Viad Corp (NYSE:VVI)
Q2 2016 Results Earnings Conference Call
July 28, 2016 5:00 PM ET
Carrie Long - Investor Relations
Steven Moster - President and Chief Executive Officer
Ellen Ingersoll - Chief Financial Officer
Ian Corydon - B. Riley & Company
Marco Rodriguez - Stonegate Capital Markets
Steve O'Hara - Sidoti & Company, LLC
Peter Rabover - Artko Capital L.P.
Welcome to the Viad Corp Second Quarter Earnings Conference Call. At this time, all lines are in a listen-only mode. This call is being recorded. If you have any objections you may disconnect at this time. We will conduct a question-and-answer session at the end of today’s call [Operator Instructions].
I now like to introduce your host Carrie Long, Executive Director of Finance and Investor Relations. You may begin.
Thank you, Mary, and good afternoon to all of you on the call and thank you for joining us today. During the call, you will be hearing from Steve Moster, Viad’s 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.
We’ll also 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 that’s available on our website at www.viad.com.
And now, I’ll turn the call over to Steve.
Thank you for joining us on today's call. Viad delivered a strong second quarter that exceeded our expectations and resulted in significant upside to our prior revenue and operating income guidance. Our income per share before other items came in at $1.4 which is $0.18 above our prior guidance range.
Both business groups continue to share strength in key metrics like same-show growth and the new business wins for GES and strong visitation in RevPAR growth for the Travel & Recreation Group. At GES second quarter results exceeded our prior guidance. Revenue came in $10.4 million above our guidance primarily due to stronger than expected short-term event bookings and revenue from corporate clients.
The team did a solid job of maximizing our sales pipeline and continued to drive growth in under-penetrated segments of live events like corporate events. Additionally our U.S. based same-show revenue growth was 2.6% for the quarter and remains on track to increase at a mid single-digit rate for the full-year. These factors help to offset the expected negative show rotation and unfavorable exchange rate variances we experience during the quarter.
Our same-show growth for the quarter was a little lower than we experienced in prior quarters due to one event with unique circumstances. Excluding that event our same-show growth was about 5% for the quarter which is indicative of what we are seeing across the broader spectrum of events.
Overall, we continue to see good growth in the event industry and aside from the recent devaluation of the British pound our full-year guidance for GES remains unchanged. Since 2014, our growth strategy for GES has focused on a combination of organic efforts and complementary acquisitions that position GES as the preferred full service provider for the global live events market.
And we are seeing good traction from our efforts to date. With an enhanced set of services our teams are finding success in the marketplace by attracting new clients and expanding the scope of existing relationships. For example, we’ve recently expanded our international business with global event organizers Tarsus Group. F&E, a Tarsus Group company and the leading aerospace event producer in the Middle East awarded us a new contract that includes the Prestigious Biennial Dubai Airshow in 2017 and 2019 as well as three other events.
This win is a great example how we are able to successfully leverage our global strength to gain additional business with existing clients. We also continue to grow our audio-visual services line of business, providing AV services on two major medical conferences in the U.S. during the second quarter. And internationally our UK AV business produced Money20/20 a large financial services conference.
Growing GES’ presence in the large AV service market remains a top priority for us and we continue to pursue acquisitions that provide scale advantages and that will enable us to better penetrate the corporate event market. The GES team has executed well during the first half of the year that is currently very focused on an important third quarter which includes four large non-annual shows.
As a reminder, we expect show rotation to contribute to $80 to $85 million of revenue growth in the third quarter driven primarily by shows like the Farnborough International Airshow, the International Manufacturing Technology Show, MINExpo, and the International Woodworking Fair.
Now let me switch gears to our Travel & Recreation Group which also exceeded expectations for the second quarter. Revenue came in $2.5 million better than our prior guidance driven by strong visitation and our focus on yield management. We saw growth at nearly every property in our portfolio.
The main expectations were the Banff Gondola and transportation services, which were expected to decline due to changes taking place with in those services. At our hospitality properties, we realized a 16.7% increase in same-store RevPAR for the year ago quarter reflecting growth in both ADR and occupancy.
At our attractions, same-store passenger accounts were up modestly year-over-year primarily due to the strong growth at our Columbia Icefield attractions, the Glacier Skywalk and the Glacier Adventure that more than offset lower passenger account at the Banff Gondola.
As a reminder, the Gondola is currently undergoing major renovations. Its lift operations re-opened on May 1, but our mountain top dining and retail operations remained closed as work continues to upgrade those services and add new interpretive experiences. We continue to open new dining, we expect to open new dining, retail and experience show areas during August. These are very exciting projects for us and we expect will drive enhanced test satisfaction and strong financial returns.
I’m also pleased to report that our first quarter acquisitions which include two attractions and three hospitality asset in and around the National Parks of Jasper, Kenai Fjords, and Denali performed very well during the quarter. These acquisitions contributed $10.9 million in revenue for the quarter, which was at the higher end of our prior guidance range. We expect them to be more meaningful contributors to both top and bottom lines as we head into our busiest quarter of the year for the Travel & Recreation Group.
Looking ahead, we expect strong U.S. dollar and low fuel prices will continue to boost travel and tourism. Given our excellent results during the second quarter shoulder season and a favorable outlook for the third quarter peak season, we are raising our full-year guidance for the Travel & Recreation Group. We now expect revenue growth in the range of 30% which is up from our prior guidance of 20% to 25% growth.
And now, I’ll turn it over to Ellen to provide more color on our financials. Ellen?
Thanks, Steve. As Steve mentioned earlier, our second quarter came in significantly higher than prior guidance driven largely by stronger than expected revenue for both business groups.
Our income before other items was a $1.04 per share and revenue of $324.7 million and adjusted segment operating income of $34.8 million which excludes acquisition integration costs. As a reminder by definition, our income before other items excludes restructuring charges as well as acquisition transaction related and integration costs. A reconciliation of income before other items to net income can be found in table two of the earnings press release.
As compared to the 2015 second quarter, our income before other items decreased by $0.14 per share and adjusted segment operating results decreased $1.8 million and a revenue increase of $7.7 million or 2.4%. There is several puts and takes on the revenue growth that I will cover shortly as I discuss the results of each business group.
The decline in segment operating income at higher revenue is largely a function of a $1.5 million increase in depreciation and amortization expense due to our first quarter acquisitions. The lower income per share before other items reflects the segment operating income decline and increase in corporate expenses driven largely by higher performance-based incentives and higher net interest expense.
Moving on to the business group results. GES’s second quarter revenue was $285.4 million down $1.1 million from the 2015 quarter. This [indiscernible] was primarily due to negative show rotation of about $6 million and unfavorable currency translation of $3.6 million which were largely offset by continued same-show growth and new business wins.
Revenue from the U.S. segment increased $11.3 million including approximately $6 million from positive show rotation. While revenue from the international segment declined by $13 million including reductions of $12 million and $3.6 million from show rotation and currency translation respectively. Excluding the effects of show rotation and exchange rate variances revenue was up about 2.6% in the U.S. and about 3% in the international segment.
GES’s second quarter adjusted segment operating income was $27.4 million, down $3 million from the 2015 quarter driven by the international segment. U.S. adjusted segment operating income increased $3.4 million driven primarily by stronger revenue and cost management. International adjusted segment operating income decreased $6.4 million primarily due to lower revenue, as well as the non-recurring gain of $1.3 million realized in 2015 quarter related to exiting of the new services agreement.
The year-over-year client also reflects higher wages and performance-based incentive in the 2016 quarter. The Travel and Recreation Group posted second quarter revenue of $40.5 million, up $10 million from the 2015 quarter driven mainly by the acquisitions of CATC and Maligne Lake Tours which contributed $10.9 million in revenue during the quarter. On an organic basis which excludes the acquisitions and unfavorable currency translation of about 840,000. Revenue was essentially flat to 2015 quarter.
At different scenario we experienced very strong growth across our hospitality assets with same-store RevPAR of more than 16%. Revenue was also up at our two way field attractions and at the Banff Lake Cruise. This growth was largely offset by expected declines at the Banff Gondola and from Brewster's transportation line of business. Revenue from the Gondola was down nearly $2 million versus the prior year due to renovation closures.
The decline in transportation revenue is approximately $1 million and reflects our efforts to strategically downsize this lower margins line of business. Second quarter adjusted segment operating income for the Travel and Recreation Group was $7.4 million and $1.2 million from the 2015 quarter. On an organic basis, it was down about 500,000 primarily due to the revenue decline in our high margins Banff Gondola.
Now I'll cover some cash flow and balance sheet items before discussing guidance. GES consolidated cash flow from operations was $37.3 million for the quarter up from $19.8 million in the 2015 quarter, primarily due to favorable working capital. Capital expenditures totaled $13.3 million including approximately $6 million for Gondola renovations. At June 30, our cash and cash equivalence totaled $31.2 million, debt was $132.7 million and our debt to capital ratio was 27.4%.
Now moving on to guidance. For the third quarter we’re expecting our income per share before other items to be in the range of $1.43 to $1.58 as compared to $0.39 in the 2015 quarter. The substantial growth reflects stronger revenue at both business groups.
For GES, we expect third quarter revenue to increase by approximately $81 million to $91 million from the 2015 quarter with an increase in adjusted segment operating income of approximately $26 million to $29 million. This growth is expected to be driven mainly by a positive share rotation of $80 million to $85 million in revenue, as well as continued same-show growth and new business wins. Exchange rate variances are expected to have an unfavorable impact on GES revenue of approximately $9 million.
Travel and Recreation Group third quarter revenue is expected to increase by about $23 million to $27 million with an increase in adjusted segment operating income of $7.6 million to $10.6 million. There are four main factors driving these changes. Number one, the acquisitions of CATC and Maligne Lake Tours are expected to contribute revenue of $20 million to $22 million and adjusted segment operating income of $7 million to $9 million.
Secondly, we expected to see continued growth across the majority of our other service volumes driven by strong tourism in our markets and our yield management efforts. Third, revenue from Banff Gondola is expected to be relatively flat year-over-year with strong tourism demand driving high elastic at sales. This helps to offset the impact of construction related closures on ancillary revenues like food and beverage and retail. And fourth, we expect our revenue decline at $2 million to $3 million for Transportation and Package Tours as we continue to downsize those lower margin lines of business.
For the 2016 full-year, we have revised our guidance to reflect stronger performance for the Travel & Recreation Group, partially offset by the expected impact of the devaluation of the British pound at GES’s international results. For the Travel and Recreation Group, we now expect full-year adjusted segment EBITDA to be in the range of $44 million to $47 million versus our prior guidance of $42 million to $46 million.
And we expect full-year revenue to grow by 30% to 32% from $112.2 million in 2015 versus our prior guidance for an increase of 20% to 25%. For GES we announced full-year adjusted segment EBITDA to be in the range of $76 million to $79 million which is down $1 million from our prior guidance.
This reflects the expectation that the U.S. Dollar to British Pound exchange rate will be approximately $1.29 for the second half of 2016. Our prior guidance [indiscernible] the rate was approximately $1.43. For Viad overall consolidated adjusted segment EBITDA is expected to be in the range of $120 million to $126 million which is up $29.4 million and $35.4 million from 2015.
Consolidated adjusted segment operating income is expected to be in the range of $81 million to $87 million. The midpoint of this range reflects growth of more than 50% relative to 2015. Consolidated revenue is expected to increase at a high single-digit rate from 2015. This assumes positive show rotation of about $50 million and continued underlying growth at GES.
Our revenue contribution of $31 million to $33 million from the acquisition of CATC and Maligne Lake Tours and continued strong tourism demand in yield management at the Travel & Recreation Group. Partially offset by unfavorable currency translation of approximately $26 million and a revenue reduction of approximately $6 million from the combination of streamlining of Brewster's Transportation and Package Tours lines of business and renovation closures at the Banff Gondola.
Our full-year cash flow from operations is expected to be in the range of $85 million to $95 million and capital expenditures are expected to be about $48 million to $52 million. Additional 2016 guidance can be found in the earnings press release.
And Steve, back to you.
Thank you, Ellen. In closing, we are on phase to deliver strong results for 2016 and I am excited about the momentum we have on both sides of our business. Our teams are doing an excellent job executing our growth strategy to firmly position GES as the preferred global full service provider for live events and to more than double the size of our Travel & Recreation business.
We have an exciting roadmap ahead of us and are encouraged by the validation of our new offerings are receiving in the markets we serve. With the focus on creating shareholder value we continue to pursue acquisitions that enhance our offerings and drive profitable growth. I want 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 up for questions. Mary, will you please open the line?
Thank you. [Operator Instructions] The first question is from the line of Ian Corydon from B. Riley. Your line is now open.
Thank you. You mentioned you had one event that negatively impacted I believe it was the same-store sales and marketing and events in the quarter? Could you just talk about what happened there and if that's a recurring event and what you might be able to do to fix that?
Yes, thanks Ian. Good question. So we had one event that really drove our same-show growth from down to 2.6% for the quarter without that event it would have been 5% and that’s more in line with what we're seeing across the broader spectrum of events. That one event had some major exhibitors that participated outside of the tradeshow floor by nearby venues. It is a reoccurring event and we expect that there is exhibitors will come in back into the show in future years.
Okay. And on marketing and events where do you stand relative to the goal of about a 5% segment operating margin for the year?
Yes. We’ll still - as we set our guidance for the year, we’ll - that we feel strong by setting our guidance for the year that would reflect to 5%.
Okay. And last question is on Travel & Rec and I'm still working through all the numbers but it seems like the segment operating income guidance for the year might suggest that segment operating income in the fourth quarter might be quite a bit below last year and I could have that wrong but could you just comment on what the Q4 expectations might look like?
Yes. I think I’ll answer a little bit and I’ll let Ellen talk a little bit about it as well. This is a seasonal business and so during the fourth quarter a portion of our attractions and properties are closed down for the season which – that's why you see a lower adjusted operating income for the Travel & Recreation business. I don’t know Ellen if you have any additional detail to add.
It’s a little bit higher than it was in Q4 last year because of Maligne and CATC, so we’ve those online this year and they have seasonally slow fourth quarter as well. So I think the way to look at it is Q4 this year is going to look a lot like Q1 of 2016 from an overall loss perspective.
Got it. That’s very helpful. Thank you.
The next question on queue is from the line of Marco Rodriguez from Stonegate Capital Markets. Your line is now open.
Good afternoon. Thanks for taking my questions. I wanted to get a little bit more color in regard to the show rotation for the year. Just kind of based on your press release here, it looks like your Q2 show rotation performed a little bit better than what you guys as expected by about $4 million. But it looks like perhaps maybe that then shifted the Q4 because that’s on the higher end of what you had estimated before. Does the things kind of shift around from quarter-to-quarter or can you kind of help me understand that?
No, I think the show rotation in the second quarter performed within the range that we had given previously for guidance and we've talked before about what Q3 rotation looks like specifically $80 million to $85 million. So it’s not a shifting effect, it’s going within our range of what we've given previously for the second quarter.
Okay. Got it. And then in terms of the short-term event bookings that helped out the quarter here for GES. Can you maybe talk about some of the drivers that were there in the quarter that helped that? Where there any sort of promotional events, additional marketing that was done and what sort of trends do you see for that side of the business going forward?
Yes. We entered the second quarter with a pretty robust pipeline of opportunities. The sales team did a great job of closing those opportunities. I think a lot of it distributed to the growth strategy of adding multiple services into our portfolio and being able to use that on those new opportunities. And so from my perspective, our success in the second quarter is really a result of a strong pipeline and a very good value proposition as we have multiple lines of business.
Got it. And last quick question on the T&R business. You guys have called out a stronger than expected start to the peak season here. Where there any other – where there any activities that kind of helped to kick start that or is that something you guys are a bit surprised by?
Well, it’s a shoulder season. The second quarter is a shoulder season for the Travel & Recreation business. And again, what I would say is that a lot of the initiatives we have that are focused on the customer and their experience as well as yield management really drove our results in the second quarter. We have over the last several calls we've talked about the investments we've made to refresh our properties not only the Gondola, but our hotels and other properties that we have. We've also focused a lot on the customer service at our facilities and also on yield management. So those things are really what drove our success in the second quarter.
Got it. And just one last quick one here just kind of confirming here on the – the change in the guidance on FX, is that that's primarily that the pound that’s impacted that. Is that correct or there other currencies?
Correct, primarily the pound.
Got it. Great. Thanks a lot guys. Appreciate your time.
The next question on queue is from the line of Steve O'Hara of Sidoti & Company. Your line is now open.
Yes. Thank you. I was just curious about based on the updated guidance. Maybe what you're seeing in the UK and – does the guidance speak in any business weakness or demand drop off or is it simply the currency. And maybe if you could talk about the pipeline there and how it looks?
Yes. Thanks Steve for the question. Our guidance really just takes a look at the impact of FX. In the short-term that’s the known entity in terms of the impact from the referendum to leave the EU. We do not see any change in our pipeline for the balance of the year and into 2017 and so we are really waiting to see how the EU and UK negotiate their trade agreements to understand how that will impact us, but I think that's pretty far off in the future Steve.
Okay. And then just on the T&R business, maybe you mentioned it, maybe you didn't, but in terms of the I guess we're a month into the peak season. Did you talk about maybe the demand trends you're seeing and is that just kind of incorporated in guidance already? And then just going back to GES kind of close in bookings in that strength? Is that fully factored in, are you expecting that to continue into 3Q or not? Thank you.
Yes. Thanks, Steve. When we think about the Travel & Rec business, obviously we performed well in the second quarter and we expect that to continue and that's reflected in our guidance. We have some strong indicators going into the third quarter that it's going to be a great opportunity for us to really drive additional business and drive more to the bottom line.
So we're excited about the third quarter. We reflected some of that in our guidance. The fourth quarter is little further off, right so we feel like we have great pipelines and now Steven is speaking about the GES side of business. For Q4, we have strong pipelines going into Q4 to little further away and so there's a little more uncertainty and it's really up to us to convert that pipeline into deals for GES.
Okay. Thank you very much.
The next question on queue is from the line of Peter Rabover from Artko Capital. Your line is now open.
Hey, guys. Thanks for taking my call. Just wanted to kind of get an update on how are you guys thinking about capital allocation and I guess the long-term view of having two separate businesses especially now that Travel & Recreation is almost as or getting to the size of the marketing business?
Yes. Really the way to look at capital allocation is on organic basis and from an acquisition perspective and we look at it through both groups, the best opportunities that are out there. So we have robust pipelines from an acquisition perspective on the GES side and Travel & Rec side. So it's really looking at both groups going forward, strengthening the strategic view of GES and then growing Travel & Rec.
Peter, on the second half of your question, we are focused on our growth strategy which we’ve been pretty clear in defining that. We're looking to more than double the size of the Travel & Recreation Group and also grow the GES segment by adding new services and being a full service provider for the live events market. So we feel like that will put us in a position where Viad has more options down the road.
Okay. Great. What's the base of the doubling of the Travel & Rec business I feel like you guys have said that in the past and you’ve added probably 50% of EBITDA since then, so I’m just curious?
Yes. It's based of revenue and we stated that in 2015 was the first time we stated which our total revenue I think was $115 million or $112 million.
Okay. I guess I'm just thinking through the capital allocation in the travel business, it's more of a kind of a hotel REIT sort of thing and just wondering if it would make sense to be a standalone Company, but if you guys have your own plan I’ll just follow on with it.
Yes, really the focus on Travel & Rec is attraction and hotels and the problem with the REIT structure is we are an operator hotels and some of them are in Canada, some of them are in United States and our entire business is hotel, a lot of it is attractions and that’s actually a big focus for us going forward.
Okay, great. I thank you for your answers. I appreciate it.
End of Q&A
As of this time, we don’t have questions over the phone queue. [Operator Instructions].
Okay. Well, thank you for your questions and obviously your interest in Viad. And we look forward to speaking with you again next quarter. Take care.
And that concludes today's conference. For all the participants, thank you 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: firstname.lastname@example.org. Thank you!