Pursuit Attractions & Hospitality, Inc.: Form 10-Q for the period ended Sep 30, 2023

Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains a number of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words, and variations of words, such as “aim,” “anticipate,” “believe,” “could,” “deliver,” “estimate,” “expect,” “intend,” “may,” “might,” “outlook,” “plan,” “potential,” “seek,” “target,” “will,” and similar expressions are intended to identify our forward-looking statements. Similarly, statements that describe our business strategy, outlook, objectives, plans, initiatives, intentions, or goals also are forward-looking statements. These forward-looking statements are not historical facts and are subject to a host of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those in the forward-looking statements.

Important factors that could cause actual results to differ materially from those described in our forward-looking statements include, but are not limited to, the following:

• general economic uncertainty in key global markets and a worsening of global economic conditions;
• travel industry disruptions;
• the impact of our overall level of indebtedness, as well as our financial covenants, on our operational and financial flexibility;
• identified material weakness in our internal control over financial reporting;
• seasonality of our businesses;
• the impact of the COVID-19 pandemic on our financial condition, liquidity, and cash flow;
• our ability to anticipate and adjust for new and emerging challenges presented by the ramifications of the COVID-19 pandemic on our businesses;
• unanticipated delays and cost overruns of our capital projects, and our ability to achieve established financial and strategic goals for such projects;
• our exposure to labor shortages, turnover, and labor cost increases;
• the importance of key members of our account teams to our business relationships;
• our ability to manage our business and continue our growth if we lose any of our key personnel;
• the competitive nature of the industries in which we operate;
• our dependence on large exhibition event clients;
• adverse effects of show rotation on our periodic results and operating margins;
• transportation disruptions and increases in transportation costs;
• natural disasters, weather conditions, accidents, and other catastrophic events;
• our exposure to labor cost increases and work stoppages related to unionized employees;
• our multi-employer pension plan funding obligations;
• our ability to successfully integrate and achieve established financial and strategic goals from acquisitions;
• our exposure to cybersecurity attacks and threats;
• our exposure to currency exchange rate fluctuations;
• liabilities relating to prior and discontinued operations; and
• compliance with laws governing the storage, collection, handling, and transfer of personal data and our exposure to legal claims and fines for data breaches or improper handling of such data.

For a more complete discussion of the risks and uncertainties that may affect our business or financial results, refer to Item 1A, “Risk Factors,” of our 2022 Form 10-K. We disclaim and do not undertake any obligation to update or revise any forward-looking statement except as required by applicable law or regulation.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our 2022 Form 10-K and the condensed consolidated financial statements and related notes included in this Form 10-Q. The MD&A is intended to assist in understanding our financial condition and results of operations.

Overview

We are a leading global provider of extraordinary experiences, including hospitality and leisure activities, experiential marketing, and live events. We operate through three reportable segments: Pursuit, Spiro, and GES Exhibitions. Spiro and GES Exhibitions are both live event businesses, and are collectively referred to as “GES.”

Current Macroeconomic Factors

International tourism and live event activity continues to improve and demand for our products and services remains strong despite ongoing macroeconomic volatility. During the nine months ended September 30, 2023, we operated with little to no COVID-19 related disruptions, and supply chain and labor challenges continued to improve. Changes in macroeconomic factors, particularly high inflation and the resulting rise in interest rates, have increased our interest expense. Any future impacts from these and other macroeconomic developments on our operations cannot be predicted with certainty, but could have adverse effects on our business, financial condition, and results of operations.

Seasonality

Pursuit’s peak activity occurs during the summer months. During 2022, 81% of Pursuit’s revenue was earned in the second and third quarters.

GES’ live event activity can vary significantly from quarter to quarter and year to year depending on the frequency and timing of shows. Some shows are not held annually and some shift between quarters. Show rotation refers to shows that occur less frequently than annually, as well as annual shows that shift quarters from one year to the next.

Results of Operations

Financial Highlights

(in thousands, except per share data)

(1) Refer to Note 24 – Segment Information of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for a reconciliation of the non-GAAP financial measure, segment operating income, to the most directly comparable GAAP measure.

Three months ended September 30, 2023 compared with the three months ended September 30, 2022

• Total revenue decreased $16.8 million during the three months ended September 30, 2023 primarily due to decreased revenue at GES of $40.0 million due to negative show rotation from major non-annual shows of approximately $50 million and the sale of substantially all of the assets of ON Services in December of 2022, which contributed revenue of $13.8 million during the three months ended September 30, 2022, offset in part by increased live event activity and new client wins at GES. Pursuit revenue increased $23.1 million primarily due to stronger international tourism in Western Canada and Iceland.
• Net income attributable to Viad increased $3.2 million during the three months ended September 30, 2023, primarily driven by increased revenue and segment operating income at Pursuit, offset in part by higher interest expense, net, of $2.2 million during the 2023 period and lower revenue and segment operating results at GES.
• Segment operating income increased $9.7 million during the three months ended September 30, 2023, primarily due to higher revenue at Pursuit as demand for its products and services increased, offset in part by lower revenue at GES due to negative show rotation from non-annual shows and the sale of substantially all of the assets of ON Services in December of 2022.

Nine months ended September 30, 2023 compared with the nine months ended September 30, 2022

• Total revenue increased $67.7 million during the nine months ended September 30, 2023 primarily due to increased revenue at Pursuit of $42.9 million, which was driven by stronger international visitation. GES revenue increased $24.8 million primarily due to live event activity strength, offset in part by the sale of substantially all of the assets of ON Services in December of 2022, which contributed revenue of $37.8 million during the nine months ended September 30, 2022, and negative show rotation from major non-annual shows of approximately $33 million.
• Net income attributable to Viad increased $2.4 million during the nine months ended September 30, 2023, primarily reflecting higher segment operating income, offset in part by higher interest expense, net, of $13.2 million, and higher income tax expense of $4.0 million.
• Segment operating income increased $23.7 million during the nine months ended September 30, 2023, primarily due to higher revenue at Pursuit and GES.

Analysis of Revenue and Operating Results by Reportable Segment

Pursuit

The following table presents a comparison of Pursuit’s reported revenue and segment operating income for the three and nine months ended September 30, 2023 and 2022:

(in thousands)

(1) Revenue by line of business does not agree to Note 2 – Revenue and Related Contract Costs and Contract Liabilities of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) as the amounts in the above table include product revenue from food and beverage and retail operations within each line of business.

(2) Refer to Note 24 – Segment Information of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for a reconciliation of the non-GAAP financial measure, segment operating income, to the most directly comparable GAAP measure.

Three months ended September 30, 2023 compared with the three months ended September 30, 2022

Pursuit revenue increased $23.1 million primarily due to increases in attractions revenue of $14.5 million and hospitality revenue of $9.0 million. The growth in attractions revenue was driven primarily by stronger international tourism to Western Canada and Iceland, as well as higher revenue per attraction visitor of 2.4%. The growth in hospitality revenue was driven primarily by revenue management efforts to drive stronger Revenue per Available Room (“RevPAR”) and increased guest demand in Western Canada, as well as higher ancillary revenue and an increase in room nights available of 2.7% with the addition of the Forest Park Alpine Hotel, which opened in August 2022.

Pursuit segment operating income increased $21.6 million from the prior year period primarily due to the increase in revenue, offset in part by the increase in operating costs to support higher business volume during the three months ended September 30, 2023.

Nine months ended September 30, 2023 compared with the nine months ended September 30, 2022

Pursuit revenue increased $42.9 million primarily due to increases in attractions revenue of $29.9 million and hospitality revenue of $13.1 million. The growth in attractions revenue was driven primarily by stronger international tourism to Western Canada and Iceland, as well as higher revenue per attraction visitor of 1.8%. The growth in hospitality revenue was driven primarily by revenue management efforts to drive stronger RevPAR and increased guest demand in Western Canada, as well as higher ancillary revenue and an increase in room nights available of 3.4% with the addition of the Forest Park Alpine Hotel, which opened in August 2022.

Pursuit segment operating income increased $28.0 million from the prior year period primarily due to the increase in revenue, offset in part by the increase in operating costs to support higher business volume during the nine months ended September 30, 2023.

Performance Measures

We use the following key business metrics to evaluate the performance of Pursuit’s attractions business:

• Number of visitors. The number of visitors allows us to assess the volume of tickets sold at each attraction during the period.
• Revenue per attraction visitor. Revenue per attraction visitor is calculated as total attractions revenue divided by the total number of visitors at all Pursuit attractions during the period. Total attractions revenue includes ticket sales and ancillary revenue generated by attractions, such as food and beverage and retail revenue. Total attractions revenue per visitor measures the total spend per visitor that attraction properties are able to capture, which is important to the profitability of the attractions business.
• Effective ticket price. Effective ticket price is calculated as revenue from the sale of attraction tickets divided by the total number of visitors at all comparable Pursuit attractions during the period.

We use the following key business metrics, common in the hospitality industry, to evaluate Pursuit’s hospitality business:

• Revenue per Available Room (“RevPAR”). RevPAR is calculated as total rooms revenue divided by the total number of room nights available for all comparable Pursuit hospitality properties during the period. Total rooms revenue does not include non-rooms revenue, which consists of ancillary revenue generated by hospitality properties, such as food and beverage and retail revenue. RevPAR measures the period-over-period change in rooms revenue per available room for comparable hospitality properties. RevPAR is affected by average daily rate and occupancy, which have different implications on profitability.
• Average Daily Rate (“ADR”). ADR is calculated as total rooms revenue divided by the total number of room nights sold for all comparable Pursuit hospitality properties during the period. ADR is used to assess the pricing levels that the hospitality properties are able to realize. Increases in ADR lead to increases in rooms revenue with no substantial effect on variable costs, therefore having a greater impact on margins than increases in occupancy.
• Occupancy. Occupancy is calculated as the total number of room nights sold divided by the total number of room nights available for all comparable Pursuit hospitality properties during the period. Occupancy measures the utilization of the available capacity at the hospitality properties. Increases in occupancy result in increases in rooms revenue and additional variable operating costs (including housekeeping services, utilities, and room amenity costs), as well as increases in ancillary non-rooms revenue (including food and beverage and retail revenue).

The following table provides Pursuit’s key performance indicators:

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(1) New experiences comprise the following attractions that were opened or acquired after January 1, 2022: the Glacier Raft Company (acquired April 2022) and Forest Park Alpine Hotel (opened August 2022).

(2) Same-Store metrics include only attractions and lodging properties that Pursuit operated at full capacity, considering seasonal closures, for the entirety of both periods presented. For experiences located outside the United States, financial metric comparisons to the prior year are expressed on a constant U.S. dollar basis.

(3) Foreign exchange rate variance effects (or “FX Impact”) represents the adjustments necessary to express prior financial metrics on a constant U.S. dollar basis, using the current year quarterly average exchange rates for previous periods to eliminate the impact of changes in exchange rates for same-store Pursuit experiences located outside of the United States.

Attractions. The increase in number of attractions visitors during the three and nine months ended September 30, 2023 was primarily driven by strengthening international tourism to Western Canada and Iceland. The increase in same-store effective ticket price during the three and nine months ended September 30, 2023 was driven by revenue management efforts.

Attractions ticket revenue on a same-store basis increased $11.9 million on a 15.5% increase in visitors and a 4.6% increase in effective ticket price during the three months ended September 30, 2023 and increased $25.7 million on a 20.7% increase in visitors and a 5.5% increase in effective ticket price during the nine months ended September 30, 2023.

Hospitality. The increase in room nights available during the three and nine months ended September 30, 2023 was primarily driven by the addition of the Forest Park Hotel, which opened in August 2022. The increase in RevPAR during the three and nine months ended September 30, 2023 was due to increases in ADR and occupancy primarily driven by revenue management efforts and increased guest demand in Western Canada.

During the three months ended September 30, 2023, rooms revenue on a same-store basis increased $4.7 million on a 9.9% increase in RevPAR and a 1.4% increase in room nights available. During the nine months ended September 30, 2023 rooms revenue on a same-store basis increased $6.2 million on a 10.3% increase in RevPAR and a 1.0% decrease in room nights available.

GES

The following table presents a comparison of GES’ reported revenue and segment operating income during the three and nine months ended September 30, 2023 and 2022:

(in thousands)

35

(1) Refer to Note 24 – Segment Information of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for a reconciliation of the non-GAAP financial measure, segment operating income (loss), to the most directly comparable GAAP measure.

Three months ended September 30, 2023 compared with the three months ended September 30, 2022

Spiro revenue decreased $14.4 million primarily due to negative show rotation from major non-annual shows of approximately $12 million during the three months ended September 30, 2023, and the sale of substantially all of the assets of ON Services in December of 2022, which contributed revenue of $6.7 million during the three months ended September 30, 2022, offset in part by higher revenue from existing clients and new client wins.

GES Exhibitions revenue decreased $25.8 million primarily due to negative show rotation from major non-annual shows of approximately $38 million during the three months ended September 30, 2023 and the sale of substantially all of the assets of ON Services in December of 2022, which contributed revenue of $7.1 million during the three months ended September 30, 2022, offset in part by same-show revenue growth of approximately 13.9% and higher revenue from new clients.

Spiro segment operating income decreased $3.5 million primarily due to decreased revenue.

GES Exhibitions segment operating loss was $5.5 million during the three months ended September 30, 2023 as compared to segment operating income of $2.9 million during the three months ended September 30, 2022. This decrease is primarily due to decreased revenue.

Nine months ended September 30, 2023 compared with the nine months ended September 30, 2022

Spiro revenue decreased $5.9 million primarily due to the sale of substantially all of the assets of ON Services in December of 2022, which contributed revenue of $20.9 million during the nine months ended September 30, 2022, offset in part by new clients obtained during 2023 and positive show rotation of approximately $3 million.

GES Exhibitions revenue increased $31.8 million, primarily due to same-show revenue growth of approximately 20.6% and higher revenue from new clients, offset in part by negative show rotation of approximately $36 million and the sale of substantially all of the assets of ON Services in December of 2022, which contributed revenue of $16.9 million during the nine months ended September 30, 2022.

Spiro segment operating income decreased $6.7 million primarily due to lower revenue and the restaffing of the workforce from pandemic levels.

GES Exhibitions segment operating income increased $2.4 million, primarily due to the increase in revenue, offset in part by the restaffing of the workforce from pandemic levels.

Other Expenses

(in thousands)

** Change is greater than +/- 100%

Interest Expense, net – The increase in interest expense during the three and nine months ended September 30, 2023 was primarily due to higher interest rates in 2023, and to a lesser extent to a $1.4 million reduction in capitalized interest recorded during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

Restructuring Charges – The decrease in restructuring charges during the three and nine months ended September 30, 2023 reflects primarily our 2022 transformation and streamlining efforts at GES to significantly reduce costs and create a lower and more flexible cost structure focused on servicing our more profitable market segments.

Income Tax Expense – The effective tax rate was 15.6% for the three months ended September 30, 2023 and 17.4% for the three months ended September 30, 2022. The effective tax rate was 25.3% for the nine months ended September 30, 2023 and 23.4% for nine months ended September 30, 2022. The effective rate differed from the 21% federal rate for the three months ended September 30, 2023 and 2022 as a result of excluding the tax benefit in jurisdictions where we have a valuation allowance and the change in income or loss in those jurisdictions. The effective rate differed from the 21% federal rate for the nine months ended September 20, 2023 and 2022 also as a result of excluding tax benefits in certain jurisdictions and the mix of income or loss by jurisdiction, partially offset by the $2.1 million benefit taken in the first quarter of 2023 on certain separate U.S. state jurisdictions.

Income (Loss) from Discontinued Operations – The loss from discontinued operations during the three and nine months ended September 30, 2023 was primarily due to legal matters related to previously sold operations.

Liquidity and Capital Resources

We believe that our existing sources of liquidity will be sufficient to fund operations and projected capital outlays for at least the next 12 months and the longer term.

When assessing our current sources of liquidity, we include the following:

(in thousands)

(1) As of September 30, 2023, we held $77.7 million of our cash and cash equivalents outside of the United States, consisting of $43.8 million in Canada, $12.5 million in Iceland, $8.9 million in the Netherlands, $5.0 million in the United Arab Emirates, $4.9 million in the United Kingdom, $2.2 million in Germany, and $0.4 million in other countries.

(2) Includes our total Revolving Credit Facility of $100 million less outstanding letters of credit of $5.0 million as of September 30, 2023 and $13.3 million as of December 31, 2022.

Cash provided by operating activities, supplemented by our existing cash and cash equivalents, is our primary source of liquidity for funding our strategic business requirements. During the nine months ended September 30, 2023, net cash provided by operating activities was $116.6 million.

Our short-term and long-term funding requirements include debt obligations, capital expenditures, working capital requirements, and potential acquisitions and strategic investments as we focus on scaling Pursuit with investments in high-return unforgettable, inspiring experiences through its Refresh, Build, Buy growth strategy. Our projected capital outlays can be adjusted for changes in the operating environment.

Debt Obligations

Effective July 30, 2021, we entered into the $500 million 2021 Credit Facility. The 2021 Credit Facility provides for a $400 million Term Loan B and a $100 million Revolving Credit Facility. The proceeds of the Term Loan B, net of $14.8 million in related fees, were used to repay the $327 million outstanding balance under our then $450 million revolving credit facility and to provide for financial flexibility to fund future acquisitions and growth initiatives and for general corporate purposes. On January 4, 2023, we entered into an interest rate cap agreement with an effective date of January 31, 2023. The interest rate cap manages our exposure to interest rate increases on $300 million in borrowings under the Term Loan B. Refer to Note 13 – Derivative of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for additional information.

The Revolving Credit Facility carries financial covenants. On March 28, 2023, we entered into the Second Amendment to the 2021 Credit Facility, which modified the interest coverage financial covenant. As of September 30, 2023, we were in compliance with all covenants under the Revolving Credit Facility. Refer to Note 12 – Debt and Finance Obligations of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for additional information.

On October 6, 2023, we entered into a Third Amendment to the 2021 Credit Facility, which among other things: increased the principal amount of the Revolving Credit Facility by $70 million, bringing the total amount of revolving capacity to $170 million. In connection with the amendment, we prepaid $70 million of the outstanding balance on our existing Term Loan B using $60 million from the Revolving Credit Facility and $10 million of cash from the Company’s balance sheet. The credit spread on the Term Loan B is 5.00% for SOFR borrowings, which is 200 basis points higher than the current credit spread on our Revolving Credit Facility. Refer to Note 25 – Subsequent Event of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for additional information.

Capital Expenditures

As of September 30, 2023, we have planned capital expenditures of approximately $80 million to $90 million for the next 12 months, including approximately $30 million on select growth projects, such as the development of FlyOver Chicago. We intend to continue making selective investments to advance Pursuit’s Refresh, Build, Buy growth strategy while maintaining a solid liquidity position.

Other Obligations

We have additional obligations as part of our ordinary course of business, beyond those committed for debt obligations and capital expenditures. Refer to Note 21 – Leases and Other and Note 19 – Pension and Postretirement Benefits of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for further information. The expected timing of payments of our obligations is estimated based on current information. Timing of payments and actual amounts paid may be different, depending on changes to agreed-upon amounts for certain obligations.

Cash Flows

Operating Activities

(in thousands)

Net cash provided by operating activities increased $11.1 million primarily due to improved segment operating results at Pursuit.

Investing Activities

(in thousands)

Net cash used in investing activities decreased $26.5 million primarily due to cash paid for the Glacier Raft Company acquisition in April of 2022.

Financing Activities

(in thousands)

The change in net cash (used in) provided by financing activities of $13.3 million was primarily due to net debt payments of $5.2 million during the nine months ended September 30, 2023 compared to net debt proceeds of $8.2 million during the nine months ended September 30, 2022.

Debt and Finance Obligations

Refer to Note 12 – Debt and Finance Obligations of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for further discussion, all of which is incorporated by reference herein.

Share Repurchases

Our Board of Directors previously authorized us to repurchase shares of our common stock from time to time at prevailing market prices. Effective February 7, 2019, our Board of Directors authorized the repurchase of an additional 500,000 shares. As of September 30, 2023, 546,283 shares remained available for repurchase under all prior authorizations. In March 2020, our Board of Directors suspended our share repurchase program. The Board of Directors’ authorization does not have an expiration date.

Critical Accounting Estimates

Refer to Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2022 Form 10-K for a discussion of our critical accounting estimates.

Impact of Recent Accounting Pronouncements

Refer to Note 1 – Overview and Basis of Presentation of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for further information.

Non-GAAP Measure

In addition to disclosing financial results that are determined in accordance with GAAP, we also disclose segment operating income (loss) as a non-GAAP financial measure. Our use of segment operating income (loss) is supplemental to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. As not all companies use identical calculations, segment operating income (loss) may not be comparable to similarly titled measures used by other companies. We believe that our use of segment operating income (loss) provides useful information to investors regarding our results of operations for trending, analyzing, and benchmarking our performance and the value of our business.

“Segment operating income (loss)” is net income (loss) attributable to Viad before income (loss) from discontinued operations, corporate activities, interest expense and interest income, income taxes, restructuring charges, impairment charges, and certain other corporate expenses and charges that are not allocated to the reportable segments, and the reduction for income (loss) attributable to noncontrolling interests. Segment operating income (loss) is used to measure the profit and performance of our operating segments to facilitate period-to-period comparisons. Refer to Note 24 – Segment Information of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for a reconciliation of segment operating income (loss) to income (loss) from continuing operations before income taxes.

We believe segment operating income (loss) is a useful operating metric as it eliminates potential variations arising from taxes, debt service costs, impairment charges, restructuring charges, the reduction of income (loss) attributable to non-controlling interests, and the effects of discontinued operations, resulting in an additional measure considered to be indicative of our ongoing operations and segment performance. Although we use segment operating income (loss) to assess the performance of our business, the use of this measure is limited because this measure does not consider material costs, expenses, and other items necessary to operate, or resulting from, our business. As segment operating income (loss) does not consider these items, net income attributable to Viad should be considered as an important measure of financial performance because it provides a more complete measure of our performance.

Our market risk exposure relates to fluctuations in foreign exchange rates and interest rates. Foreign exchange risk is the risk that fluctuating exchange rates will adversely affect our financial condition or results of operations. The foreign exchange risk is composed of both potential losses from the translation of foreign currency financial information and the remeasurement of foreign currency transactions. Interest rate risk is the risk that changing interest rates will adversely affect our financial position or results of operations.

Our foreign operations are primarily in Canada, the United Kingdom, Iceland, the Netherlands, United Arab Emirates, and Germany. The functional currency of our foreign subsidiaries is their local currency. Accordingly, for purposes of consolidation, we translate the assets and liabilities of our foreign subsidiaries into U.S. dollars at the foreign exchange rates in effect at the balance sheet date. The unrealized gains or losses resulting from the translation of these foreign denominated assets and liabilities are included as a component of AOCI in the Condensed Consolidated Balance Sheets. As a result, significant fluctuations in foreign exchange rates relative to the U.S. dollar may result in material changes to our net equity position reported in the Condensed Consolidated Balance Sheets. We do not currently hedge our equity risk arising from the translation of foreign denominated assets and liabilities. We recorded cumulative unrealized foreign currency translation losses in stockholders’ equity of $42.9 million as of September 30, 2023 and $43.0 million as of December 31, 2022. We recorded unrealized foreign currency translation gains in other comprehensive income (loss) of $0.1 million during the nine months ended September 30, 2023 and unrealized foreign currency translation losses of $35.0 million during the nine months ended September 30, 2022.

For purposes of consolidation, revenue, expenses, gains, and losses related to our foreign operations are translated into U.S. dollars at the average foreign exchange rates for the period. As a result, our consolidated results of operations are exposed to fluctuations in foreign exchange rates as revenue and segment operating income (loss) of our foreign operations, when translated, may vary from period to period, even when the functional currency amounts have not changed. Such fluctuations may adversely impact overall expected profitability and historical period-to-period comparisons. We do not currently hedge our earnings exposure arising from the translation of our foreign revenue and segment operating income (loss).

We are exposed to foreign exchange transaction risk, as our foreign subsidiaries have certain loans and leases denominated in currencies other than the functional currency of the respective subsidiary. As of September 30, 2023, we had long-term contractual liabilities that were denominated in nonfunctional currencies of $47.0 million. As foreign exchange rates fluctuate, these liabilities are remeasured, and the corresponding adjustment is recorded in the Condensed Consolidated Statements of Operations. As of September 30, 2023 and December 31, 2022, we did not have any outstanding foreign currency forward contracts.

On January 4, 2023, we entered into an interest rate cap agreement with an effective date of January 31, 2023 to hedge cash flows on $300 million of our Term Loan B. Refer to Note 13 – Derivative of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for further information. We are exposed to short-term and long-term interest rate risk on certain of our other debt obligations.

We have established disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure. Management, together with our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2023. Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2023.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the three months ended September 30, 2023.

In addition to other information set forth in this report, careful consideration should be given to the factors discussed in Part I, Item 1A – Risk Factors and Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2022 Form 10-K, which could materially affect our business, financial condition, or future results.