# Pursuit Attractions & Hospitality, Inc.: Form 10-Q for the period ended Sep 30, 2019

- Company: [Pursuit Attractions & Hospitality, Inc.](/companies/prsu.md) (CIK 884219)
- Form: 10-Q
- Filed: 2019-11-01
- Accepted by EDGAR: Nov 1, 2019, 17:11 ET
- Period: 2019-09-30
- Accession: 0001564590-19-039445
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/884219/000156459019039445/vvi-10q_20190930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/884219/000156459019039445/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2019-07-01 to 2019-09-30 | $362.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2019-01-01 to 2019-09-30 | $1.05bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2019-07-01 to 2019-09-30 | $52.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2019-01-01 to 2019-09-30 | $82.4m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2019-07-01 to 2019-09-30 | $3.7m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2019-01-01 to 2019-09-30 | $9.6m | us-gaap:InterestExpense |
| Income tax | 3 months, 2019-07-01 to 2019-09-30 | $11.9m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2019-01-01 to 2019-09-30 | $10.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2019-07-01 to 2019-09-30 | $31.4m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2019-01-01 to 2019-09-30 | $27.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2019-07-01 to 2019-09-30 | $1.53 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2019-01-01 to 2019-09-30 | $1.33 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2019-07-01 to 2019-09-30 | $1.53 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2019-01-01 to 2019-09-30 | $1.33 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2019-07-01 to 2019-09-30 | 20,311,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2019-01-01 to 2019-09-30 | 20,267,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2019-01-01 to 2019-09-30 | $101.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2019-01-01 to 2019-09-30 | $60.9m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 9 months, 2019-01-01 to 2019-09-30 | $6.1m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2019-09-30 | $56.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-09-30 | $275.9m | us-gaap:AssetsCurrent |
| Total assets | at 2019-09-30 | $1.29bn | us-gaap:Assets |
| Current liabilities | at 2019-09-30 | $545.7m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2019-09-30 | $748.4m | us-gaap:Liabilities |
| Long-term debt | at 2019-09-30 | $298.9m | us-gaap:LongTermDebt |
| Shareholders' equity | at 2019-09-30 | $465.0m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 44,097 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, 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:

- 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.

### 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

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 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 September 30, 2019 | 2018 | % Change | Nine Months Ended September 30, 2019 | 2018 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Total revenue | $362,488 | $358,163 | 1.2% | $1,050,361 | $999,268 | 5.1% |
| Net income attributable to Viad | $31,416 | $37,389 | (16.0)% | $27,463 | $51,492 | (46.7)% |
| Segment operating income (1) | $54,806 | $56,568 | (3.1)% | $90,120 | $84,515 | 6.6% |
| Diluted income per common share from continuing operations attributable to Viad common stockholders | $1.54 | $1.84 | (16.3)% | $1.33 | $2.49 | (46.6)% |

### Three months ended September 30, 2019 compared with the three months ended September 30, 2018

- **Total revenue increased** $4.3 million or 1.2%, primarily due to continued growth at Pursuit and GES and incremental revenue from Pursuit’s Mountain Park Lodges and Belton Chalet acquisitions, offset in part by negative show rotation of approximately $38 million and an unfavorable foreign exchange impact of $2.9 million.
- **Net income attributable to Viad** decreased $6.0 million, primarily due to lower segment operating results at GES driven by higher performance-based incentives and higher restructuring charges related to GES simplification actions during the three months ended September 30, 2019, offset in part by higher segment operating results at Pursuit.
- **Total segment operating income(1)** decreased $1.8 million, primarily due to higher performance-based incentives at GES.

### Nine months ended September 30, 2019 compared with the nine months ended September 30, 2018

- **Total revenue** increased $51.1 million or 5.1%, primarily due to underlying growth at Pursuit, continued growth from GES’ corporate clients and other new client wins, incremental revenue from Pursuit’s Mountain Park Lodges and Belton Chalet acquisitions, and the opening of several new build projects at Pursuit, offset in part by negative show rotation of approximately $21 million and an unfavorable foreign exchange impact of $12.3 million.
- **Net income attributable to Viad** decreased $24.0 million, primarily due to charges related to our partial withdrawal from the Central States Pension Plan of $15.5 million ($11.6 million after tax), a legal settlement charge of $8.5 million ($6.4 million after tax), and higher restructuring charges, offset in part by higher segment operating results at Pursuit.
- **Total segment operating income(1)** increased $5.6 million, primarily due to the increase in revenue.

(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 tables summarize the foreign exchange rate variance effects (or “FX Impact”) on revenue and segment operating income (loss) from our significant international operations for the three and nine months ended September 30, 2019 and 2018:

### Three months ended September 30, 2019 compared with the three months ended September 30, 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) | $0.76 | $0.77 | $(138) | $0.76 | $0.77 | $(3) |
| GES EMEA: |  |  |  |  |  |  |
| United Kingdom (GBP) | $1.24 | $1.31 | $(1,811) | $1.23 | $1.30 | $138 |
| Europe (EUR) | $1.10 | $1.17 | (255) | $1.11 | $1.16 | 6 |
|  |  |  | (2,066) |  |  | 144 |
| Pursuit: |  |  |  |  |  |  |
| Canada (CAD) | $0.76 | $0.77 | (697) | $0.76 | $0.76 | (391) |
|  |  |  | $(2,901) |  |  | $(250) |

### Nine months ended September 30, 2019 compared with the nine months ended September 30, 2018

*(in thousands)*

*(in thousands)*

| GES North America: | Revenue Weighted-Average Exchange Rates 2019 | 2018 | FX Impact | Segment Operating Income Weighted-Average Exchange Rates 2019 | 2018 | FX Impact |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Canada (CAD) | $0.75 | $0.78 | $(1,586) | $0.75 | $0.77 | $(159) |
| GES EMEA: |  |  |  |  |  |  |
| United Kingdom (GBP) | $1.27 | $1.35 | $(6,995) | $1.26 | $1.33 | $111 |
| Europe (EUR) | $1.12 | $1.19 | (1,637) | $1.12 | $1.19 | (114) |
|  |  |  | (8,632) |  |  | (3) |
| Pursuit: |  |  |  |  |  |  |
| Canada (CAD) | $0.75 | $0.77 | (2,099) | $0.76 | $0.77 | (191) |
|  |  |  | $(12,317) |  |  | $(353) |

36

Revenue and segment operating income 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 tables present a comparison of GES’ reported revenue and segment operating income (loss) to organic revenue(1) and organic segment operating income (loss)(1) for the three and nine months ended September 30, 2019 and 2018.

*(in thousands)*

| Revenue: GES: | Three Months Ended September 30, 2019 As Reported | Acquisitions | FX Impact | Organic(1) | Three Months Ended September 30, 2018 As Reported | Acquisitions | Organic(1) | % Change As Reported | Organic(1) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | --- | --- |
| North America | $191,983 | $— | $(138) | $192,121 | $200,855 | $— | $200,855 | (4.4)% | (4.3)% |
| EMEA | 41,186 | — | (2,066) | 43,252 | 47,634 | — | 47,634 | (13.5)% | (9.2)% |
| Intersegment eliminations | (5,724) | — | — | (5,724) | (2,379) | — | (2,379) | \*\* | \*\* |
| Total GES | $227,445 | $— | $(2,204) | $229,649 | $246,110 | $— | $246,110 | (7.6)% | (6.7)% |
| **Segment operating income (loss)(2):** |  |  |  |  |  |  |  |  |  |
| GES: |  |  |  |  |  |  |  |  |  |
| North America | $(8,562) | $— | $(3) | $(8,559) | $1,367 | $— | $1,367 | \*\* | \*\* |
| EMEA | (3,024) | — | 144 | (3,168) | (207) | — | (207) | \*\* | \*\* |
| Total GES | $(11,586) | $— | $141 | $(11,727) | $1,160 | $— | $1,160 | \*\* | \*\* |

*(in thousands)*

| Revenue: GES: | Nine Months Ended September 30, 2019 As Reported | Acquisitions | FX Impact | Organic(1) | Nine Months Ended September 30, 2018 As Reported | Acquisitions | Organic(1) | % Change As Reported | Organic(1) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| North America | $698,906 | $— | $(1,586) | $700,492 | $683,810 | $— | $683,810 | 2.2% | 2.4% |
| EMEA | 165,067 | — | (8,632) | 173,699 | 157,216 | — | 157,216 | 5.0% | 10.5% |
| Intersegment eliminations | (14,731) | — | — | (14,731) | (11,888) | — | (11,888) | (23.9)% | (23.9)% |
| Total GES | $849,242 | $— | $(10,218) | $859,460 | $829,138 | $— | $829,138 | 2.4% | 3.7% |
| **Segment operating income(2):** |  |  |  |  |  |  |  |  |  |
| GES: |  |  |  |  |  |  |  |  |  |
| North America | $22,635 | $— | $(159) | $22,794 | $25,055 | $— | $25,055 | (9.7)% | (9.0)% |
| EMEA | 2,775 | — | (3) | 2,778 | 5,690 | — | 5,690 | (51.2)% | (51.2)% |
| Total GES | $25,410 | $— | $(162) | $25,572 | $30,745 | $— | $30,745 | (17.4)% | (16.8)% |

\*\* 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 (loss), 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.

### Three months ended September 30, 2019 compared with the three months ended September 30, 2018

### GES North America

**GES North America revenue** decreased $8.9 million or 4.4%, primarily due to negative show rotation of approximately $29 million and an unfavorable FX Impact of $0.1 million, offset in part by continued growth in revenue from corporate clients and other new client wins. U.S. base same-show revenue decreased 0.6% driven by one retail exhibition with reduced square footage. Base same-show revenue represented 24.9% of GES North America’s organic revenue during the three months ended September 30, 2019. Organic revenue\* decreased $8.7 million or 4.3%.

**GES North America segment operating loss** of $8.6 million increased $9.9 million, primarily due to accruals for performance-based incentives compared to reversals during the three months ended September 30, 2018 and negative show rotation. Organic segment operating loss\* of $8.6 million increased $9.9 million.

### GES EMEA

**GES EMEA revenue** decreased $6.4 million or 13.5%, primarily due to negative show rotation of approximately $9 million and an unfavorable FX Impact of $2.1 million, offset in part by new client wins and growth from the underlying business. Organic revenue\* decreased $4.4 million or 9.2%.

**GES EMEA segment operating loss** of $3.0 million increased $2.8 million, primarily due to accruals for performance-based incentives compared to reversals during the three months ended September 30, 2018 and negative show rotation. Organic segment operating loss\* of $3.2 million increased $3.0 million.

\* 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.

### Nine months ended September 30, 2019 compared with the nine months ended September 30, 2018

### GES North America

**GES North America revenue** increased $15.1 million or 2.2%, primarily due to growth in revenue from corporate clients and new business wins, offset in part by negative show rotation of approximately $28 million and an unfavorable FX Impact of $1.6 million. U.S. base same-show revenue increased 1.0%. Base same-show revenue represented 30.8% of GES North America’s organic revenue during the nine months ended September 30, 2019. Organic revenue\* increased $16.7 million or 2.4%.

**GES North America segment operating income** decreased $2.4 million or 9.7%, primarily due to higher performance-based incentives, offset in part by cost reductions resulting from restructuring actions. Organic segment operating income\* decreased $2.3 million or 9.0% .

### GES EMEA

**GES EMEA revenue** increased $7.9 million or 5.0%, primarily due to new business wins, underlying growth, and positive show rotation of approximately $7 million, offset in part by an unfavorable FX Impact of $8.6 million. Organic revenue\* increased $16.5 million or 10.5%.

**GES EMEA segment operating income** decreased $2.9 million or 51.2%, primarily due to the timing of expenses and the revenue mix, offset in part by the increase in revenue. Organic segment operating income\* decreased $2.9 million or 51.2%.

\* 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 industry is experiencing modest growth; however, we continue to experience 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 $15 million to $20 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 $13.0 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 $1.23 and the U.S. dollar to the Canadian dollar exchange rate will be $0.76 during the remainder of 2019. For more information about segment operating income, see the “Non-GAAP Measures” section of this MD&A.

We are executing a strategic plan to Simplify, Grow, and Transform GES with a focus on positioning GES as the preferred global, full-service provider for Live Events with a more favorable revenue mix and stronger margin profile. Specifically, 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 offerings that will accelerate our growth and advance our market position.

Additionally, we remain focused on driving cost-structure improvements at GES, including improving 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 also undertook some strategic simplification actions during 2019 that will improve GES’ cost structure by approximately $10 million annually through facility consolidations and organizational streamlining.

### Pursuit

The following table presents a comparison of Pursuit’s reported revenue and segment operating income to organic revenue(3) and organic segment operating income(3) for the three and nine months ended September 30, 2019 and 2018.

*(in thousands)*

| Revenue(2): Pursuit: | Three Months Ended September 30, 2019 As Reported | Acquisitions(1) | FX Impact | Organic(3) | Three Months Ended September 30, 2018 As Reported | Acquisitions | Organic(3) | % Change As Reported | Organic(3) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Attractions | $63,581 | $— | $(538) | $64,119 | $60,650 | $— | $60,650 | 4.8% | 5.7% |
| Hospitality | 62,522 | 13,050 | (102) | 49,574 | 43,178 | — | 43,178 | 44.8% | 14.8% |
| Transportation | 6,861 | — | (55) | 6,916 | 6,093 | — | 6,093 | 12.6% | 13.5% |
| Travel Planning | 2,388 | — | (8) | 2,396 | 2,675 | — | 2,675 | (10.7)% | (10.4)% |
| Intra-Segment Eliminations & Other | (309) | — | 6 | (315) | (543) | — | (543) | 43.1% | 42.0% |
| Total Pursuit | $135,043 | $13,050 | $(697) | $122,690 | $112,053 | $— | $112,053 | 20.5% | 9.5% |
| **Segment operating income(4):** |  |  |  |  |  |  |  |  |  |
| Total Pursuit | $66,392 | $5,901 | $(391) | $60,882 | $55,408 | $— | $55,408 | 19.8% | 9.9% |

*(in thousands)*

| Revenue(2): Pursuit: | Nine Months Ended September 30, 2019 As Reported | Acquisitions(1) | FX Impact | Organic(3) | Nine Months Ended September 30, 2018 As Reported | Acquisitions | Organic(3) | % Change As Reported | Organic(3) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Attractions | $98,085 | $— | $(1,439) | $99,524 | $93,796 | $— | $93,796 | 4.6% | 6.1% |
| Hospitality | 86,773 | 16,068 | (366) | 71,071 | 61,324 | — | 61,324 | 41.5% | 15.9% |
| Transportation | 13,018 | — | (271) | 13,289 | 12,351 | — | 12,351 | 5.4% | 7.6% |
| Travel Planning | 3,985 | — | (41) | 4,026 | 3,905 | — | 3,905 | 2.0% | 3.1% |
| Intra-Segment Eliminations & Other | (742) | — | 18 | (760) | (1,246) | — | (1,246) | 40.4% | 39.0% |
| Total Pursuit | $201,119 | $16,068 | $(2,099) | $187,150 | $170,130 | $— | $170,130 | 18.2% | 10.0% |
| **Segment operating income(4):** |  |  |  |  |  |  |  |  |  |
| Total Pursuit | $64,710 | $7,419 | $(191) | $57,482 | $53,770 | $— | $53,770 | 20.3% | 6.9% |

(1) Acquisitions include Mountain Park Lodges (acquired June 2019) and Belton Chalet (acquired May 2019).

(2) 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.

(3) Organic revenue and organic segment operating income 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.

(4) 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.

### Three months ended September 30, 2019 compared with the three months ended September 30, 2018

**Pursuit revenue** increased $23.0 million or 20.5%, primarily due to incremental revenue from the Mountain Park Lodges and the Belton Chalet acquisitions of $13.1 million, the opening of several new build projects, as well as stronger performance from recently refreshed projects, and revenue management efforts, offset in part by an unfavorable FX Impact of $0.7 million. Organic revenue\* increased $10.6 million or 9.5%.

**Pursuit segment operating income** increased **$11.0 million or 19.8% primarily due to the increase in revenue. Organic segment operating income\* increased $5.5 million or 9.9%.**

### Nine months ended September 30, 2019 compared with the nine months ended September 30, 2018

**Pursuit revenue** increased $31.0 million or 18.2%, primarily due to incremental revenue from the Mountain Park Lodges and the Belton Chalet acquisitions of $16.1 million, continued focus on revenue management and refresh efforts to maximize revenue across Pursuit’s attractions and hospitality properties, and the opening of several new build projects, offset in part by an unfavorable FX Impact of $2.1 million. Organic revenue\* increased $17.0 million or 10.0%.

**Pursuit segment operating income** increased **$10.9 million or 20.3%, primarily due to the increase in revenue. Organic segment operating income\* increased $3.7 million or 6.9%.**

\* Refer to footnote (3) in the above tables for more information about the non-GAAP financial measures of organic revenue and organic segment operating income.

### 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 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 and nine months ended September 30, 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 September 30, 2019 | 2018 | % Change | Nine Months Ended September 30, 2019 | 2018 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Number of visitors | 1,274,808 | 1,333,204 | (4.4)% | 2,076,698 | 2,163,596 | (4.0)% |
| Revenue per attraction visitor | $50 | $45 | 11.1% | $47 | $43 | 9.3% |
| Effective ticket price | $38 | $36 | 5.6% | $36 | $34 | 5.9% |
| **Hospitality:** |  |  |  |  |  |  |
| Room nights available | 123,863 | 119,932 | 3.3% | 206,126 | 201,687 | 2.2% |
| RevPAR | $214 | $198 | 8.1% | $164 | $155 | 5.8% |
| ADR | $244 | $230 | 6.1% | $223 | $207 | 7.7% |
| Occupancy | 87.6% | 86.3% | 1.3% | 73.7% | 75.3% | (1.6)% |

(1) Same-Store Key Performance Indicators for attractions exclude FlyOver Iceland (opened late August 2019). Same-Store Key Performance Indicators for hospitality for the three-month periods exclude the West Glacier RV Park & Cabins (opened July 2019), the Mountain Park Lodges (acquired in June 2019), and the Belton Chalet (acquired in May 2019). Same-Store Key Performance Indicators for the nine-month periods exclude the West Glacier RV Park & Cabins, the Mountain Park Lodges, the Belton Chalet, and the Mount Royal Hotel, which was closed from December 2016 through June 2018 for reconstruction due to fire damage.

**Attractions**. The decrease in same-store visitors was driven by the impact of softer visitation from select long-haul markets at certain attractions. Revenue per attraction visitor increased due to higher effective ticket prices and ancillary revenue 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.

**Hospitality.** The increase in RevPAR was primarily due to higher ADR driven by our refreshed properties, including the recently renovated Glacier View Lodge and the Mount Royal Hotel, and revenue management efforts across all of our properties.

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 20% to 21.5%. 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 $29 million to $31 million during 2019, inclusive of $19 million to $21 million from the Mountain Park Lodges and Belton Chalet acquisitions. Additionally, we expect to realize mid-single digit revenue growth across the rest of our attraction and hospitality assets. We expect to incur start-up costs of approximately $2.5 million during 2019 related to the development of our FlyOver attractions. We anticipate an unfavorable FX Impact of approximately $2.0 million on Pursuit’s 2019 revenue and a negligible impact to segment operating income.

### Other Expenses

*(in thousands)*

|  | Three Months Ended September 30, 2019 | 2018 | % Change | Nine Months Ended September 30, 2019 | 2018 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Corporate activities | $2,680 | $3,777 | (29.0)% | $7,795 | $8,529 | (8.6)% |
| Interest expense | $3,740 | $2,608 | 43.4% | $9,612 | $7,031 | 36.7% |
| Multi-employer pension plan withdrawal | $— | $— | \*\* | $15,508 | $— | \*\* |
| Restructuring charges | $1,702 | $175 | \*\* | $6,845 | $999 | \*\* |
| Legal settlement | $— | $— | \*\* | $8,500 | $— | \*\* |
| Income tax expense | $11,891 | $10,806 | 10.0% | $10,861 | $15,282 | (28.9)% |
| Income (loss) from discontinued operations | $(141) | $(246) | 42.7% | $32 | $403 | (92.1)% |

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

**Corporate Activities –** The decrease in corporate activities expense during the three months ended September 30, 2019 was primarily due to lower performance-based compensation expense. The decrease in corporate activities during the nine months ended September 30, 2019 was primarily due to a gain on sale of corporate fixed assets, offset in part by higher acquisition transaction-related costs in 2019.

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

**Multi-Employer Pension Plan Withdrawal –** During the nine months ended September 30, 2019, we finalized the terms of a new collective-bargaining agreement with the Teamsters 727 union. The terms included a withdrawal from the under-funded Central States Pension Plan. Accordingly, we recorded a charge of $15.5 million, which represents the estimated present value of future contributions we will be required to make to the plan as a result of this withdrawal from the plan.

**Restructuring Charges –** Restructuring charges during the three and nine months ended September 30, 2019 were primarily related to the elimination of certain positions and facility consolidations at GES. Restructuring charges during the three months ended September 30, 2018 were primarily related to the elimination of certain positions at GES. Restructuring charges during the nine months ended September 30, 2018 were primarily related to the elimination of certain positions at GES and Pursuit.

**Legal Settlement –** During the nine months ended September 30, 2019, we recorded a charge to resolve a legal dispute at GES involving a former industry contractor.

**Income Tax Expense –** Our effective income tax rate for the three months ended September 30, 2019 was 25.6%, as compared to 21.8% for the three months ended September 30, 2018. For the nine months ended September 30, 2019, our effective income tax rate was 26.5%, as compared to 22.8% for the nine months ended September 30, 2018. The increases in the effective rates were primarily related to increased non-deductible expenses and lower domestic income, which is taxed at lower rates. In 2019, the rates were favorably impacted by the re-measurement of our Alberta deferred tax assets due to a rate reduction in the third quarter. In 2018, the rates were favorably impacted by the benefit taken related to reductions in our estimated repatriation tax.

**Income (Loss) from Discontinued Operations –** Loss from discontinued operations for the three months ended September 30, 2019 and 2018 was primarily related to legal expenses related to previously sold operations. Income from discontinued operations for the nine months ended September 30, 2019 and 2018 was primarily related to favorable legal settlements related to previously sold operations.

### Liquidity and Capital Resources

Cash and cash equivalents were $56.6 million as of September 30, 2019, as compared to $44.9 million as of December 31, 2018. During the nine months ended September 30, 2019, we generated net cash from operating activities of $101.1 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 September 30, 2019, we held approximately $52.7 million of our cash and cash equivalents outside of the United States, consisting of $27.8 million in Canada, $8.5 million in the Netherlands, $7.3 million in the United Arab Emirates, $6.0 million in the United Kingdom, and $0.8 million in certain other countries. In addition, there was $2.3 million in Iceland related to our investment in Esja for the development of the FlyOver Iceland attraction.

### Cash Flows

### Operating Activities

*(in thousands)*

|  | Nine Months Ended September 30, 2019 | 2018 |
| --- | ---: | ---: |
| Net income | $30,148 | $52,093 |
| Depreciation and amortization | 44,061 | 44,364 |
| Deferred income taxes | 5,261 | 3,182 |
| Income from discontinued operations | (32) | (403) |
| Legal settlement | 8,500 | — |
| Impairment recoveries | — | (35) |
| Multi-employer pension plan withdrawal | 15,508 | — |
| Other non-cash items | 15,127 | 9,473 |
| Changes in assets and liabilities | (17,433) | (7,064) |
| **Net cash provided by operating activities** | $101,140 | $101,610 |

The decrease in cash provided by operating activities of $0.5 million was primarily due to an unfavorable change in working capital and a decrease in GES results of operations, offset in part by Pursuit results of operations.

### Investing Activities

*(in thousands)*

|  | Nine Months Ended September 30, 2019 | 2018 |
| --- | ---: | ---: |
| Capital expenditures | $(60,868) | $(64,968) |
| Cash paid for acquired businesses, net | (90,992) | (4,628) |
| Proceeds from dispositions of property and other assets | 1,022 | 1,320 |
| **Net cash used in investing activities** | $(150,838) | $(68,276) |

Net cash used in investing activities increased $82.6 million primarily due to the Mountain Park Lodges and the Belton Chalet acquisitions in 2019.

### Financing Activities

*(in thousands)*

|  | Nine Months Ended September 30, 2019 | 2018 |
| --- | ---: | ---: |
| Proceeds from borrowings | $170,459 | $101,336 |
| Payments on debt and finance lease obligations | (99,340) | (113,429) |
| Dividends paid on common stock | (6,060) | (6,128) |
| Payment of payroll taxes on stock-based compensation through shares withheld or repurchased | (3,019) | (1,179) |
| Common stock purchased for treasury | — | (9,061) |
| Proceeds from exercise of stock options | 92 | 84 |
| **Net cash provided by (used in) financing activities** | $62,132 | $(28,377) |

The change in net cash provided by (used in) financing activities of $90.5 million was primarily due to net debt proceeds, including finance lease obligations, of $71.1 million during the nine months ended September 30, 2019 compared to net debt payments of $12.1 million during the nine months ended September 30, 2018 as well as the repurchase of treasury shares on the open market in 2018.

### 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 authorized the repurchase of an additional 500,000 shares. No shares were repurchased on the open market during the nine months ended September 30, 2019. During the nine months ended September 30, 2018, we repurchased 175,091 shares on the open market for $9.1 million. As of September 30, 2019, 600,067 shares remained available for repurchase. The Board of Directors’ authorization does not have an expiration date.

Additionally, we repurchased shares related to tax withholding requirements on vested restricted stock 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 (loss)”** 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.

We believe non-GAAP Measures are 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, 3,291 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 $32.5 million as of September 30, 2019 and $36.3 million as of December 31, 2018. We recorded unrealized foreign currency translation gains in other comprehensive income of $4.0 million during the nine months ended September 30, 2019 and unrealized foreign currency translation losses of $7.9 million during the nine months ended September 30, 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 September 30, 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, 1,089 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 September 30, 2019. Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2019.

There were no changes in our internal control over financial reporting during the three months ended September 30, 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 Nov 1, 2019.
Source: SEC EDGAR, the filing index for accession 0001564590-19-039445. Last ingested by Listed: Nov 4, 2026, 17:36 ET. No prices; not investment advice.