# Pursuit Attractions & Hospitality, Inc.: Form 10-Q for the period ended Mar 31, 2019

- Company: [Pursuit Attractions & Hospitality, Inc.](/companies/prsu.md) (CIK 884219)
- Form: 10-Q
- Filed: 2019-05-03
- Accepted by EDGAR: May 3, 2019, 15:37 ET
- Period: 2019-03-31
- Accession: 0001564590-19-015672
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/884219/000156459019015672/vvi-10q_20190331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/884219/000156459019015672/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2019-01-01 to 2019-03-31 | $285.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2019-01-01 to 2019-03-31 | −$13.1m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2019-01-01 to 2019-03-31 | $2.9m | us-gaap:InterestExpense |
| Income tax | 3 months, 2019-01-01 to 2019-03-31 | −$7.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2019-01-01 to 2019-03-31 | −$17.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2019-01-01 to 2019-03-31 | −$0.89 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2019-01-01 to 2019-03-31 | −$0.89 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2019-01-01 to 2019-03-31 | 20,076,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2019-01-01 to 2019-03-31 | $8.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2019-01-01 to 2019-03-31 | $19.5m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2019-01-01 to 2019-03-31 | $2.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2019-03-31 | $43.5m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-03-31 | $251.3m | us-gaap:AssetsCurrent |
| Total assets | at 2019-03-31 | $1.04bn | us-gaap:Assets |
| Current liabilities | at 2019-03-31 | $483.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2019-03-31 | $604.6m | us-gaap:Liabilities |
| Long-term debt | at 2019-03-31 | $240.0m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2019-03-31 | $420.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 34,810 characters.

### Forward-Looking Statements

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 “will,” “may,” “expect,” “would,” “could,” “might,” “intend,” “plan,” “believe,” “estimate,” “anticipate,” “deliver,” “seek,” “aim,” “potential,” “target,” “outlook,” 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, that 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:

- our ability to successfully integrate and achieve established financial and strategic goals from acquisitions;
- fluctuations in general economic conditions;
- our dependence on large exhibition event clients;
- the importance of key members of our account teams to our business relationships;
- the competitive nature of the industries in which we operate;
- travel industry disruptions;
- unanticipated delays and cost overruns of our capital projects, and our ability to achieve established financial and strategic goals for such projects;
- seasonality of our businesses;
- transportation disruptions and increases in transportation costs;
- natural disasters and other catastrophic events;
- the impact of recent U.S. tax legislation;
- our multi-employer pension plan funding obligations;
- our exposure to labor cost increases and work stoppages related to unionized employees;
- liabilities relating to prior and discontinued operations;
- adverse effects of show rotation on our periodic results and operating margins;
- our exposure to currency exchange rate fluctuations;
- our exposure to cybersecurity attacks and threats;
- 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;
- the effects of the United Kingdom’s exit from the European Union; and
- the effects of changes in the U.S. trade policy.

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 2018 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 (“MD&A”) should be read in conjunction with our 2018 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 an international experiential services company with operations principally in the United States, Canada, the United Kingdom, continental Europe, and the United Arab Emirates. We are committed to providing unforgettable experiences to our clients and guests. We operate through three reportable business segments: GES North America, GES EMEA, (collectively, “GES”), and Pursuit.

### GES

GES is a global, full-service Live Events company that produces exhibitions, conferences, corporate events, and consumer events. GES offers a comprehensive range of live event services including a full suite of audio-visual services from creative and technology to content and design, along with registration, data analytics, engagement, and online tools powered by next generation technologies that help clients easily manage the complexities of their events.

### Seasonality

GES’ exhibition and 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. During 2018, GES reported its highest revenue during the second and fourth quarters.

### Pursuit

Pursuit is a collection of inspiring and unforgettable travel experiences. Pursuit offers guests distinctive and world renowned experiences through its collection of world-class recreational attractions, unique hotels and lodges, food and beverage, retail, sightseeing, and ground transportation services.

### Seasonality

Pursuit experiences peak activity during the summer months. During 2018, 87% of Pursuit’s revenue was earned in the second and third quarters.

### Results of Operations

### Financial Highlights

*(in thousands, except per share data)*

|  | Three Months Ended March 31, 2019 | 2018 | Percentage Change |
| --- | ---: | ---: | ---: |
| Revenue | $285,594 | $277,428 | 2.9% |
| Net loss attributable to Viad | $(17,777) | $(9,387) | (89.4)% |
| Segment operating loss (1) | $(11,252) | $(10,815) | (4.0)% |
| Diluted loss per common share from continuing operations attributable to Viad common stockholders | $(0.88) | $(0.51) | (72.5)% |

- **Total revenue increased** $8.2 million or 2.9%, primarily due to GES U.S. base same-show revenue growth of 4.0%, new business wins at GES, and incremental revenue from Pursuit’s Mount Royal Hotel, offset in part by an unfavorable foreign exchange impact of $4.5 million.
- **Net loss attributable to Viad** increased $8.4 million, primarily due to a legal settlement charge of $8.5 million ($6.4 million, after tax), recorded during the three months ended March 31, 2019, as well as lower segment operating results.
- **Total segment operating loss(1)** increased $0.4 million, primarily driven by increased costs to support continued growth at Pursuit.

(1) Refer to Note 22 – Segment Information of the Notes to Condensed Consolidated Financial Statements for a reconciliation of the non-GAAP financial measure, segment operating income, to the most directly comparable GAAP measure.

### Foreign Exchange Rate Variances

We conduct our foreign operations primarily in Canada, the United Kingdom, the Netherlands, Germany, and to a lesser extent, in certain other countries.

The following table summarizes the foreign exchange rate variance effects (or “FX Impact”) on revenue and segment operating income (loss) from our significant international operations for the three months ended March 31, 2019 and 2018:

*(in thousands)*

*(in thousands)*

| GES North America: | Revenue Weighted-Average Exchange Rates 2019 | 2018 | FX Impact | Segment Operating Income (Loss) Weighted-Average Exchange Rates 2019 | 2018 | FX Impact |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Canada (CAD) | $0.75 | $0.78 | $(717) | $0.75 | $0.78 | $(28) |
| GES EMEA: |  |  |  |  |  |  |
| United Kingdom (GBP) | $1.31 | $1.39 | $(2,571) | $1.30 | $1.39 | $122 |
| Europe (EUR) | $1.13 | $1.23 | (763) | $1.14 | $1.23 | (69) |
|  |  |  | (3,334) |  |  | 53 |
| Pursuit: |  |  |  |  |  |  |
| Canada (CAD) | $0.75 | $0.79 | (474) | $0.75 | $0.79 | 329 |
|  |  |  | $(4,525) |  |  | $354 |

Revenue and segment operating income (loss) were primarily impacted by variances of the British pound, the Canadian dollar, and the Euro relative to the U.S. dollar. Future changes in exchange rates may impact overall expected profitability and historical period-to-period comparisons when revenue and segment operating income are translated into U.S. dollars.

### Analysis of Revenue and Operating Results by Reportable Segment

### GES

The following table presents a comparison of GES’ reported revenue and segment operating income to organic revenue(1) and organic segment operating income(1) for the three months ended March 31, 2019 and 2018.

*(in thousands)*

| Revenue: GES: | Three Months Ended March 31, 2019 As Reported | Acquisitions | FX Impact | Organic(1) | Three Months Ended March 31, 2018 As Reported | Acquisitions | Organic(1) | Change As Reported | Organic(1) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| North America | $223,241 | $— | $(717) | $223,958 | $222,064 | $— | $222,064 | 0.5% | 0.9% |
| EMEA | 54,376 | — | (3,334) | 57,710 | 48,920 | — | 48,920 | 11.2% | 18.0% |
| Intersegment eliminations | (2,690) | — | — | (2,690) | (3,278) | — | (3,278) | 17.9% | 17.9% |
| Total GES | $274,927 | $— | $(4,051) | $278,978 | $267,706 | $— | $267,706 | 2.7% | 4.2% |
| **Segment operating income(2):** |  |  |  |  |  |  |  |  |  |
| GES: |  |  |  |  |  |  |  |  |  |
| North America | $608 | $— | $(28) | $636 | $(79) | $— | $(79) | \*\* | \*\* |
| EMEA | 1,135 | — | 53 | 1,082 | 659 | — | 659 | 72.2% | 64.2% |
| Total GES | $1,743 | $— | $25 | $1,718 | $580 | $— | $580 | \*\* | \*\* |

\*\* Change is greater than +/- 100%

(1) Organic revenue and organic segment operating income (loss) are non-GAAP financial measures that adjust for the impacts of exchange rate variances and acquisitions, if any, until such acquisitions are included in the entirety of both comparable periods presented. For more information about organic revenue and organic segment operating income, see the “Non-GAAP Measures” section of this MD&A.

(2) Refer to Note 22 – Segment Information of the Notes to Condensed Consolidated Financial Statements for a reconciliation of the non-GAAP financial measure, segment operating income (loss), to the most directly comparable GAAP measure.

### GES North America

**GES North America revenue** increased $1.2 million or 0.5%, primarily due to U.S. base same-show revenue growth of 4.0% and growth in corporate clients, offset in part by negative show rotation of approximately $6 million and an unfavorable FX Impact of $0.7 million. Base same-show revenue represented 41.7% of GES North America’s organic revenue during the three months ended March 31, 2019. Organic revenue\* increased $1.9 million or 0.9%.

**GES North America operating income** increased $0.7 million primarily due to the increase in revenue.

### GES EMEA

**GES EMEA revenue** increased $5.5 million or 11.2%, primarily due to new business wins, underlying growth, and positive show rotation of approximately $4 million, offset in part by an unfavorable FX Impact of $3.3 million. Organic revenue\* increased $8.8 million or 18.0%.

**GES EMEA operating income** increased $0.5 million or 72.2%, primarily due to the increase in revenue, offset in part by higher compensation expense, including performance-based incentives, as well as the timing of expenses. Organic operating income\* increased $0.4 million or 64.2%.

\* Refer to footnote (1) in the above table for more information about the non-GAAP financial measures of organic revenue and organic segment operating income.

### 2019 Outlook

Although GES has a diversified revenue base and long-term contracts for future shows, its revenue is affected by general economic and industry-specific conditions. The prospects for individual shows tend to be driven by the success of the industry related to those shows. In general, the exhibition and event industry is experiencing modest growth; however, we have experienced declines in certain retail-sector events and auto shows.

For 2019, we expect GES’ revenue to be up low-single digits from 2018. Show rotation is expected to have a net negative impact on GES’ revenue of approximately $25 million compared to 2018. We expect GES U.S. base same-show revenue to increase at a low single digit rate. We anticipate an unfavorable FX Impact of approximately $7.0 million on GES’ 2019 full year revenue and approximately $0.5 million on GES’ segment operating income. The expected FX Impact assumes that the U.S. dollar to the British pound exchange rate will be $1.30 and the U.S. dollar to the Canadian dollar exchange rate will be $0.76 during 2019. For more information about segment operating income, see the “Non-GAAP Measures” section of this MD&A.

We are continuing to work with union leadership and other industry participants to finalize the terms of a new collective-bargaining agreement that potentially includes a partial withdrawal from the Central States pension plan, which we would expect to result in a charge of approximately $14 million.

We are executing a strategic growth plan to position GES as the preferred global, full-service provider for Live Events. We are making selective investments in additional resources to capitalize on continued growth opportunities in the under-penetrated category of corporate events and in cross-selling new services. We continue to pursue additional opportunities to acquire businesses with proven products and services to create the most comprehensive suite of services for the Live Events industry.

Additionally, we remain focused on improving GES’ profitability through continued efforts to effectively manage labor costs by driving productivity gains through rigorous and strategic pre-show planning and on-site labor management. Improving labor productivity is a top priority as we continue to develop and enhance tools to support and systematize show site labor planning, measurement, and benchmarking.

We anticipate recording a restructuring charge of approximately $4 million during the second quarter of 2019 related to staffing reductions and facility consolidations, which should result in annual savings of approximately $8 million once fully implemented.

### Pursuit

The following table presents a comparison of Pursuit’s reported revenue and segment operating income (loss) to organic revenue(3) and organic segment operating income (loss)(3) for the three months ended March 31, 2019 and 2018.

*(in thousands)*

| Revenue(1): Pursuit: | Three Months Ended March 31, 2019 As Reported | Acquisitions | FX Impact | Organic(2) | Three Months Ended March 31, 2018 As Reported | Acquisitions | Organic(2) | Change As Reported | Organic(2) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Attractions | $4,668 | $— | $(220) | $4,888 | $4,496 | $— | $4,496 | 3.8% | 8.7% |
| Hospitality | 3,664 | — | (135) | 3,799 | 2,755 | — | 2,755 | 33.0% | 37.9% |
| Transportation | 2,150 | — | (109) | 2,259 | 2,369 | — | 2,369 | (9.2)% | (4.6)% |
| Travel Planning | 447 | — | (19) | 466 | 308 | — | 308 | 45.1% | 51.3% |
| Intra-Segment Eliminations & Other | (262) | — | 9 | (271) | (206) | — | (206) | (27.2)% | (31.6)% |
| Total Pursuit | $10,667 | $— | $(474) | $11,141 | $9,722 | $— | $9,722 | 9.7% | 14.6% |
| **Segment operating loss(3):** |  |  |  |  |  |  |  |  |  |
| Total Pursuit | $(12,995) | $— | $329 | $(13,324) | $(11,395) | $— | $(11,395) | (14.0)% | (16.9)% |

(1) Revenue by line of business does not agree to Note 2 – Revenue and Related Contract Costs and Contract Liabilities in 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) Organic revenue and organic segment operating income (loss) are non-GAAP financial measures that adjust for the impacts of exchange rate variances and acquisitions, if any, until such acquisitions are included in the entirety of both comparable periods presented. For more information about organic revenue and organic segment operating income, see the “Non-GAAP Measures” section of this MD&A.

(3) Refer to Note 22 – Segment Information of the Notes to Condensed Consolidated Financial Statements for a reconciliation of the non-GAAP financial measure, segment operating loss, to the most directly comparable GAAP measure.

**Pursuit revenue** increased $0.9 million or 9.7%, primarily due to the re-opening of the Mount Royal Hotel, as well as continued focus on revenue management and refresh efforts to maximize revenue across Pursuit’s attractions and hospitality properties, offset in part by an unfavorable FX Impact of $0.5 million. Organic revenue\* increased $1.4 million or 14.6%.

**Pursuit operating loss** increased $1.6 million or 14.0% primarily due to higher depreciation expense, as well as additional costs to support continued growth initiatives and the timing of certain other expenses, offset in part by a favorable FX impact of $0.3 million. Organic operating loss\* increased $1.9 million or 16.9%.

\* Refer to footnote (2) in the above tables for more information about the non-GAAP financial measures of organic revenue and organic segment operating loss.

### 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 visitor**. Total attractions revenue per 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 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 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 same-store key performance indicators for the three months ended March 31, 2019 and 2018. The same-store metrics indicate the performance of all Pursuit’s properties and attractions that we owned and operated at full capacity, considering seasonal closures, for the entirety of both periods presented. For Pursuit properties and attractions located in Canada, comparisons to the prior year are on a constant U.S. dollar basis, using the current year quarterly average exchange rates for previous periods, to eliminate the FX Impact. We believe this same-store constant currency basis provides better comparability between reporting periods.

| Same-Store Key Performance Indicators (1) Attractions: | Three Months Ended March 31, 2019 | 2018 | % Change |
| --- | ---: | ---: | ---: |
| Visitors | 151,166 | 158,472 | (4.6)% |
| Revenue per visitor | $31 | $27 | 14.8% |
| Effective ticket price | $23 | $21 | 9.5% |
| **Hospitality:** |  |  |  |
| Room nights available | 27,810 | 27,810 | 0.0% |
| RevPAR | $51 | $53 | (3.8)% |
| ADR | $104 | $99 | 5.1% |
| Occupancy | 49.5% | 53.4% | (3.9)% |

(1) Same-Store Key Performance Indicators exclude the Mount Royal Hotel hospitality property, which was closed from December 2016 through June 2018 due to fire damage.

**Attractions**. The decrease in the same-store visitors during the three months ended March 31, 2019 was driven by slower visitation at FlyOver Canada primarily due to market conditions in Vancouver. Revenue per visitor increased primarily due to higher effective ticket prices driven by our focus on revenue management, refreshing key assets to enhance the guest experience, and increased programming. Ancillary revenue increased primarily resulting from our recent renovations of the food and beverage and retail operations at the Banff Gondola. With the exception of the Kenai Fjords Tours, which opened during March 2019, all other attractions were seasonally closed during the first quarter.

**Hospitality.** Pursuit owns three year-round lodging properties: the Mount Royal Hotel, the Elk + Avenue Hotel, and Grouse Mountain Lodge. With the exception of the Talkeetna Alaska Lodge, which opened during March 2019, all other lodging properties were seasonally closed during the first quarter. The decrease in RevPAR was primarily due to lower occupancy at the Elk + Avenue Hotel due to a shortfall in group and travel trade room nights as well as a shift of consumer direct room nights with the reopening of the Mount Royal Hotel, offset in part by higher occupancy at the Grouse Mountain Lodge. ADR increased at the Elk + Avenue Hotel and Grouse Mountain Lodge driven by our revenue management efforts.

During 2018, Pursuit derived approximately 65% of its revenue and 87% of its segment operating income from its Canadian operations, which are largely dependent on foreign customer visitation. Accordingly, the strengthening or weakening of the Canadian dollar, relative to other currencies, could affect customer volumes and the results of operations.

### 2019 Outlook

For 2019, we expect Pursuit’s revenue to increase 15% to 17%. We expect Pursuit’s growth to be fueled primarily by investments to support our Refresh-Build-Buy strategy, which we expect to contribute incremental revenue of approximately $15 million to $17 million during 2019. Additionally, we expect to realize mid- to high-single digit revenue growth across the rest of our attraction and hospitality assets driven by a combination of our revenue management efforts and strong visitation to our iconic destinations. We expect to incur start-up costs of approximately $1 million during the first six months of 2019 related to the development of our FlyOver Iceland attraction, which is scheduled to open in July 2019. We anticipate an unfavorable FX Impact of approximately $1.5 million on Pursuit’s 2019 revenue and a negligible impact to segment operating income.

### Corporate Activities

*(in thousands)*

|  | Three Months Ended March 31, 2019 | 2018 | Percentage Change 2019 vs. 2018 |
| --- | ---: | ---: | ---: |
| Corporate activities | $1,833 | $2,217 | (17.3)% |

The decrease in corporate activities during the three months ended March 31, 2019 was primarily due to a gain on sale of corporate fixed assets, offset in part by an increase in performance-based compensation expense.

### Interest Expense

*(in thousands)*

|  | Three Months Ended March 31, 2019 | 2018 | Percentage Change 2019 vs. 2018 |
| --- | ---: | ---: | ---: |
| Interest expense | $2,915 | $2,069 | 40.9% |

The increase in interest expense was primarily due to higher debt balances and interest rates in 2019.

### Restructuring Charges

*(in thousands)*

|  | Three Months Ended March 31, 2019 | 2018 | Percentage Change 2019 vs. 2018 |
| --- | ---: | ---: | --- |
| Restructuring charges | $688 | $162 | \*\* |

\*\* Change is greater than +/- 100%

Restructuring charges during the three months ended March 31, 2019 were primarily related to the elimination of certain positions at GES. Restructuring charges during three months ended March 31, 2018 were primarily related to the elimination of certain positions at Pursuit.

### Legal Settlement

*(in thousands)*

|  | Three Months Ended March 31, 2019 | 2018 | Percentage Change 2019 vs. 2018 |
| --- | ---: | ---: | --- |
| Legal settlement | $8,500 | $— | \*\* |

\*\* Change is greater than +/- 100%

During the three months ended March 31, 2019, we recorded a charge to resolve a legal dispute at GES involving a former industry contractor.

### Income Tax Benefit

*(in thousands)*

|  | Three Months Ended March 31, 2019 | 2018 | Percentage Change 2019 vs. 2018 |
| --- | ---: | ---: | ---: |
| Income tax benefit | $(7,595) | $(4,638) | (63.8)% |

The effective tax rate was 29.8% for the three months ended March 31, 2019 and 30.1% for the three months ended March 31, 2018.

### Liquidity and Capital Resources

Cash and cash equivalents were $43.5 million as of March 31, 2019, as compared to $44.9 million as of December 31, 2018. During the three months ended March 31, 2019, we generated net cash from operating activities of $8.0 million. We believe that our existing sources of liquidity will be sufficient to fund operations and capital commitments for at least the next 12 months.

As of March 31, 2019, approximately $33.0 million of our cash and cash equivalents was held outside of the United States, consisting of $10.6 million in Canada, $9.1 million in the Netherlands, $5.8 million in the United Arab Emirates, $4.3 million in the United Kingdom, and $1.9 million in certain other countries. In addition, there was $1.3 million in Iceland related to our investment in Esja, which we will use to develop the FlyOver Iceland attraction.

### Cash Flows

### Operating Activities

*(in thousands)*

|  | Three Months Ended March 31, 2019 | 2018 |
| --- | ---: | ---: |
| Net loss | $(18,221) | $(9,835) |
| Depreciation and amortization | 13,188 | 13,063 |
| Deferred income taxes | (9,098) | (4,507) |
| (Income) loss from discontinued operations | 287 | (928) |
| Legal settlement | 8,500 | — |
| Other non-cash items | 3,384 | 2,609 |
| Changes in assets and liabilities | 9,980 | (3,821) |
| **Net cash provided by (used in) operating activities** | $8,020 | $(3,419) |

The change in cash provided by (used in) operating activities of $11.4 million was primarily due to a favorable change in working capital.

### Investing Activities

*(in thousands)*

|  | Three Months Ended March 31, 2019 | 2018 |
| --- | ---: | ---: |
| Capital expenditures | $(19,543) | $(26,586) |
| Proceeds from dispositions of property and other assets | 611 | 1,139 |
| **Net cash used in investing activities** | $(18,932) | $(25,447) |

Net cash used in investing activities decreased $6.5 million primarily due to a decrease in capital expenditures in 2019.

### Financing Activities

*(in thousands)*

|  | Three Months Ended March 31, 2019 | 2018 |
| --- | ---: | ---: |
| Proceeds from borrowings | $28,347 | $36,038 |
| Payments on debt and finance lease obligations | (14,376) | (15,348) |
| Dividends paid on common stock | (2,028) | (2,046) |
| Payment of payroll taxes on stock-based compensation through shares withheld | (2,905) | (868) |
| Proceeds from exercise of stock options | — | 84 |
| **Net cash provided by financing activities** | $9,038 | $17,860 |

Net cash provided in financing activities decreased $8.8 million primarily due to net debt proceeds, including finance lease obligations, of $14.0 million during the three months ended March 31, 2019 compared to $20.7 million during the three months ended March 31, 2018 as well higher payments of payroll taxes on stock-based compensation related to the vesting of share-based awards.

### Debt and Finance Lease Obligations

Refer to Note 12 – Debt and Finance Lease Obligations of the Notes to Condensed Consolidated Financial Statements for further discussion, all of which is incorporated by reference herein.

### Share Repurchases

Our Board of Directors has 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 approved the repurchase of an additional 500,000 shares. No shares were repurchased on the open market during the three months ended March 31, 2019 or the three months ended March 31, 2018. As of March 31, 2019, 600,067 shares remained available for repurchase. The Board of Directors’ authorization does not have an expiration date.

We repurchased 24,067 shares for $1.4 million during the three months ended March 31, 2019 and 16,362 shares for $0.9 million during 2018 related to tax withholding requirements on vested share-based awards.

### Off-Balance Sheet Arrangements

We have not entered into any off-balance sheet arrangements with unconsolidated special-purpose or other entities that would materially affect our financial position, results of operations, liquidity, or capital resources. Furthermore, we do not have any relationships with special-purpose or other entities that provide off-balance sheet financing; liquidity, market risk, or credit risk support; or engage in leasing or other services that may expose us to liability or risks of loss that are not reflected in the condensed consolidated financial statements and related notes. Refer to Note 12 – Debt and Finance Lease Obligations and Note 20 – Litigation, Claims, Contingencies, and Other of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this quarterly report on Form 10-Q) for further information, which information is incorporated by reference herein.

### Critical Accounting Policies and Estimates

Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (Part II, Item 7) of our 2018 Form 10-K, for a discussion of our critical accounting policies and estimates.

### Impact of Recent Accounting Pronouncements

Refer to Note 1 – Overview and Basis of Presentation of the Notes to Condensed Consolidated Financial Statements for further information.

### Non-GAAP Measures

In addition to disclosing financial results that are determined in accordance with U.S. generally accepted accounting principles (“GAAP”), we also disclose the following non-GAAP financial measures: Segment operating income, organic revenue, and organic segment operating income (collectively, the “Non-GAAP Measures”). Our use of Non-GAAP Measures 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, our Non-GAAP Measures may not be comparable to similarly titled measures used by other companies. We believe that our use of Non-GAAP Measures 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”** is net income attributable to Viad before income (loss) from discontinued operations, corporate activities, interest expense and interest income, income taxes, restructuring charges, and the reduction for income attributable to noncontrolling interest. Segment operating income is used to measure the profit and performance of our operating segments to facilitate period-to-period comparisons. Refer to Note 22 – Segment Information of the Notes to Condensed Consolidated Financial Statements for a reconciliation of segment operating income (loss) to income (loss) from continuing operations before income taxes.
- “**Organic revenue”** and “**organic segment operating income (loss)”** are revenue and segment operating income (loss) (as defined above), respectively, without the impact of exchange rate variances and acquisitions, if any, until such acquisitions are included in the entirety of both comparable periods. The impact of exchange rate variances is calculated as the difference between current period activity translated at the current period’s exchange rates and the comparable prior period’s exchange rates. We believe the presentation of “organic” results permits investors to better understand our performance without the effects of exchange rate variances or acquisitions and to facilitate period-to-period comparisons and analysis of our operating performance. Refer to the “Results of Operations” section of this MD&A for reconciliations of organic revenue and organic segment operating income (loss) to the most directly comparable GAAP measures.

Non-GAAP Measures are considered useful operating metrics as they eliminate potential variations arising from taxes, debt service costs, and the effects of discontinued operations, resulting in additional measures considered to be indicative of our ongoing operations and segment performance. Although we use Non-GAAP Measures to assess the performance of our business, the use of these measures is limited because these measures do not consider material costs, expenses, and other items necessary to operate our business. These items include debt service costs, expenses related to U.S. federal, state, local and foreign income taxes, the effects of discontinued operations, as well as exchange rate variances. As the Non-GAAP Measures do not consider these items, you should consider net income attributable to Viad as an important measure of financial performance because it provides a more complete measure of our performance.

### Forward-Looking Non-GAAP Financial Measure

We also provide segment operating income (loss) as a forward-looking Non-GAAP Measure within the “Results of Operations” section of this MD&A. We do not provide a reconciliation of this forward-looking Non-GAAP Measure to the most directly comparable GAAP financial measure because, due to variability and difficulty in developing accurate forecasts and projections or certain information not being ascertainable or accessible, not all of the information necessary for a quantitative reconciliation of this forward-looking Non-GAAP Measure to the most directly comparable GAAP financial measure is available without unreasonable efforts. Consequently, any attempt to disclose such reconciliation would imply a degree of precision that investors could find confusing or misleading. It is probable that this forward-looking Non-GAAP Measure may be materially different from the corresponding GAAP Measure.

## Market risk

As filed, 3,277 characters.

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. 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, the Netherlands, Germany, and to a lesser extent, in certain other countries. 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 accumulated other comprehensive income (loss) 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 $31.6 million as of March 31, 2019 and $36.3 million as of December 31, 2018. We recorded unrealized foreign currency translation gains in other comprehensive income of $4.8 million during the three months ended March 31, 2019 and unrealized foreign currency translation losses of $3.1 million during the three months ended March 31, 2018, in each case, net of tax.

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 net earnings exposure arising from the translation of our foreign revenue and segment operating income. Refer to “Foreign Exchange Rate Variances” section of this MD&A.

We are exposed to foreign exchange transaction risk, as our foreign subsidiaries have certain revenue transactions denominated in currencies other than the functional currency of the respective subsidiary. From time to time, we utilize forward contracts to mitigate the impact on earnings related to these transactions due to fluctuations in foreign exchange rates. As of March 31, 2019 and December 31, 2018, we did not have any outstanding foreign currency forward contracts.

We are exposed to short-term and long-term interest rate risk on certain of our debt obligations. We do not currently use derivative financial instruments to hedge cash flows for such obligations.

## Controls and procedures

As filed, 1,077 characters.

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 (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in SEC 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 March 31, 2019. Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of March 31, 2019.

There were no changes in our internal control over financial reporting during the three months ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 370 characters.

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 2018 Form 10-K, which could materially affect our business, financial condition, or future results.

Filed May 3, 2019.
Source: SEC EDGAR, the filing index for accession 0001564590-19-015672. Last ingested by Listed: Nov 4, 2026, 17:36 ET. No prices; not investment advice.