank you. Our last question is from Marco Rodriguez with Stonegate Capital Markets. You may ask your question.
Just wanted to talk a little bit about the couple of your initiatives for lack of better word here, first off the registration launch. You mentioned that you’ll be doing later this year. Can you provide a little more color in terms of timing and then what sort of initiatives or marketing, or anything of that nature that you’ll be doing to launch that in the U.S.?
So we announced in the first quarter that we launched our registration and data analytics service in the UAE in the first quarter. And we’re in the process of developing some functionality of that platform that is required for us to enter into the U.S. market. We think we’ll have a soft launch in the Q4 timing rather this year and obviously there’ll be -- we’ve worked with a number of our larger clients already to define what the product will look like and get an initial reaction from our clients on the interest levels so there'll be a lot of activity in the fourth quarter and obviously in the first quarter of 2017 as we launch it here in the states.
Got you, and the last quick question just kind of -- earlier question on the M&A market, understand you're going to be disciplined in your approach in terms of the valuations but can you give us a little bit more of a sense here as far as what you, I don't want to say what you're looking at but if the interest levels have kind of ticked up a little bit or is there any sort of activity that's driving something that will be closure to fruition would be helpful.
We for both businesses we have very good pipelines of opportunities that we continue to go through obviously we had a lot of activity recently on the Travel and Recreation side where we've been able to close two very good deals for us both in terms of strategic fit but also in terms of valuation for the business. We continue to see the opportunities and we're progressively with them and feel like we have good pipeline and good activity for the rest of this year and into '17.
Got you, thanks a lot guys, appreciate it.
Thank you, [Operator Instructions] speakers at this time we don't have any questions on queue.
Perfect, okay thanks everybody for your questions and obviously your interest in Viad. We look forward to speaking to you again in the next quarter, thanks a lot, good bye.
Thank you, that concludes today's conference, thank you all for participating, you may now disconnect.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: email@example.com. Thank you!