Viad Corp
Q1 2021 Earnings Call Transcript

Published: 8 May 2021

[Operator:]

Good day and thank you for standing by. Welcome to the Viad Corp. First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would like to hand the conference over to your speaker today, Carrie Long with Investor Relations. Thank you. Please go ahead.

[Carrie Long:]

Good afternoon and thank you for joining us for Viad's 2021 first quarter earnings conference call. During the call, you will hear from Steve Moster, our President and CEO and President of GES; David Barry, our President of Pursuit; and Ellen Ingersoll, our Chief Financial Officer.

[Steven Moster:]

Thanks, Carrie, and good afternoon, everyone. Thank you for joining us on today's call. On this afternoon's call, we'll discuss our business performance during the 2021 first quarter, provide some insights into the recovery of our industries and review our liquidity position. David will provide business updates for Pursuit shortly. And after that, I'll share some business updates for GES. Ellen will cover our liquidity and financial results towards the end of the call. Before I turn the call over to David, I'd like to thank our employees for helping our businesses successfully navigate the ongoing challenges and uncertainty of the COVID-19 pandemic. I'm confident that the strength, drive, creativity and flexibility of our team will continue to fuel our success as our industries recover and we capitalize on new opportunities for growth. I'd like to now turn the call over to David to discuss what's happening across the Pursuit. David?

[David Barry:]

Thank you, Steve. Although Q1 is a seasonally slow quarter for Pursuit and despite the many challenges of operating during a global pandemic, we're pleased to finish ahead of our expectations for the quarter. Pursuit operations began their seasonal return towards the end of the first quarter. Kenai Fjords Tours and Seward Alaska resumed seasonal operation on March 13, and we had a strong March at the Talkeetna Alaskan Lodge surpassing our expectations for group lodging business. In our Banff Jasper collection, we began the quarter subject to ministerial health orders, limiting capacities in indoor food facilities. And as these restrictions are lifted, spending levels by our guests immediately rebounded to pre-pandemic levels and we saw dramatic increases in per cap food and beverage spend at our top ranked restaurants, Sky Bistro and Farm & Fire.

[Steven Moster:]

Thanks, David. Now switching over to GES. Since mid-March of 2020, the live event industry has been acutely impacted by the pandemic. With substantial progress being made in the number of vaccinations, we're seeing restrictions ease and face-to-face events are beginning to take place again. During the first quarter, we worked with our corporate clients to produce their virtual and hybrid events like Northwestern Mutual. As restrictions kept Northwestern Mutual from holding their annual in-person meeting, they turned to GES to reimagine their event in the virtual world. Leveraging our creative, strategic and content capabilities as well as our in-house studio production, we delivered on our clients' mission an exciting and energetic event connecting employees around the world. We also produced some smaller in-person exhibitions in Florida, Texas and other markets in the U.S. and the United Arab Emirates that have already lifted restrictions on larger in-person events. And recently, Las Vegas, the world's largest event market, announced that the city would start hosting large-scale exhibitions at 100% capacity starting in June. This is a very strong indication that the industry's recovery is beginning to take hold. We continue to hear tremendous interest from our clients about producing their in-person events in the second half of 2021 and have already started planning their 2022 events. While virtual solutions have been a necessary substitute during the pandemic, I'm sure many of you would agree virtual events have not been able to fill the top of the sales funnel like in-person events have in the past and do not present the networking opportunities that in-person meetings offer. Surveys of exhibiting companies have overwhelmingly shown that virtual events are nowhere near as effective or as valuable as face-to-face in generating sales, driving brand awareness and loyalty and engaging with attendees. While virtual technology has been a part of the evolution of live events, we believe that technology complements an in-person experience but does not replace it.

[Ellen Ingersoll:]

Thanks, Steve. With continued impacts from COVID restrictions during the first quarter, we maintained a sharp focus on controlling costs and maximizing revenue wherever possible, and we finished the quarter with a solid liquidity position. At GES, we realized revenue of $19.1 million as we supported our clients primarily with virtual and hybrid events, while face-to-face events remained largely shut down. This was down approximately 93% from the 2020 first quarter. GES adjusted segment EBITDA was negative $14.2 million and included a $9.1 million gain from the sale of our final GES owned warehouse as we continue to free up capital and shift to a more flexible cost structure across GES. As Steve mentioned, we also downsized our warehouse footprint in Las Vegas. Primarily in connection with that downsizing, we recorded a restructuring charge of $2.8 million at GES during the quarter. At Pursuit, we experienced a smaller year-over-year revenue decline of approximately 28% as we drew visitors from our local and regional markets, while international travel remained restricted during this seasonally slow quarter. Pursuit's first quarter revenue was $9.8 million and adjusted segment EBITDA was negative $9.1 million. As David mentioned earlier, Pursuit's adjusted segment EBITDA improved by $3.1 million year-over-year despite lower revenue. This was largely the result of vigilant cost control and approximately $2 million in wage subsidies offered by the Canadian government. Our net loss attributable to Viad was $43.2 million for the quarter and our net loss before other items was $39 million, which excludes restructuring charges, attraction start-up costs, acquisition integration and transaction-related costs, and other nonrecurring expenses as applicable. During the quarter, our total available liquidity decreased by approximately $40 million, which included funding for the development of Pursuit's FlyOver Las Vegas attraction and Pursuit's acquisition of the new Golden Skybridge attraction. We had previously guided for a decrease of $45 million to $50 million. We continue to carefully manage working capital across the business. And during the first quarter, we experienced stronger-than-expected inflows from advanced customer deposits at Pursuit as bookings for the summer have accelerated. We limited our operating cash outflow to approximately $33 million for the quarter, and our capital expenditures totaled $9.4 million and were mainly at Pursuit for the FlyOver Las Vegas attraction. Additionally, we raised net proceeds of $14.1 million from the sale of a GES warehouse and acquired the new Golden Skybridge attraction for Pursuit for $7.2 million net of cash acquired. We ended the first quarter with total available liquidity of approximately $220 million, including unrestricted cash of approximately $35 million, capacity on our revolving credit facility of approximately $140 million and an additional $45 million available to us through a delayed draw commitment from Crestview Partners. At March 31, 2021, our debt totaled approximately $370 million, including approximately $301 million drawn on our revolving credit facility, financing leases of approximately $63 million and approximately $6 million in debt at our FlyOver Iceland attraction. Our revolver debt matures in October 2023 and the longer term amendment that we secured in early August provides us with financial covenant relief until the third quarter of 2022. And as a reminder, during this covenant waiver period, we are required to maintain minimum liquidity of $100 million. Although, we are not issuing financial guidance at this time, I'd like to briefly comment on our liquidity and financial outlook. We expect the 2021 second quarter will see revenue improvements at both Pursuit and GES relative to the first quarter. However, we still expect to be well below pre-pandemic levels due to continued restrictions. Pursuit second quarter revenue will be affected by the Canadian border closure, which was recently extended through May 21st, and the live event industry is still in the early stages of reopening for face-to-face events. At Pursuit, our seasonal properties are starting to open up for the peak summer tourism season and will have two new attractions online this quarter

[Steven Moster:]

Thanks, Ellen. After a full year navigating the challenges of COVID-19, we've become a stronger, nimbler and more resilient team. We work diligently making difficult decisions to make sure Viad not only endure the pandemic, but is positioned to emerge stronger. I'm very proud of our team and grateful for their efforts during this time period. We have improved our business in ways that will have a lasting impact on shareholder value. At GES, we've reduced and variabilized our cost structure and freed up capital. And at Pursuit, we've continued to selectively invest in high-return growth opportunities aligned with our Refresh, Build, Buy growth strategy. There are clear signs of pent-up demand at both Pursuit and GES. Pursuit's iconic assets and world-class hospitality service creates inspiring and unforgettable experiences that cannot be replicated. And GES' live face-to-face events provide a powerful and cost-effective way to drive business growth from transacting business to building brand loyalty. As the number of vaccination continues to increase and COVID-related restrictions lessen, we are seeing increased demand and optimism for both leisure travel and in-person events. We're eager to get back to building on the exciting growth success that we had prior to COVID-19 and are confident that our long-term strategies for our businesses post pandemic will lead to strong shareholder value creation. We remain committed to delivering extraordinary experiences to our guests and our clients and to creating long-term value for our shareholders. Thanks again to our hard-working and dedicated employees who make all of this possible, and thank you to our shareholders for your continued support in Viad. And with that, we'll open up the call for questions.

[Operator:]

Your first question comes from Tyler Batory from Janney. Please go ahead.

[Tyler Batory:]

Thank you. Good afternoon. A few questions on my end. And I think I want to start on the Pursuit side of things. And just in terms of the border close between the U.S. and Canada, and I understand that nobody has a crystal ball, but just looking at the commentary from the government and the vaccine situation up there a little bit different than United States, if the border were to remain closed for the entire summer, can you just talk about how that might change your strategy for the business, in particular the Banff Jasper assets? And what you might be able to do to still operate effectively without some of the tourism coming from the U.S.?

[Steven Moster:]

Yes, Tyler, it's a good question. So a couple of things. One is, remember we did operate all through the summer last year during 2020 with a strong lockdown across Canada. So we were EBITDA positive across all geographies in Q3 of 2020. And we expect that we're going to be able to operate successfully even with the border closure, and we are optimistic that the efforts under way in terms of vaccines and so on will lead to an acceleration, very similar to what it did in the U.S. To give you an example, if you look at Jasper Lodging compared to say, 2020, we -- 56,000 room nights on the books 2020. We're at 65,000 room nights in Jasper in the '21 season. So we see already acceleration. If the borders remain closed, Canadians are going to travel within the country, and they're going to experience and visit destinations that appeal to them. And we have a lot of destinations and experiences that will appeal. We're optimistic that there will be some movement on the border. But we think we can operate successfully within the attraction space and also within the hospitality and lodging space through this summer, even if the border remains closed.

[Tyler Batory:]

Okay. And then in terms of the acquisition in that business, the Golden Skybridge attraction, can you expand a little bit more on the strategic value of that asset? Why it was a good fit within Pursuit?

[Steven Moster:]

Sure. And what's important to remember is it sits 90 minutes from Banff. It also -- the town of Golden sits in a circle surrounded by five national and provincial parks. It's on the main thorough fair that criss-crosses Canada, so the TransCanada highway. Unlike the U.S. Interstate system, there's primarily one route that takes you from west to east and east to west, which travels through Golden. It also is a community that as Banff becomes busier and more hotel properties are renovated, there's a trickle-down effect that drives tour and travel business into Golden as well. And so we believe, one, the experience really is iconic, unforgettable and inspiring. And we use those words, but it's our first test because you know it when you see it. And then can we integrate it into itineraries and a variety of other things. So it's a great example of a tuck-in within an existing and strong geography and giving us a guest experience that we think is very additive to our attraction base. The other thing that we really like about the Golden Skybridge is its first season will operate seasonally. But into the future, we'll operate on a year-round basis as Golden is quite a vibrant ski destination as well with limited apres-ski and other time activities. So we believe that it's got great potential for year-round business as well.

[Tyler Batory:]

Okay. Switching gears to the GES side of things and I appreciate all the commentary there. Just in terms of your outlook for the second half of this year, has your confidence or your overall view on what you guys might look like in the second half of this year improved versus 90 days ago? Is it kind of stayed the same? Just kind of curious what you're seeing today in terms of the second half of the year at GES versus the last time that we spoke.

[Steven Moster:]

Yes, Tyler, a lot's happened in the last 90 days since we last spoke. And as we get closer to these events, you start seeing more of the pacing of the sale of floor space for some of the events. And so we're -- we feel good about how that's tracking through the back half of 2021. You also see just the relaxation of -- or easing some of the restrictions that are out there. When the Kentucky Derby can have 50,000 people in attendance, other large sporting events are starting to take place. Just before the call, I read that Chicago Auto will be taking place in the middle of July in Chicago. So there's a lot of positive trends that have happened in the last 90 days that have us feeling very confident about the back half of the year.

[Tyler Batory:]

Okay. And so as we you start to restart in GES and some of these shows come back online, can you just remind us some of the start-up costs necessary to reactivate that business if you will? And then there are a lot of industries out there that are seeing shortages of labor right now. Is that something that concerns you at all? Is that something that you're potentially seeing out there for you guys?

[Steven Moster:]

Yes during the pandemic, we certainly cut back on overall SG&A and we did so for the last year to make it through the pandemic. We're in a mode now where we're starting to increase our staff in preparation for the back half of the year. As you know, a portion of our labor that we use at the show site in terms of the execution is all union labor and we feel confident that that labor will be there when the need arises for it. So we're building those plans to be able -- and be prepared for the events that are coming in the back half of the year. And I feel very good about our ability to do that. I also think what's important is we've moved to a little bit more of a freelance or flexible model in terms of labor and that allows us to scale as the revenue comes back. So we think that's the right approach that we should be taking during 2021. And we feel good about our level of preparation as events are coming back.

[Tyler Batory:]

Okay. Excellent. And a housekeeping question, I think, for Ellen. Just in terms of the CapEx side of things. Can you remind us -- I think you said $20 million spend in the second quarter. How much are you looking for the full year? And how much of that will be categorized as maintenance CapEx spend?

[Ellen Ingersoll:]

Yes, Tyler, we haven't given guidance on the full year, but the first half is little more heavily weighted due to the FlyOver Las Vegas. So we had about $20 million in CapEx in the first half for FlyOver Las Vegas. That's a big part of the $20 million in the second quarter, FlyOver Las Vegas, Golden Skybridge and the Jasper Hotel. As far as maintenance goes, the maintenance CapEx is going to be held to absolutely necessary CapEx. But on the Pursuit side, it tended to be 6% of revenue. Since we're not giving guidance, I just don't really know how we can guide for that. But I will say that the maintenance CapEx is kept to a minimum.

[Tyler Batory:]

Okay. And I think just the last question for me. Just in terms of capital priorities moving forward here, I think you laid out a pretty attractive growth outlook from your next few quarters with things getting better. Just any thoughts on strategically what might make sense besides just M&A, especially on the GDS side of things, perhaps?

[Steven Moster:]

Yes. We've been pretty clear in terms of our growth strategy and we're going to continue to invest in Pursuit along the lines of Refresh, Build, Buy. Obviously, David, in his comments, talked through a number of things that we're bringing online right now. So those types of acquisitions or development projects are ones that you'll see us continue to do. In terms of GES, there are -- as we've talked about before, it's been an incredibly difficult time for the live event industry. And as I mentioned in some of my comments, some of our competitors haven't weathered the storm very well. And we think that there's opportunities to grow more organically than through acquisition. And that's kind of our strategy going forward for the rest of 2021.

[Operator:]

Your next question comes from Kartik Mehta from Northcoast Research. Please go ahead.

[Unidentified Analyst:]

This is Alex on for Kartik. And our first question just comes from the Pursuit side. And what type of demand are you seeing from residents within the Banff Jasper location? And then if those locations remain close to U.S. tourism for the summer, are you planning on keeping that discount for the residents during that peak season or removing it?

[David Barry:]

Yes, I'm not sure which discount you're referring to, but I can give you a view to demand. So we're pacing for Jasper right now 17% ahead of what was quite a strong season in 2020. And that is really primarily all Canadians traveling. There's no international business in that growth mix. And we expect that number is just going to improve. We do have, at all times, depending on the time of day and period of the year, more of a dynamic pricing curve to be honest. And so if you've got a young family and want to visit an attraction early in the morning, it's generally a more favorable ticket price than if you want to come at two o'clock in the afternoon on a Saturday. So we do price dynamically and adjust. And we adjust any offers that we have based on the conditions within that particular market. And also by type of visitor, mix of product, what else is packaged and so on. So we spend a lot of time and energy around on the pricing side and we'll adjust according to what the demand is.

[Unidentified Analyst:]

Okay, great. And then are you taking international bookings for the Banff locations? Or is that a wait and see into the May 21 date?

[David Barry:]

There are folks booking, and they're booking for obviously further in the year, whether that's September or October or August, dependent upon travel trends and what they're seeing. Actively, Iceland is accelerating right now. So we're seeing lots of movement into Alaska, Montana and Iceland. And then obviously, the Canadian border has an impact on our Western Canadian visitation, but those conditions are improving really daily and weekly.

[Unidentified Analyst:]

Very helpful, thank you.

[Steven Moster:]

Thank you.

[Operator:]

Your next question comes from Steve O'Hara from Sidoti and Company. Please proceed with your question.

[Steve O'Hara:]

Hi, good afternoon. Just curious on the -- maybe on the GES side, how you see that business coming back? I mean, you talked the airlines seem to think that business travel kind of comes back in the fall and then you see a much stronger resurgence in January when budgets get opened back up again. Just kind of -- is there similar pent-up demand for business as there is for leisure travel?

[Steven Moster:]

Yes. Good question, Steve. Obviously, there's been a lot of conversation about the leisure travel leading the recovery back. And as David talked about in our notes, we see that happening right now. What we see for GES in the back half of the year, we do see the number of events that we -- that we will produce being greater than what we traditionally would in a typical year. However, we do see them reduced in their size. We think that the business travelers will ultimately return, but it will be a gradual effect that kind of starts in the beginning of the end of the second quarter, beginning of the third quarter and goes through the end of the year. So we see the number of events greater, but the actual size of these events being lower than pre-pandemic levels.

[Steve O'Hara:]

Yes. Good question, Steve. Obviously, there's been a lot of conversation about the leisure travel leading the recovery back. And as David talked about in our notes, we see that happening right now. What we see for GES in the back half of the year, we do see the number of events that we -- that we will produce being greater than what we traditionally would in a typical year. However, we do see them reduced in their size. We think that the business travelers will ultimately return, but it will be a gradual effect that kind of starts in the beginning of the end of the second quarter, beginning of the third quarter and goes through the end of the year. So we see the number of events greater, but the actual size of these events being lower than pre-pandemic levels.

[Steven Moster:]

I think when you talk to the show organizers of exhibitions, they're happy to go back to their normal schedule throughout the year. Everything really was compressed or is being compressed in the back half of 2021. And so the schedule, I think, will come back to pre-pandemic levels starting in 2022. What we're hearing from our corporate clients is a strong interest in starting to plan events, some are repeat events and some are new events. So we actually think that there's a fairly strong demand for those events to start taking place in 2022 and beyond, and that's the work that we started with our clients.

[Steve O'Hara:]

Okay. That's helpful. And then -- and maybe on just Pursuit. I'm sorry, going back to GES, I think you said that in the third quarter you expected GES to have better cash flow or -- I don't think you said cash flow positive. Is that correct?

[Ellen Ingersoll:]

We expect that it would be cash flow positive, but depending on how the pandemic went -- but we do expect to be cash flow positive.

[Steve O'Hara:]

Great. Okay. That's helpful. And then maybe just moving to Pursuit. Can you just remind me in terms of international? And I guess, I mean, other than the U.S. and North America, how much of that market is typically international? And is that a governing factor in the near-term on how well those properties can do? Or do you see pent-up demand kind of making up for that shortfall?

[David Barry:]

Yes, Steve, thank you for that. Pent-up demand is really powerful. And we're seeing it, as I mentioned in my remarks, I mean, we're seeing right now lodging pace ahead in Alaska of '19 by 44%. If you translate that also looking at Montana, we're tracking very strongly in Montana. Call center activity significantly ahead, pacing 23.5%, 24% ahead. Jasper pacing strongly 17% ahead of this time last year and performance through 2020. So it's encouraging to see. And pent-up demand is quite strong, and folks are deciding maybe this isn't the year to go in their African safari, but they're focused on, say, going to Alaska. And the booking pace has accelerated pretty dramatically. Again, as I mentioned in the remarks, typically, 350, 400 bookings a week would be a typical number for Alaska. We're taking between 800 and 1,300 bookings per week, and that pace hasn't let up. International visitation in a typical year is about 51% and we don't segregate out the U.S. obviously. International visitation from overseas is slowed because everyone is obviously paying attention. But if you look at Iceland, Iceland -- if you're fully vaccinated, you don't require any quarantine period, so Delta has just resumed flights. They have their first flight landing. They go to daily within the next couple of weeks as does United and a variety of others and Iceland Air ramps back up their flight. So we expect traffic from the U.K. and the U.S. into Iceland will be quite strong. And if Canada -- the Canadian borders don't open, we've planned and organized ourselves to obviously sustain the business. But we don't have a crystal ball. I don't have any future view that I can speculate on other than we're seeing signs of strong enthusiasm and acceleration of vaccine delivery, which if you look at where the U.S. was, say, beginning of February compared to where the U.S. is at the end of March, it's quite a marked difference. So we see that happening in Canada and so we're encouraged by that.

[Steve O'Hara:]

All right, thank you very much for the time.

[Steven Moster:]

Thank you.

[Operator:]

Your next question comes from Barry Haimes from Sage Asset Management.

[Barry Haimes:]

Thanks so much. Had two questions. First one, just thinking about Pursuit and in terms of room rates, if we were to look at where they are now compared to where they were in '19, any feel for where rates are? That's the first question.

[David Barry:]

Other than joy and encouragement, it's actually pacing quite well and not specifically RevPAR and ADR. So we're seeing growth across categories. Right now, for instance, in Glacier, we're trending up 21% from '19. Significant growth in Alaska as well. Strong performance in Jasper. So we're seeing not only volume increases, but also strong RevPAR and ADR growth. And given that accelerated demand, we've also been able to yield significantly in key periods. So we move -- we study price every single week and we move according to demand, and we've been moving price pretty consistently over the last six, seven weeks or so.

[Barry Haimes:]

Great. And then second question, a little bit more of a big picture one. If we look to '22 and not looking for guidance or forecast, but -- or maybe even not even talking about a year, but assuming '22 or '23, whatever, is back to normal. What's the right way to think about the earnings potential of the business? Because you've had some cost cuts and yes, we've had some traction additions in Pursuit. So anything you could point us to as investors that in terms of how we should be thinking about earnings power in a normal year versus where '19 was, let's say?

[Steven Moster:]

Well, I think if we compare the earnings of, say, 2019 pre-pandemic to where we will be at full recovery, I'm not going to put a time to when that happens because the businesses are coming back at different paces, I mean, clearly we'll be better or off. We've seen -- we believe there's margin opportunity within the GES business on kind of the existing base of revenue, just based on a lot of the transformation work that we did over the last 12 months. And the Pursuit team has brought on new attractions over the last 12 months, and we believe those will continue to add strength to the earning power at Pursuit. So we're very bullish and optimistic about what this business looks like when there's a full recovery, but clearly, better off than where we were in 2019. I can't give you specifics around what that looks like entirely, but we're very optimistic and bullish about our future.

[Barry Haimes:]

Great, thanks so much.

[Steven Moster:]

Thanks, Barry.

[Operator:]

That was our last question at this time. I will turn the call back over to the presenters for closing remarks.

[Steven Moster:]

Thanks, Mike. Thanks, everybody, for your questions and your interest in Viad and we look forward to speaking with you again next quarter. Thanks, everybody. Bye-bye.

[Operator:]

This concludes today's conference call. Thank you for participating.