UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to
Commission file number: 001-11015
Viad Corp
(Exact name of registrant as specified in its charter)
Delaware
36-1169950
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
7000 East 1st Avenue
Scottsdale, Arizona
85251-4304
(Address of principal executive offices)
(Zip Code)
(602) 207-1000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $1.50 Par Value
VVI
New York Stock Exchange
Preferred Stock Purchase Rights
--
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) Yes ☒ No ☐
Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 2, 2022, there were 20,621,244 shares of Common Stock ($1.50 par value) outstanding.
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
1
Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021
2
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2022 and 2021
3
Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity for the Three Months Ended March 31 and June 30, 2022 and 2021
4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021
6
Notes to Condensed Consolidated Financial Statements
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
31
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
39
Item 4.
Controls and Procedures
40
PART II - OTHER INFORMATION
Legal Proceedings
41
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Item 6.
Exhibits
42
Items 3-5
Not applicable
SIGNATURES
43
In this report, for periods presented, “we,” “us,” “our,” “the Company,” and “Viad Corp” refer to Viad Corp and its subsidiaries.
Item 1. Financial Statements
VIAD CORP
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30,
December 31,
(in thousands, except share data)
2022
2021
Assets
Current assets
Cash and cash equivalents
$
54,516
61,600
Accounts receivable, net of allowances for doubtful accounts of $3,178 and $1,808, respectively
157,868
91,966
Inventories
14,940
8,581
Current contract costs
22,302
11,105
Prepaid insurance
5,625
10,284
Other current assets
18,802
14,080
Total current assets
274,053
197,616
Property and equipment, net
559,179
549,108
Other investments and assets
15,687
16,718
Operating lease right-of-use assets
99,644
95,915
Deferred income taxes
847
1,006
Goodwill
126,877
112,078
Other intangible assets, net
64,878
65,189
Total Assets
1,141,165
1,037,630
Liabilities, Mezzanine Equity, and Stockholders’ Equity
Current liabilities
Accounts payable
100,978
69,657
Contract liabilities
66,522
39,141
Accrued compensation
27,605
12,788
Operating lease obligations
13,285
12,451
Other current liabilities
50,488
28,289
Current portion of debt and finance obligations
9,144
12,800
Total current liabilities
268,022
175,126
Long-term debt and finance obligations
469,289
446,580
Pension and postretirement benefits
23,995
23,692
Long-term operating lease obligations
97,277
93,406
Other deferred items and liabilities
68,803
68,953
Total liabilities
927,386
807,757
Commitments and contingencies
Convertible Series A Preferred Stock, $0.01 par value, 180,000 shares authorized, 135,000 shares issued and outstanding
132,591
Redeemable noncontrolling interest
5,823
5,444
Stockholders’ equity
Viad Corp stockholders’ equity:
Common stock, $1.50 par value, 200,000,000 shares authorized, 24,934,981 shares issued and outstanding
37,402
Additional capital
570,496
566,741
Accumulated deficit
(362,782
)
(349,720
Accumulated other comprehensive loss
(35,094
(27,429
Common stock in treasury, at cost, 4,323,757 and 4,381,606 shares, respectively
(217,613
(220,712
Total Viad stockholders’ equity
(7,591
6,282
Non-redeemable noncontrolling interest
82,956
85,556
Total stockholders’ equity
75,365
91,838
Total Liabilities, Mezzanine Equity, and Stockholders’ Equity
Refer to Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
Six Months Ended
(in thousands, except per share data)
Revenue:
Services
254,132
46,306
405,269
71,206
Products
65,071
14,927
91,294
18,962
Total revenue
319,203
61,233
496,563
90,168
Costs and expenses:
Costs of services
223,177
76,052
395,131
132,420
Costs of products
59,318
20,157
87,499
30,932
Corporate activities
3,440
3,006
6,113
5,011
Interest expense, net
7,761
5,565
13,638
10,650
Multi-employer pension plan withdrawal
—
57
Other expense, net
612
680
1,250
1,040
Restructuring charges
1,426
787
2,080
3,613
Impairment charges
583
Total costs and expenses
295,734
106,304
506,294
183,723
Income (loss) from continuing operations before income taxes
23,469
(45,071
(9,731
(93,555
Income tax expense (benefit)
3,359
(2,166
777
(5,211
Income (loss) from continuing operations
20,110
(42,905
(10,508
(88,344
Income (loss) from discontinued operations
52
(62
327
286
Net income (loss)
20,162
(42,967
(10,181
(88,058
Net (income) loss attributable to non-redeemable noncontrolling interest
(451
510
753
1,955
Net loss attributable to redeemable noncontrolling interest
128
431
266
925
Net income (loss) attributable to Viad
19,839
(42,026
(9,162
(85,178
Diluted income (loss) per common share:
Continuing operations attributable to Viad common stockholders
0.64
(2.18
(0.69
(4.41
Discontinued operations attributable to Viad common stockholders
0.02
0.01
Net income (loss) attributable to Viad common stockholders
(0.67
(4.40
Weighted-average outstanding and potentially dilutive common shares
20,731
20,397
20,544
20,384
Basic income (loss) per common share:
Weighted-average outstanding common shares
20,571
Amounts attributable to Viad
19,787
(41,964
(9,489
(85,464
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Other comprehensive income (loss):
Unrealized foreign currency translation adjustments
(11,543
3,677
(8,131
7,654
Change in net actuarial loss, net of tax (1)
59
466
178
Change in prior service cost, net of tax (1)
(56
Comprehensive income (loss)
8,678
(39,289
(17,846
(80,282
Non-redeemable noncontrolling interest:
Comprehensive income (loss) attributable to non-redeemable noncontrolling interest
(2,014
1,069
(1,277
1,819
Redeemable noncontrolling interest:
Comprehensive loss attributable to redeemable noncontrolling interest
Comprehensive income (loss) attributable to Viad
6,341
(37,279
(18,104
(75,583
(1)The tax effect on other comprehensive income (loss) is not significant.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND MEZZANINE EQUITY
Mezzanine Equity
CommonStock
AdditionalCapital
AccumulatedDeficit
Accumulated Other Comprehensive Income (Loss)
CommonStock inTreasury
TotalViadEquity
Non-Redeemable Non-ControllingInterest
TotalStockholders’Equity
Redeemable Non-ControllingInterest
Convertible Series A Preferred Stock
Balance, December 31, 2021
Net loss
(29,001
(1,204
(30,205
(138
Dividends on convertible preferred stock
(1,950
Payment of payroll taxes on stock-based compensation through shares withheld
(349
Employee benefit plans
(1,286
1,972
686
Share-based compensation - equity awards
2,385
Unrealized foreign currency translation adjustment
3,412
737
4,149
49
Amortization of net actuarial loss, net of tax
407
Other, net
(41
351
Balance, March 31, 2022
567,799
(380,671
(23,610
(219,089
(18,169
85,089
66,920
5,706
Net income
451
20,290
(128
Distributions from noncontrolling interest
(570
(5
(648
1,481
833
3,370
(13,557
(167
(25
412
Balance, June 30, 2022
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND MEZZANINE EQUITY (Continued)
Balance, December 31, 2020
568,100
(253,164
(30,641
(225,742
95,955
78,144
174,099
5,225
128,769
(43,152
(1,445
(44,597
(494
(1,898
1,898
Capital contribution (distributions) to (from) noncontrolling interest
(951
142
(519
(1,198
1,578
380
1,626
3,977
750
4,727
77
177
Amortization of prior service cost, net of tax
Acquisitions
6,759
13
(1
12
56
Balance, March 31, 2021
566,643
(296,317
(26,543
(224,683
56,502
83,257
139,759
5,006
130,667
(510
(42,536
(431
(1,923
1,923
Capital contribution to noncontrolling interest
124
(82
(143
641
498
2,071
4,746
79
10
23
33
(7
26
547
Balance, June 30, 2021
566,658
(338,343
(22,865
(224,101
18,751
83,816
102,567
5,325
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization
26,486
26,510
(962
(4,253
Income from discontinued operations
(327
(286
Gains on dispositions of property and other assets
(154
(9,360
Share-based compensation expense
5,469
4,216
Other non-cash items, net
5,384
(33
Change in operating assets and liabilities:
Receivables
(67,166
(7,056
(6,461
(2,602
(11,946
(4,372
32,942
6,456
Restructuring liabilities
(1,894
(3,106
12,586
7,145
27,167
27,770
Income taxes payable
(193
160
Other assets and liabilities, net
30,605
3,650
Net cash provided by (used in) operating activities
44,018
(39,549
Cash flows from investing activities
Capital expenditures
(31,639
(24,763
Cash paid for acquisitions, net
(25,494
(7,606
Proceeds from dispositions of property and other assets
161
14,227
Net cash used in investing activities
(56,972
(18,142
Cash flows from financing activities
Proceeds from borrowings
54,668
65,608
Payments on debt and finance obligations
(38,728
(9,027
Dividends paid on preferred stock
(3,900
Distributions to noncontrolling interest, net of contributions from noncontrolling interest
(678
Payments of debt issuance costs
(418
Payment of payroll taxes on stock-based compensation through shares withheld or repurchased
(537
(601
Net cash provided by financing activities
10,515
55,174
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(1,924
538
Net change in cash, cash equivalents, and restricted cash
(4,363
(1,979
Cash, cash equivalents, and restricted cash, beginning of year
64,303
41,971
Cash, cash equivalents, and restricted cash, end of period
59,940
39,992
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Overview and Basis of Presentation
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, these financial statements do not include all of the information required by GAAP or United States Securities and Exchange Commission (“SEC”) rules and regulations for complete financial statements. These financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of the results for the full year. These unaudited condensed consolidated financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022 (“2021 Form 10-K”).
The condensed consolidated financial statements include the accounts of Viad and its subsidiaries. We have eliminated all significant intercompany account balances and transactions in consolidation.
Nature of Business
We are a leading global provider of extraordinary experiences, including hospitality and leisure activities, experiential marketing, and live events. During the first quarter of 2022, we rebranded GES’ brand experiences business and introduced Spiro to the market to accelerate our growth by servicing the changing needs of today’s brand marketers across a broader spectrum of their experiential marketing needs.
We operate through three reportable segments: Pursuit, Spiro, and GES Exhibitions as further described below. The Spiro and GES Exhibitions reportable segments are both live event businesses, and are collectively referred to as “GES.”
Pursuit
Pursuit is a collection of inspiring and unforgettable travel experiences that includes recreational attractions, unique hotels and lodges, food and beverage, retail, sightseeing, and ground transportation services. Pursuit comprises the Banff Jasper Collection, the Alaska Collection, the Glacier Park Collection, FlyOver, and Sky Lagoon.
Spiro
Spiro is an experiential marketing agency that partners with leading brands around the world to manage and elevate their global experiential marketing activities. Spiro builds immersive experiences with its clients starting with the strategic plan, creating the content and design, and finishing with the delivery and execution. Spiro delivers a broad range of unique and impactful experiences for its clients, including strategic exhibition program management, corporate meetings and events, digital experiences, corporate customer centers, brand and sports activations, product launches, consumer pop-up events, on-site services, and audio visual/technology solutions.
GES Exhibitions
GES Exhibitions is a global exhibition services company with a legacy spanning over 90 years and teams throughout North America, Europe, and the Middle East. GES Exhibitions partners with leading exhibition and conference organizers as a full-service provider of strategic and logistics solutions to manage the complexity of their shows, including strategy, creative & design, registration & engagement, accommodations, logistics & management, material handling, overhead sign hanging, graphics and other rental and labor services. GES Exhibitions also serves as an in-house or preferred provider of electrical and other event services within event venues, including convention centers and conference hotels.
Reclassifications
During the first quarter of 2022, we changed our segment reporting as a result of operational changes and how our chief operating decision maker (“CODM”) reviews the financial performance of GES and makes decisions regarding the allocation of resources. As a result, we changed the presentation of certain items in GES’ disaggregation of revenue and reportable segments. Refer to Note 2 – Revenue and Related Contract Costs and Contract Liabilities and Note 23 – Segment Information for additional information. We also
reclassified certain prior-year amounts to conform to current-period presentation. Such reclassifications had no impact on our results of operations or cash flows.
Impact of COVID-19
Starting in mid-March 2020, the COVID-19 pandemic created severe disruptions in the live event and tourism industries, and those disruptions had a significant and negative impact on our operations and financial performance. We are not able to fully estimate the future impact of the pandemic on our business due to the evolving and uncertain nature of COVID-19, including the scope and magnitude of variants, infections and hospitalization rates, and any related government restrictions on travel or in-person events. We will continue to evaluate and implement additional actions necessary to mitigate the negative financial and operational impact of COVID-19 on our business.
Impact of Recent Accounting Pronouncements
The following table provides a brief description of recent accounting pronouncements:
Standard
Description
Date of adoption
Effect on the financial statements
Standards Not Yet Adopted
2021-08, Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilitiesfrom Contracts with Customers
Amendment relates to the application of Topic 805, Business Combinations, to contracts with a customer acquired in a business combination after the acquirer has adopted Topic 606. ASU 2021-08 requires contract assets and contract liabilities to be accounted for as if they (the acquirer) entered into the original contract at the same time and same date as the acquiree.
1/1/2023
We are currently evaluating the potential impact of the adoption of this new guidance on our consolidated financial statements. We do not expect this new guidance will have a material impact on our consolidated financial statements.
Standards Recently Adopted
ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s
The amendment simplified the accounting for convertible instruments by reducing the number of accounting models available for convertible debt instruments and convertible preferred stock. The amendment also required expanded disclosures about the terms and features of convertible instruments.
1/1/2022
The adoption of this new standard on January 1, 2022 did not have a material impact on our consolidated financial statements.
ASU 2021-10, Government Assistance (Topic 832) Disclosures by Business Entities about Government Assistance
Amendment improves the transparency of disclosures about government assistance received by business entities by requiring annual disclosure of: (1) the types of government assistance received; (2) the accounting for such assistance; and (3) the effect of the assistance on a business entity’s financial statements.
We adopted this new standard on a prospective basis. This new guidance will be effective for our Annual Report on Form 10-K for the year ending December 31, 2022, whereby we will expand our disclosures within the scope of this new standard that are reflected in the financial statements as of the adoption date. We do not expect this new standard to have a material impact our consolidated financial statements or related disclosures.
Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with United States GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Estimates and assumptions are used in accounting for, among other things: impairment testing of recorded goodwill and intangible assets and long-lived assets; allowances for uncollectible accounts receivable; sales reserve allowances; provisions for income taxes, including uncertain tax positions; valuation allowances related to deferred tax assets; liabilities for losses related to self-insured liability claims; liabilities for losses related to environmental remediation obligations; sublease income associated with restructuring liabilities; pension and postretirement benefit costs and obligations; share-based compensation costs; the discount rates used to value lease obligations; the redemption value of redeemable noncontrolling interests; and the allocation of purchase price of acquired businesses. Actual results could differ from these and other estimates.
8
Cash, Cash Equivalents, and Restricted Cash
Cash equivalents are highly-liquid investments with remaining maturities when purchased of three months or less. Cash and cash equivalents consist of cash and bank demand deposits and money market funds. Investments in money market funds are classified as available-for-sale and carried at fair value. Restricted cash represents collateral required for surety bonds, bank guarantees, letters of credit, and corporate credit cards.
Cash, cash equivalents, and restricted cash balances presented in the Condensed Consolidated Statements of Cash Flows consisted of the following:
Restricted cash included in other current assets
5,424
2,703
Cash, cash equivalents, and restricted cash shown in the statement of cash flows
Revenue Recognition
Revenue is measured based on a specified amount of consideration in a contract with a customer, net of commissions paid to customers and amounts collected on behalf of third parties. We recognize revenue when a performance obligation is satisfied by transferring control of a product or delivering the service to a customer.
Pursuit’s service revenue is derived through its admissions, accommodations, and transportation services. Product revenue is derived through food and beverage and retail sales. Revenue is recognized at the time services are performed or upon delivery of the product. Pursuit’s service revenue is recognized over time as the customer simultaneously receives and consumes the benefits, and product revenue is recognized at a point in time.
GES’ service revenue is primarily derived through its comprehensive range of marketing, event production, and other related services to event organizers and corporate brand marketers. GES’ service revenue is earned over time over the duration of the live event, which generally lasts one to three days. Revenue for goods and services provided for which we do not have control of the goods or services before that good or service is transferred to a customer is recorded on a net basis to reflect only the fees received for arranging these services. GES’ product revenue is derived from the build of exhibits, environments, and graphics and is recognized at a point in time upon delivery of the product.
Noncontrolling Interests – Non-redeemable and Redeemable
Non-redeemable noncontrolling interest represents the portion of equity in a subsidiary that is not attributable, directly or indirectly, to us. We report non-redeemable noncontrolling interest within stockholders’ equity in the Condensed Consolidated Balance Sheets. The amount of consolidated net income or loss attributable to Viad and the non-redeemable noncontrolling interest is presented in the Condensed Consolidated Statements of Operations.
We consider noncontrolling interests with redemption features that are not solely within our control to be redeemable noncontrolling interests. Our redeemable noncontrolling interest relates to our 56.4% equity ownership interest in Esja Attractions ehf. (“Esja”), which owns the FlyOver Iceland attraction. The Esja shareholders agreement contains a put option that gives the minority Esja shareholders the right to sell (or “put”) their Esja shares to us based on a calculated formula within a predefined term. This redeemable noncontrolling interest is considered mezzanine equity and we report it between liabilities and stockholders’ equity in the Condensed Consolidated Balance Sheets. The amount of the net income or loss attributable to redeemable noncontrolling interests is recorded in the Condensed Consolidated Statements of Operations and the accretion of the redemption value is recorded as an adjustment to accumulated deficit and is included in our income (loss) per share. Refer to Note 22 – Noncontrolling Interest – Redeemable and Non-redeemable for additional information.
Convertible Preferred Stock
We record shares of convertible preferred stock based on proceeds received net of costs on the date of issuance. Redeemable preferred stock (including preferred stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as mezzanine equity and is reported between liabilities and stockholders’ equity in the Condensed Consolidated Balance Sheets.
Leases
We recognize a right-of-use (“ROU”) asset and lease liability on the balance sheet and classify leases as either finance or operating leases. The classification of the lease determines whether we recognize the lease expense on an effective interest method basis (finance lease) or on a straight-line basis (operating lease) over the lease term. In determining whether an agreement contains a lease, we consider
9
if we have a right to control the use of the underlying asset during the lease term in exchange for an obligation to make lease payments arising from the lease. We recognize ROU assets and lease liabilities at commencement date, which is when the underlying asset is available for use to a lessee, based on the present value of lease payments over the lease term.
Our operating and finance leases are primarily facility, equipment, and land leases. Our facility leases comprise mainly manufacturing facilities, sales and design facilities, offices, storage and/or warehouses, and truck marshaling yards for our GES business. These facility leases have lease terms ranging up to 24 years. Our equipment leases comprise mainly vehicles, hardware, and office equipment, each with various lease terms. Our land leases comprise mainly leases in Canada and Iceland on which our Pursuit hotels or attractions are located and have lease terms ranging up to 46 years.
If a lease contains a renewal option that is reasonably certain to be exercised, then the lease term includes the optional periods in measuring a ROU asset and lease liability. We evaluate the reasonably certain threshold at lease commencement, and it is typically met if we identify substantial economic incentives or termination penalties. We do not include variable leases and variable non-lease components in the calculation of the ROU asset and corresponding lease liability. For facility leases, variable lease costs include the costs of common area maintenance, taxes, and insurance for which we pay our lessors an estimate that is adjusted to actual expense on a quarterly or annual basis depending on the underlying contract terms. We expense these variable lease payments as incurred. Our lease agreements do not contain any significant residual value guarantees or restrictive covenants.
Substantially all of our lease agreements do not specify an implicit borrowing rate, and as such, we utilize an incremental borrowing rate based on lease term and country, in order to calculate the present value of our future lease payments. The discount rate represents a risk-adjusted rate on a collateralized basis and is the expected rate at which we would borrow funds to satisfy the scheduled lease liability payment streams commensurate with the lease term and the country.
We are also a lessor to third party tenants who either lease certain portions of facilities that we own or sublease certain portions of facilities that we lease. We record lease income from owned facilities as rental income and we record sublease income from leased facilities as an offset to lease expense in the Condensed Consolidated Statements of Operations. We classify all of our leases for which we are the lessor as operating leases.
Note 2. Revenue and Related Contract Costs and Contract Liabilities
Pursuit’s performance obligations are short-term in nature. They include the provision of a hotel room, an attraction admission, a chartered or ticketed bus or van ride, and/or the sale of food, beverage, or retail products. We recognize revenue when the service has been provided or the product has been delivered. When we extend credit, payment terms are generally within 30 days and contain no significant financing components.
GES’ performance obligations consist of services or product(s) outlined in a contract. While we often sign multi-year contracts for recurring events, the obligations for each occurrence are well defined and conclude upon the occurrence of each event. The obligations are typically the provision of services and/or sale of a product in connection with a live event. Revenue for goods and services provided for which we do not have control of the goods or services before that good or service is transferred to a customer is recorded on a net basis to reflect only the fees received for arranging these services. We recognize revenue for services generally at the close of the live event. We recognize revenue for products either upon delivery to the customer’s location, upon delivery to an event that we are serving, or when we have the right to invoice. In circumstances where a customer cancels a contract, we generally have the right to bill the customer for costs incurred to date. Payment terms are generally within 30-60 days and contain no significant financing components.
Contract Liabilities
Pursuit and GES typically receive customer deposits prior to transferring the related product or service to the customer. We record these deposits as a contract liability, which are recognized as revenue upon satisfaction of the related contract performance obligation(s). GES also provides customer rebates and volume discounts to certain event organizers that we recognize as a reduction of revenue. We include these amounts in “Contract liabilities” and “Other deferred items and liabilities” in the Condensed Consolidated Balance Sheets.
Changes to contract liabilities are as follows:
Balance at December 31, 2021
39,662
Cash additions
93,013
Revenue recognized
(58,618
Foreign exchange translation adjustment
(7,121
Balance at June 30, 2022
66,936
Contract Costs
GES capitalizes certain incremental costs incurred in obtaining and fulfilling contracts. Capitalized costs principally relate to direct costs of materials and services incurred in fulfilling services of future live events, and also include up-front incentives and commissions incurred upon contract signing. We expense costs associated with preliminary contract activities (i.e. proposal activities) as incurred. Capitalized contract costs are expensed upon the transfer of the related goods or services and are included in Costs of services or Costs of products, as applicable. We include the deferred incremental costs of obtaining and fulfilling contracts in “Current contract costs” and “Other investments and assets” in the Condensed Consolidated Balance Sheets.
Changes to contract costs are as follows:
13,790
Additions
32,034
Expenses
(20,584
(485
24,755
As of June 30, 2022, capitalized contract costs consisted of $0.2 million to obtain contracts and $24.6 million to fulfill contracts. We did not recognize an impairment loss with respect to capitalized contract costs during the three and six months ended June 30, 2022 or 2021.
Disaggregation of Revenue
The following tables disaggregate Pursuit and GES revenue by major service and product lines, timing of revenue recognition, and markets served:
During the first quarter of 2022, we reallocated certain ancillary revenue presented in Pursuit’s services revenue to better align with how we analyze revenue and depict the nature of revenue. All prior periods have been reclassified to conform to this new presentation.
Services:
Ticket revenue
29,337
10,105
38,539
11,589
Rooms revenue
20,559
11,370
27,462
16,139
Transportation
3,755
923
4,934
1,460
Other
3,017
2,547
4,387
3,642
Total services revenue
56,668
24,945
75,322
32,830
Products:
Food and beverage
12,171
5,899
16,264
7,123
Retail operations
8,760
9,797
6,150
Total products revenue
20,931
11,368
26,061
13,273
77,599
36,313
101,383
46,103
Timing of revenue recognition:
Services transferred over time
Products transferred at a point in time
Markets:
Banff Jasper Collection
38,962
10,658
53,292
19,118
Alaska Collection
13,319
11,058
13,816
11,347
Glacier Park Collection
13,581
10,968
14,590
11,546
FlyOver
5,870
735
10,009
1,198
Sky Lagoon
5,867
2,894
9,676
11
GES
During the first quarter of 2022, we changed our segment reporting as a result of operational changes and how our CODM reviews the financial performance of GES and makes decisions regarding the allocation of resources. Accordingly, GES’ new reportable segments are Spiro and GES Exhibitions. As a result, we changed certain items in the following disaggregation of revenue table. All prior periods have been reclassified to conform to the new reporting structure.
Service lines:
89,425
11,944
132,241
24,003
154,600
13,057
266,431
20,209
Intersegment eliminations
(2,421
(81
(3,492
(147
241,604
24,920
395,180
44,065
197,464
21,361
329,947
38,376
Products transferred over time(1)
16,025
733
23,963
1,150
28,115
2,826
41,270
4,539
Geographical markets:
North America
189,670
19,472
318,697
35,330
EMEA
58,534
6,074
84,347
9,977
(6,600
(626
(7,864
(1,242
Note 3. Share-Based Compensation
We grant share-based compensation awards to our officers, directors, and certain key employees pursuant to the 2017 Viad Corp Omnibus Incentive Plan, as amended, (the “2017 Plan”). The 2017 Plan has a 10-year term and provides for the following types of awards: (a) incentive and non-qualified stock options; (b) restricted stock awards and restricted stock units; (c) performance units or performance shares; (d) stock appreciation rights; (e) cash-based awards; and (f) certain other stock-based awards. In June 2017, we reserved 1,750,000 shares of common stock for issuance under the 2017 Plan. On May 24, 2022, we amended and restated the 2017 Plan, which among other things, increased the number of shares reserved for issuance under the 2017 Plan by 840,000 shares, thus bringing the total number of reserved shares to 2,590,000. As of June 30, 2022, there were 1,176,507 shares available for future grant under the 2017 Plan.
The following table summarizes share-based compensation expense:
Performance-based restricted stock units
705
719
606
Restricted stock awards and restricted stock units
1,787
1,436
3,349
2,680
Stock options
811
551
1,401
930
Share-based compensation expense before income tax
3,303
2,453
Income tax benefit(1)
(30
(28
(47
(55
Share-based compensation expense, net of income tax
3,273
2,425
5,422
4,161
Note 4. Acquisitions
2022 Acquisition
Glacier Raft Company
On April 6, 2022, we acquired the Glacier Raft Company, which provides guided river rafting trips operating in Pursuit’s West Glacier, Montana operations. The Glacier Raft Company also owns 13 log cabins, a lodge, and a wedding venue located on 50 acres with views into Glacier National Park. The purchase price was $26.5 million in cash, subject to certain adjustments. This acquisition was funded via cash on hand of approximately $11.5 million and borrowings under our revolving credit facility of $15.0 million.
The following table summarizes the preliminary allocation of the fair value of the assets acquired and liabilities assumed at the date of acquisition. Due to the recent timing of the acquisition, the purchase price allocation is not yet finalized and is subject to change within the measurement period (up to one year from the acquisition date).
Purchase price paid as:
Cash
26,507
Working capital adjustment
(961
Purchase price adjustment
125
Cash acquired
(177
Purchase price, net of cash acquired
25,494
Fair value of net assets acquired:
Inventory
370
Prepaid expenses and other
Property and equipment
6,487
Intangible assets
3,400
Total assets acquired
10,314
Customer deposits
1,575
32
Total liabilities assumed
1,607
Total fair value of net assets acquired
8,707
Excess purchase price over fair value of net assets acquired (“goodwill”)
16,787
Under the acquisition method of accounting, the purchase price is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over the fair value of net assets acquired was recorded as “Goodwill.” Goodwill is included in the Pursuit reportable segment. The primary factor that contributed to the purchase price resulting in the recognition of goodwill related to future growth opportunities when combined with our other businesses. Goodwill is deductible for tax purposes. We included these assets in the Condensed Consolidated Balance Sheets from the date of acquisition.
Following are details of the purchase price allocated to the intangible assets acquired for the Glacier Raft Company:
Amount
Weighted Average Life
Customer relationships
1,800
12 years
Operating licenses
1,300
17 years
Trade name
300
8 years
Total
13.6 years
Transaction costs associated with the acquisition were $0.1 million during 2022, which are included in “Costs of services” in the Condensed Consolidated Statements of Operations.
2021 Acquisition
Golden Skybridge
On March 18, 2021, we acquired a 60% controlling interest in the Golden Skybridge attraction for total cash consideration of $15 million Canadian dollars (approximately $12 million U.S. dollars), of which $6 million Canadian dollars (approximately $4.8 million U.S. dollars) were primarily used to fund additional experiences. The Golden Skybridge opened in June 2021.
The fair value of net assets acquired as of the acquisition date included $2.2 million U.S. dollars in property and equipment and $6.8 million U.S. dollars in noncontrolling interest. Under the acquisition method of accounting, the purchase price is allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The excess purchase price over the fair value of net assets acquired of $11.8 million U.S. dollars was recorded as “Goodwill.” Goodwill is included in the Pursuit reportable segment. The primary factor that contributed to the purchase price resulting in the recognition of goodwill related to future growth opportunities when combined with our other businesses. Goodwill is not deductible for tax purposes. We included these assets in the Condensed Consolidated Balance Sheets from the date of acquisition.
Transaction costs associated with the acquisition were $0.4 million U.S. dollars during 2021, which are included in “Costs of services” in the Condensed Consolidated Statements of Operations.
Note 5. Inventories
We state inventories, which consist primarily of exhibit design and construction materials and supplies, as well as retail inventory, at the lower of cost (first-in, first-out and specific identification methods) or net realizable value.
The components of inventories consisted of the following:
Raw materials
1,595
2,350
Finished goods
13,345
6,231
Note 6. Other Current Assets
Other current assets consisted of the following:
Restricted cash
Prepaid software maintenance
5,153
4,154
Income tax receivable
2,994
1,901
Prepaid vendor payments
1,705
1,604
Prepaid taxes
311
456
Prepaid other
1,698
1,165
1,517
2,097
14
Note 7. Property and Equipment
Property and equipment consisted of the following:
Land and land interests
31,316
30,532
Buildings and leasehold improvements
408,114
407,930
Equipment and other
436,076
413,684
Gross property and equipment
875,506
852,146
Accumulated depreciation
(378,428
(364,060
Property and equipment, net (excluding finance leases)
497,078
488,086
Finance lease ROU assets, net
62,101
61,022
Depreciation expense was $10.8 million for the three months ended June 30, 2022 and $21.8 million for the six months ended June 30, 2022. Depreciation expense was $10.7 million for the three months ended June 30, 2021 and $21.6 million for the six months ended June 30, 2021.
Property and equipment purchased through accounts payable and accrued liabilities decreased $0.4 million during the six months ended June 30, 2022 and increased $4.2 million during the six months ended June 30, 2021. Capitalized interest was $0.7 million for the three months ended June 30, 2022 and $2.6 million for the six months ended June 30, 2022, which was primarily related to the development of Pursuit’s FlyOver attractions.
Note 8. Other Investments and Assets
Other investments and assets consisted of the following:
Self-insured liability receivable
6,847
Other mutual funds
3,459
4,057
Contract costs
2,685
2,928
3,129
Note 9. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill are as follows:
Business acquisition
Foreign currency translation adjustments
(1,988
Goodwill is tested for impairment at the reporting unit level on an annual basis as of October 31, and between annual tests if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying value. We use a discounted expected future cash flow methodology (income approach) to estimate the fair value of our reporting units for purposes of goodwill impairment testing.
15
Other intangible assets consisted of the following:
June 30, 2022
December 31, 2021
Useful Life(Years)
GrossCarryingValue
AccumulatedAmortization
NetCarryingValue
Intangible assets subject to amortization:
Customer contracts and relationships
7.2
37,485
(28,764
8,721
36,848
(28,372
8,476
Operating contracts and licenses
34.6
41,444
(3,113
38,331
40,927
(2,660
38,267
In-place lease
34.3
15,183
(1,280
13,903
15,464
(1,084
14,380
Tradenames
4.3
(3,128
2,695
5,626
(2,819
2,807
5.7
810
656
824
(139
685
Total amortized intangible assets
100,745
(36,439
64,306
99,689
(35,074
64,615
Indefinite-lived intangible assets:
Business licenses
572
574
101,317
100,263
Intangible asset amortization expense (excluding amortization expense of ROU assets) was $1.4 million for the three months ended June 30, 2022 and $2.6 million for the six months ended June 30, 2022. Intangible assets amortization expense was $1.6 million for the three months ended June 30, 2021 and $2.8 million for the six months ended June 30, 2021.
At June 30, 2022, the estimated future amortization expense related to intangible assets subject to amortization is as follows:
Year ending December 31,
Remainder of 2022
2,686
2023
4,710
2024
3,746
2025
2,439
2026
2,404
Thereafter
48,321
16
Note 10. Other Current Liabilities
Other current liabilities consisted of the following:
Continuing operations:
Commissions payable
9,786
4,119
Accommodation service deposits
9,420
892
Accrued sales and use taxes
8,688
3,428
Self-insured liability
5,428
4,815
Accrued employee benefit costs
4,188
4,164
Accrued concession fees
3,089
964
Accrued professional fees
1,310
1,671
Current portion of pension and postretirement liabilities
1,457
1,637
Accrued restructuring
628
864
Accrued interest payable
233
228
Other taxes
1,252
1,042
4,509
3,999
Total continuing operations
49,988
27,823
Discontinued operations:
354
312
Environmental remediation liabilities
60
94
Total discontinued operations
500
Total other current liabilities
Note 11. Other Deferred Items and Liabilities
Other deferred items and liabilities consisted of the following:
Foreign deferred tax liability
28,636
27,748
Multi-employer pension plan withdrawal liability
14,041
14,260
Self-insured excess liability
4,944
5,119
4,708
5,696
2,629
2,571
3,144
2,758
64,949
64,999
2,176
2,168
1,428
1,535
250
251
3,854
3,954
Total other deferred items and liabilities
17
Note 12. Debt and Finance Obligations
The components of debt and finance obligations consisted of the following:
(in thousands, except interest rates)
2021 Credit Facility - Term Loan B, 6.1% interest rate at June 30, 2022 and 5.5% at December 31, 2021, due through 2028(1)
397,000
399,000
2021 Credit Facility - Revolving Credit Facility, 7.3% weighted-average interest rate at June 30, 2022, due through 2026(1)
15,000
Forest Park Hotel Construction Loan Facility, 4.8% interest rate at June 30, 2022, due through 2027(1)
8,634
FlyOver Iceland Credit Facility, 4.9% interest rate at June 30, 2022 and December 31, 2021, due through 2025(1)
5,123
5,566
FlyOver Iceland Term Loans, 8.6% weighted-average interest rate at June 30, 2022 and 3.8% at December 31, 2021, due through 2024(1)
679
689
Less unamortized debt issuance costs
(13,864
(14,804
Total debt
412,572
390,451
Finance lease obligations, 9.1% weighted-average interest rate at June 30, 2022 and December 31, 2021, due through 2067
64,895
63,401
Financing arrangements
966
5,528
Total debt and finance obligations (2)(3)
478,433
459,380
Current portion
(9,144
(12,800
2021 Credit Facility
Effective July 30, 2021, we entered into a new $500 million credit facility (the “2021 Credit Facility”). The 2021 Credit Facility provides for a $400 million Term Loan B with a maturity date of July 30, 2028 and a $100 million revolving credit facility with a maturity date of July 30, 2026. The proceeds will be used to provide for financial flexibility to fund future acquisitions and growth initiatives and for general corporate purposes.
On March 23, 2022, we entered into an amendment to the 2021 Credit Facility, which modified the revolving credit facility’s financial covenants as detailed below.
Term Loan B
The $400 million Term Loan B proceeds were offset in part by $14.8 million in related fees. The proceeds from the Term Loan B were used to repay the $327 million outstanding balance under our then outstanding $450 million revolving credit facility. The interest rate on the Term Loan B is London Interbank Offered Rate (“LIBOR”) plus 5.00%, with a LIBOR floor of 0.50%. There are no financial covenants under the Term Loan B.
Revolving Credit Facility
The following are significant terms under the revolving credit facility, as amended:
18
On April 6, 2022, we borrowed $15.0 million from the revolving credit facility to partially fund the Glacier Raft Company acquisition. Refer to Note 4 – Acquisitions for additional information.
As of June 30, 2022, capacity remaining under the Revolving Credit Facility was $72.3 million, reflecting $100.0 million total facility size, less $15.0 million of borrowings and $12.7 million in outstanding letters of credit.
Forest Park Hotel Construction Loan Facility
Effective May 17, 2022, Pursuit, through a 60% owned subsidiary, entered into a construction loan facility for borrowings up to $17.0 million Canadian dollars (approximately $13.3 million U.S. dollars) for the development and construction of the Forest Park Hotel in Jasper National Park. The construction loan facility requires interest only payments through November 2023 at Canada Prime plus 2.35% per annum. After November 2023, the construction loan will be converted to a term loan and the interest rate will be at Canada Prime plus 1.50% per annum. The construction loan facility matures on May 17, 2027. As of June 30, 2022, funds of $5.9 million Canadian dollars (approximately $4.6 million U.S. dollars) were available. Construction of the Forest Park Hotel is expected to be completed in August 2022.
FlyOver Iceland Credit Facility
Effective February 15, 2019, FlyOver Iceland ehf., (“FlyOver Iceland”) a wholly-owned subsidiary of Esja, entered into a credit agreement with a €5.0 million (approximately $5.6 million U.S. dollars) credit facility (the “FlyOver Iceland Credit Facility”) with a maturity date of March 1, 2022. The loan proceeds were used to complete the development of the FlyOver Iceland attraction.
We entered into an addendum effective December 1, 2021 wherein the principal payments were deferred for twelve months beginning December 1, 2021, with the first payment due December 1, 2022. The addendum extended the maturity date to March 1, 2025 and provided for a semi-annual waiver of certain covenants through June 30, 2022 with the first testing date as of December 31, 2022. Conditions to the addendum included securing additional capital of ISK 75.0 million (approximately $0.6 million) in January 2022, which was completed, in order to strengthen FlyOver Iceland’s liquidity position. There were no other changes to the terms of the FlyOver Iceland Credit Facility.
FlyOver Iceland Term Loans
During 2020, FlyOver Iceland entered into three term loans totaling ISK 90.0 million (approximately $0.7 million U.S. dollars) (the “FlyOver Iceland Term Loans”). The first term loan for ISK 10.0 million was entered into effective October 15, 2020 with a maturity date of April 1, 2023 and bears interest on a seven-day term deposit at the Central Bank of Iceland. The second term loan for ISK 30.0 million was entered into effective October 15, 2020 with a maturity date of October 1, 2024 and bears interest on a seven-day term deposit at the Central Bank of Iceland plus 3.07%. The third term loan for ISK 50.0 million was entered into effective December 29, 2020 with a maturity date of February 1, 2023 and bears interest at one-month Reykjavik InterBank Offered Rate (“REIBOR”) plus 4.99%. The Icelandic State Treasury guarantees supplemental loans provided by credit institutions to companies impacted by the COVID-19 pandemic. Accordingly, the Icelandic State Treasury guaranteed the repayment of up to 85% of the principal and interest on the ISK 10.0 million and ISK 30.0 million term loans and 70% of the principal amount on the ISK 50.0 million term loan. Loan proceeds were used to fund FlyOver Iceland operations.
We have insurance premium financing arrangements in order to finance certain of our insurance premium payments. The financing arrangements are payable within the next 12 months and bear a weighted average interest rate of 2.7%.
Note 13. Fair Value Measurements
The fair value of an asset or liability is defined as the price that would be received by selling an asset or paying to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value guidance requires an entity to maximize the use of quoted prices and other observable inputs and minimize the use of unobservable inputs when measuring fair value, and also establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
19
Level 2 - Observable inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value.
Money market mutual funds and certain other mutual fund investments are measured at fair value on a recurring basis using Level 1 inputs. The fair value information related to these assets is summarized in the following tables:
Fair Value Measurements at Reporting Date Using
Quoted Pricesin ActiveMarkets(Level 1)
SignificantOtherObservableInputs(Level 2)
SignificantUnobservableInputs(Level 3)
Assets:
Money market funds (1)
Other mutual funds (2)
Total assets at fair value on a recurring basis
11,003
15,060
The carrying values of cash and cash equivalents, receivables, and accounts payable approximate fair value due to the short-term nature of these instruments. Refer to Note 12 – Debt and Finance Obligations for the estimated fair value of debt obligations.
20
Note 14. Income (Loss) Per Share
The components of basic and diluted loss per share are as follows:
Less: Allocation to participating securities
(4,293
Convertible preferred stock dividends paid in cash
Convertible preferred stock dividends paid in kind
(3,821
Adjustment to the redemption value of redeemable noncontrolling interest
(412
(547
(763
(603
Net income (loss) allocated to Viad common stockholders (basic)
13,184
(44,496
(13,825
(89,602
Add: Allocation to participating securities
25
Net income (loss) allocated to Viad common stockholders (diluted)
13,209
Basic weighted-average outstanding common shares
Additional dilutive shares related to share-based compensation
Diluted weighted-average outstanding shares
Income (loss) per share:
Basic income (loss) attributable to Viad common stockholders
Diluted income (loss) attributable to Viad common stockholders(1)
Diluted loss per common share is calculated using the more dilutive of the two-class method or if-converted method. The two-class method uses net income (loss) available to common stockholders and assumes conversion of all potential shares other than the participating securities. The if-converted method uses net income (loss) available to common stockholders and assumes conversion of all potential shares including the participating securities. Dilutive potential common shares include outstanding stock options, unvested restricted share units and convertible preferred stock. We apply the two-class method in calculating income (loss) per common share as unvested share-based payment awards that contain nonforfeitable rights to dividends and preferred stock are considered participating securities. Accordingly, such securities are included in the earnings allocation in calculating income (loss) per share. The adjustment to the carrying value of the redeemable noncontrolling interest is reflected in income (loss) per common share.
We excluded the following weighted-average potential common shares from the calculations of diluted net income (loss) per common share during the applicable periods because their inclusion would have been anti-dilutive:
Convertible preferred stock
6,583
6,674
6,539
Unvested restricted share-based awards
168
172
Unvested performance share-based awards
34
51
372
277
204
21
Note 15. Common and Preferred Stock
On August 5, 2020, we entered into an investment agreement with funds managed by private equity firm Crestview Partners (the “Investment Agreement”), relating to the issuance of 135,000 shares of newly issued Convertible Series A Preferred Stock, par value $0.01 per share (the “Convertible Preferred Stock”), for an aggregate purchase price of $135 million or $1,000 per share. The $135 million issuance was offset in part by $9.2 million of expenses related to the capital raise. We have classified the Convertible Preferred Stock as mezzanine equity in the Condensed Consolidated Balance Sheet due to the existence of certain change in control provisions that are not solely within our control.
The Convertible Series A Preferred Stock carries a 5.5% cumulative quarterly dividend, which is payable in cash or in-kind at Viad’s option and is convertible at the option of the holders into shares of our common stock at a conversion price of $21.25 per share. Dividends paid-in-kind increase the redemption value of the preferred stock. The redemption value of the preferred stock was $141.8 million as of June 30, 2022 and June 30, 2021. Upon the occurrence of a change in control event, the holders have a right to require Viad to repurchase such preferred stock. During the six months ended June 30, 2022, $3.9 million of dividends were declared, all of which were paid in cash. We intend to pay preferred stock dividends in cash for the foreseeable future.
Holders of the Convertible Series A Preferred Stock are entitled to vote with holders of Viad’s common stock on an as-converted basis.
Common Stock Repurchases
Our Board of Directors previously authorized us to repurchase shares of our common stock from time to time at prevailing market prices. Effective February 7, 2019, our Board of Directors authorized the repurchase of an additional 500,000 shares. In March 2020, our Board of Directors suspended our share repurchase program. As of June 30, 2022, 546,283 shares remain available for repurchase. Additionally, we repurchase shares related to tax withholding requirements on vested restricted stock awards. Refer to Note 3 – Share-Based Compensation.
Note 16. Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) (“AOCI”) by component are as follows:
CumulativeForeign Currency Translation Adjustments
Unrecognized Net Actuarial Loss and Prior Service Credit, Net
AccumulatedOtherComprehensiveIncome (Loss)
(16,162
(11,267
Other comprehensive income before reclassifications
Amounts reclassified from AOCI, net of tax
Net other comprehensive income (loss)
(7,665
(24,293
(10,801
Balance at December 31, 2020
(16,686
(13,955
Other comprehensive loss before reclassifications
122
Net other comprehensive income
7,776
Balance at June 30, 2021
(9,032
(13,833
Amounts reclassified that relate to our defined benefit pension and postretirement plans include the amortization of prior service costs and actuarial net losses recognized during each period presented. We recorded these costs as components of net periodic cost for each period presented. Refer to Note 18 – Pension and Postretirement Benefits for additional information.
Note 17. Income Taxes
The effective tax rate was 14.3% for the three months ended June 30, 2022 and a negative 8.0% for the six months ended June 30, 2022. The effective tax rate was 4.8% for the three months ended June 30, 2021 and 5.6% for the six months ended June 30, 2021.
22
The income tax provision was computed based on our estimated annualized effective tax rate and the full-year forecasted income or loss plus the tax impact of unusual, infrequent, or nonrecurring significant items during the period. The effective tax rates for the three and six months ended June 30, 2022 and 2021 were less than the federal statutory rate of 21% primarily as a result of excluding the tax benefits on losses recognized in the United States, United Kingdom, and other European countries where we have a valuation allowance. The six months ended June 30, 2022 was also impacted by a change in income or loss between jurisdictions.
We received net cash refunds of $0.6 million during the three months ended June 30, 2022 and made cash payments for income taxes of $0.8 million during the six months ended June 30, 2022. We received cash refunds of $0.3 million during the three months ended June 30, 2021 and made cash payments for income taxes of $0.4 million during the six months ended June 30, 2021.
Note 18. Pension and Postretirement Benefits
The components of net periodic benefit cost of our pension and postretirement benefit plans for the three months ended June 30, 2022 and 2021 consist of the following:
Domestic Plans
Pension Plans
Postretirement Benefit Plans
Foreign Pension Plans
Service cost
76
117
Interest cost
91
54
80
Expected return on plan assets
(98
(130
Amortization of prior service credit
(2
Recognized net actuarial loss
134
159
36
50
Net periodic benefit cost
310
262
109
95
93
Settlement cost
Total expenses
The components of net periodic benefit cost of our pension and postretirement benefit plans for the six months ended June 30, 2022 and 2021 consist of the following:
28
230
205
108
167
156
(15
(223
(255
44
(3
268
46
98
71
99
567
218
176
115
533
682
709
We expect to contribute $0.9 million to our funded pension plans, $0.9 million to our unfunded pension plans, and $0.8 million to our postretirement benefit plans in 2022. During the six months ended June 30, 2022, we contributed $0.4 million to our funded pension plans, $0.3 million to our unfunded pension plans, and $0.3 million to our postretirement benefit plans.
Note 19. Restructuring Charges
As part of our efforts to drive efficiencies and simplify our business operations, we took certain restructuring actions designed to simplify and transform GES for greater profitability. In response to the COVID-19 pandemic, in 2020, we accelerated our transformation and streamlining efforts at GES to significantly reduce costs and create a lower and more flexible cost structure focused on servicing our more profitable market segments. These initiatives resulted in restructuring charges related to the elimination of certain positions and continuing to reduce our facility footprint at GES.
Other Restructurings
We recorded restructuring charges in connection with the consolidation of certain support functions at our corporate headquarters and certain reorganization activities within Pursuit. These charges primarily consist of severance and related benefits due to headcount reductions.
Changes to the restructuring liability by major restructuring activity are as follows:
Severance &EmployeeBenefits
Facilities
1,976
1,433
3,435
377
1,673
30
Cash payments
(316
(719
(83
(1,118
Non-cash items(1)
(355
(812
(1,167
Adjustment to liability
(10
27
1,680
1,565
3,257
As of June 30, 2022, $1.5 million of the liabilities related to severance and employee benefits will remain unpaid by the end of 2022. The liabilities related to facilities primarily include non-lease expenses that will be paid over the remaining lease terms. Refer to Note 23 – Segment Information for information regarding restructuring charges by segment.
Note 20. Leases and Other
The balance sheet presentation of our operating and finance leases is as follows:
Classification on the Condensed Consolidated Balance Sheet
Operating lease assets
Operating lease ROU assets
Finance lease assets
Total lease assets
161,745
156,937
Liabilities:
Current:
Finance lease obligations
2,899
Noncurrent:
61,996
60,473
Total lease liabilities
175,457
169,258
24
The components of lease expense consisted of the following:
Finance lease cost:
Amortization of ROU assets
1,045
1,068
2,096
2,138
Interest on lease liabilities
1,467
1,473
2,902
2,788
Operating lease cost
6,204
5,893
12,026
12,163
Short-term lease cost
749
198
1,113
459
Variable lease cost
1,532
1,092
2,546
2,034
Total lease cost, net
10,997
9,724
20,683
19,582
Other information related to operating and finance leases are as follows:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
6,069
6,460
11,867
12,613
Operating cash flows from finance leases
1,499
933
2,966
1,207
Financing cash flows from finance leases
873
684
1,597
1,394
ROU assets obtained in exchange for lease obligations:
Operating leases
1,380
12,636
10,711
18,935
Finance leases
1,217
4,324
41,709
Weighted-average remaining lease term (years):
8.60
8.54
33.76
34.95
Weighted-average discount rate:
7.00
%
6.86
9.08
9.06
As of June 30, 2022, the estimated future minimum lease payments under non-cancellable leases, excluding variable leases and variable non-lease components, are as follows:
Operating Leases
Finance Leases
11,029
4,759
15,788
20,921
8,630
29,551
18,894
7,554
26,448
17,636
6,785
24,421
17,266
6,527
23,793
69,123
185,673
254,796
Total future lease payments
154,869
219,928
374,797
Less: Amount representing interest
(44,307
(155,033
(199,340
Present value of minimum lease payments
110,562
16,184
Long-term portion
159,273
As of June 30, 2022, the estimated future minimum rental income under non-cancellable leases, which includes rental income from facilities that we own, are as follows:
748
1,229
990
836
936
Total minimum rents
5,421
Lease Not Yet Commenced
As of June 30, 2022, we had executed three facility leases for which we did not have control of the underlying assets. Accordingly, we did not record the lease liabilities and ROU assets on our Condensed Consolidated Balance Sheets. One of these leases is for the new FlyOver attraction, FlyOver Canada Toronto. We expect the lease commencement date for FlyOver Canada Toronto to begin in early 2023 with a lease term of 20 years.
Note 21. Litigation, Claims, Contingencies, and Other
We are plaintiffs or defendants in various actions, proceedings, and pending claims, some of which involve, or may involve, compensatory, punitive, or other damages. Litigation is subject to many uncertainties and it is possible that some of the legal actions, proceedings, or claims could be decided against us. Although the amount of liability as of June 30, 2022 with respect to unresolved legal matters is not ascertainable, we believe that any resulting liability, after taking into consideration amounts already provided for and insurance coverage, will not have a material effect on our business, financial position, or results of operations.
On July 18, 2020, an off-road Ice Explorer operated by our Pursuit business was involved in an accident while enroute to the Athabasca Glacier, resulting in three fatalities and multiple other serious injuries. We continue to support the victims and their families. We immediately reported the accident to our relevant insurance carriers, who are also supporting the investigation and subsequent claims. In May 2022, we received charges from the Canadian office of Occupational Health and Safety in relation to this accident. As we review these charges, we continue to cooperate fully with regulatory agencies regarding this accident. In addition, we believe that our reserves and, subject to customary deductibles, our insurance coverage is sufficient to cover potential claims and regulatory fines related to this accident.
We are subject to various United States federal, state, and foreign laws and regulations governing the prevention of pollution and the protection of the environment in the jurisdictions in which we have or had operations. If we fail to comply with these environmental laws and regulations, civil and criminal penalties could be imposed, and we could become subject to regulatory enforcement actions in the form of injunctions and cease and desist orders. As is the case with many companies, we also face exposure to actual or potential claims and lawsuits involving environmental matters relating to our past operations. As of June 30, 2022, we had recorded environmental remediation liabilities of $2.2 million related to previously sold operations. Although we are a party to certain environmental disputes, we believe that any resulting liabilities, after taking into consideration amounts already provided for and insurance coverage, will not have a material effect on our financial position or results of operations.
As of June 30, 2022, on behalf of our subsidiaries, we had certain obligations under guarantees to third parties. These guarantees are not subject to liability recognition in the condensed consolidated financial statements and relate to leased facilities and equipment leases entered into by our subsidiary operations. We would generally be required to make payments to the respective third parties under these guarantees in the event that the related subsidiary could not meet its own payment obligations. The maximum potential amount of future payments that we would be required to make under all guarantees existing as of June 30, 2022 would be $95.9 million. These guarantees relate to our leased equipment and facilities through January 2040. There are no recourse provisions that would enable us to recover from third parties any payments made under the guarantees. Furthermore, there are no collateral or similar arrangements pursuant to which we could recover payments.
A significant number of our employees are unionized and we are a party to approximately 100 collective-bargaining agreements, with approximately one-third requiring renegotiation each year. If we are unable to reach an agreement with a union during the collective-bargaining process, the union may call for a strike or work stoppage, which may, under certain circumstances, adversely impact our business and results of operations. We believe that relations with our employees are satisfactory and that collective-bargaining agreements expiring in 2022 will be renegotiated in the ordinary course of business. Although our labor relations are currently stable, disruptions could occur, with the possibility of an adverse impact on the operating results of GES.
We are self-insured up to certain limits for workers’ compensation and general liabilities, which includes automobile, product general liability, and client property loss claims. The aggregate amount of insurance liabilities (up to our retention limit) related to our continuing operations was $10.4 million as of June 30, 2022, which includes $5.9 million related to workers’ compensation liabilities, and $4.5 million related to general liability claims. We have also retained and provided for certain workers’ compensation insurance liabilities in conjunction with previously sold businesses of $1.8 million as of June 30, 2022. We are also self-insured for certain employee health benefits and the estimated employee health benefit claims incurred but not yet reported was $1.2 million as of June 30, 2022. Provisions for losses for claims incurred, including actuarially derived estimated claims incurred but not yet reported, are made based on our historical experience, claims frequency, and other factors. A change in the assumptions used could result in an adjustment to recorded liabilities. We have purchased insurance for amounts in excess of the self-insured levels, which generally range from $0.2 million to $0.5 million on a per claim basis. We do not maintain a self-insured retention pool fund as claims are paid from current cash resources at the time of settlement. Our net cash payments in connection with these insurance liabilities were $1.0 million for the three months ended June 30, 2022 and $2.6 million for the six months ended June 30, 2022 and $0.9 million for the three months ended June 30, 2021 and $1.1 million for the six months ended June 30, 2021.
In addition, as of June 30, 2022, we have recorded insurance liabilities of $6.8 million related to continuing operations, which represents the amount for which we remain the primary obligor after self-insured insurance limits, without taking into consideration the above-referenced insurance coverage. Of this total, $6.7 million is related to workers’ compensation liabilities and $0.1 million is related to general/auto liability claims, which is recorded in “Other deferred items and liabilities” in the Condensed Consolidated Balance Sheets with a corresponding receivable in “Other investments and assets.”
Note 22. Noncontrolling Interests – Redeemable and Non-redeemable
On November 3, 2017, we acquired the controlling interest (54.5% of the common stock) in Esja, a private corporation in Reykjavik, Iceland. Subsequent to additional capital contributions, our equity ownership increased to 56.4% as of June 30, 2022. Through Esja and its wholly-owned subsidiary, we are operating the FlyOver Iceland attraction.
The minority Esja shareholders have the right to sell (or “put”) their Esja shares to us based on a multiple of 5.0x EBITDA as calculated on the trailing 12 months from the most recently completed quarter before the put option exercise. The put option is only exercisable after August 2022 (the “Reference Date”), and in the event the FlyOver Iceland attraction has earned a minimum of €3.25 million in unadjusted EBITDA during the most recent fiscal year and during the trailing 12-month period prior to exercise (the “Put Option Condition”). The put option is exercisable during a period of 12 months following the Reference Date (the “Option Period”) if the Put Option Condition has been met. If the Put Option Condition has not been met during the first Option Period, the Reference Date will be extended for an additional 12 months up to three times. If after 72 months, the FlyOver Iceland attraction has not achieved the Put Option Condition, the put option expires. If the Put Option Condition is met during any of the Option Periods, yet the shares are not exercised prior to the end of the 12-month Option Period, the put option will expire.
The noncontrolling interest’s carrying value is determined by the fair value of the noncontrolling interest as of the acquisition date and the noncontrolling interest’s share of the subsequent net income or loss. This value is benchmarked against the redemption value of the sellers’ put option. The carrying value is adjusted to the redemption value, provided that it does not fall below the initial carrying value, as determined by the purchase price allocation. We have made a policy election to reflect any changes caused by such an adjustment to retained earnings (accumulated deficit), rather than to current earnings (loss).
Changes in the redeemable noncontrolling interest are as follows:
(266
Adjustment to the redemption value
763
Foreign currency translation adjustment
(118
Non-redeemable noncontrolling interest represents the portion of equity in a subsidiary that is not attributable, directly or indirectly, to us. Our non-redeemable noncontrolling interest relates to the equity ownership interest that we do not own.
Changes in the non-redeemable noncontrolling interest are as follows:
Glacier Park Inc.
Brewster (1)
15,315
58,601
11,640
Net income (loss) attributable to non-redeemable noncontrolling interest
(721
68
(100
(753
Distributions to non-controlling interests
(1,050
(224
14,591
57,049
11,316
Equity ownership interest that we do not own
Note 23. Segment Information
An operating segment is defined as a component of an enterprise that engages in business activities for which discrete financial information is available and regularly reviewed by the CODM in deciding how to allocate resources and assess performance. Our CODM is our Chief Executive Officer.
During the first quarter of 2022, we changed our segment reporting as a result of operational changes and how our CODM reviews the financial performance of GES and makes decisions regarding the allocation of resources. Accordingly, GES’ new reportable segments are Spiro and GES Exhibitions. We made no changes to the Pursuit reportable segment.
We measure the profit and performance of our operations on the basis of segment operating income (loss) which excludes restructuring charges, impairment charges, multi-employer pension plan withdrawal, and certain other corporate expenses that are not allocated to the reportable segments. Intersegment sales are eliminated in consolidation and intersegment transfers are not significant. Corporate activities include expenses not allocated to operations.
Our reportable segments, with reconciliations to consolidated totals, are as follows:
GES:
GES intersegment eliminations
Total GES
Segment operating income (loss):
5,571
(8,097
(15,627
(26,418
14,847
(7,211
14,608
(14,380
16,273
(19,686
14,918
(32,421
31,120
(26,897
29,526
(46,801
Segment operating income (loss)
36,691
(34,994
13,899
(73,219
Corporate eliminations (1)
35
(3,440
(3,006
(6,113
(5,011
(7,761
(5,565
(13,638
(10,650
(57
(612
(680
(1,250
(1,040
Restructuring charges:
(23
(808
(126
(1,226
(176
(588
(661
(824
(3,394
Corporate
(20
Impairment charges:
(583
29
Additional information of our reportable segments is as follows:
Six Months Ended June 30,
Depreciation:
7,866
6,546
15,648
13,003
852
1,032
1,781
2,529
2,070
3,084
4,361
6,020
10,802
10,674
21,808
21,576
Amortization:
1,316
1,439
2,495
2,469
103
252
1,038
1,098
2,213
2,405
2,659
4,678
Capital expenditures:
17,219
14,396
28,710
23,619
442
146
586
294
1,383
702
2,248
Corporate and other
148
19,069
15,392
31,639
24,763
No asset information has been provided for our reportable segments as our CODM no longer reviews asset information by reportable segment.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains a number of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words, and variations of words, such as “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 contained in this Quarterly Report on Form 10-Q. Such risks, uncertainties and other important factors include, among others: the factors set forth under “Risk Factors” (Part I, Item 1A) and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (Part II, Item 7) in our 2021 Form 10-K filed with the SEC, as may be updated elsewhere in this report; and the information set forth in other Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that we have filed or will file with the SEC. Such risks, uncertainties, and other important factors include, among others: the short- and longer-term effects of the COVID-19 pandemic, including the demand for travel, event business and travel experiences, and levels of consumer confidence; actions that governments, businesses, and individuals take in response to the COVID-19 pandemic or any future resurgence, including limiting or banning travel; the impact of the COVID-19 pandemic, or any future resurgence, on global and regional economies, travel, and economic activity, including the duration and magnitude of its impact on unemployment rates and consumer discretionary spending; and the pace of recovery following the COVID-19 pandemic or any future resurgence.
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:
For a more complete discussion of the risks and uncertainties that may affect our business or financial results, refer to “Risk Factors” (Part I, Item 1A) of our 2021 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 2021 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 operate through three reportable segments: Pursuit, Spiro, and GES Exhibitions. The Spiro and GES Exhibitions reportable segments are both live event businesses, and are collectively referred to as “GES.”
COVID-19 Pandemic
Starting in mid-March 2020, the COVID-19 pandemic created severe disruptions in the live event and tourism industries, and those disruptions had a significant and negative impact on our operations and financial performance. We are not able to fully estimate the future impact of the pandemic on our business due to the evolving and uncertain nature of COVID-19, including the scope and magnitude of variants, infections and hospitalization rates, and any related government restrictions on travel or in-person events. We will continue to evaluate and implement additional actions necessary to mitigate the negative financial and operational impact of COVID-19 on our business. For a discussion of COVID-19 related risks and uncertainties that may affect our business, refer to “Risk Factors” (Part I, Item 1A) of our 2021 Form 10-K.
Seasonality
Pursuit’s peak activity occurs during the summer months. During 2021, 82% of Pursuit’s revenue was earned in the second and third quarters.
GES’ live event activity can vary significantly from quarter to quarter and year to year depending on the frequency and timing of shows. Some shows are not held annually and some shift between quarters. Show rotation refers to shows that occur less frequently than annually, as well as annual shows that shift quarters from one year to the next. During the first half of 2022, we saw an acceleration in the recovery of in-person trade shows as event organizers began to hold larger-scale face-to-face live events amid the COVID-19 pandemic.
Results of Operations
Financial Highlights
% Change
**
89.2
Segment operating income (loss)(1)
Diluted income (loss) per common share from continuing operations attributable to Viad common stockholders
84.4
** Change is greater than +/- 100%
Three months ended June 30, 2022 compared with the three months ended June 30, 2021
Six months ended June 30, 2022 compared with the six months ended June 30, 2021
Analysis of Revenue and Operating Results by Reportable Segment
The following table presents a comparison of Pursuit’s reported revenue and segment operating income (loss) for the three and six months ended June 30, 2022 and 2021:
Revenue(1):
Pursuit:
Attractions
39,096
12,929
51,597
15,185
Hospitality
34,101
21,879
55.9
43,516
28,820
51.0
3,837
974
5,125
1,507
565
531
6.4
1,145
591
93.7
Total Pursuit
Segment operating income (loss)(2):
40.8
Pursuit revenue increased $41.3 million from the prior year period primarily due to favorable visitation at our Canadian attractions, which were impacted in 2021 by border restrictions, and temporary government mandated closures at FlyOver Canada and reduced hours at FlyOver Iceland. Pursuit’s new attractions that were opened or acquired after January 1, 2021, including the Sky Lagoon, FlyOver Las Vegas, the Glacier Raft Company, and the Golden Skybridge, contributed incremental revenue of $5.8 million during the three months ended June 30, 2022.
Pursuit segment operating income improved $13.7 million from the prior year period primarily due to the increase in revenue, offset in part by increased operating costs as all of Pursuit’s properties operated at full capacity during the second quarter of 2022 and due to a $3.6 million prior year benefit from the Canadian government’s emergency wage subsidy program that did not exist in 2022.
Pursuit revenue increased $55.3 million from the prior year period, which reflects the continued strengthening of leisure travel demand as long-haul visitation volume continued to recover. The growth in revenue was largely the result of stronger visitation at our Canadian attractions, which were impacted in 2021 by border restrictions, and temporary government mandated closures at FlyOver Canada and FlyOver Iceland. Pursuit’s new attractions, the Sky Lagoon, FlyOver Las Vegas, the Glacier Raft Company, and the Golden Skybridge contributed incremental revenue of $10.9 million during the six months ended June 30, 2022.
Pursuit segment operating loss improved $10.8 million from the prior year period primarily due to the increase in revenue offset in part by the increase in operating costs as all of Pursuit’s year-round and seasonal properties operated at full capacity during the first half of 2022 and due to a $6.5 million prior year benefit from the Canadian government’s emergency wage subsidy program that did not exist in 2022.
Performance Measures
We use the following key business metrics to evaluate the performance of Pursuit’s attractions business:
We use the following key business metrics, common in the hospitality industry, to evaluate Pursuit’s hospitality business:
The following table provides Pursuit’s key performance indicators.
June 30, 2021
As Reported
New Experiences(1)
Same-Store(2)
AsReported
FX Impact(3)
Attractions Key Performance Indicators:
Number of visitors
742,920
168,910
574,010
204,286
49,078
155,208
Ticket revenue (in thousands)
7,090
22,247
276
7,424
Effective ticket price
39.49
41.98
38.77
49.46
49.00
47.83
(20.2
)%
(19.0
Attractions revenue (in thousands)
8,936
30,160
3,127
381
9,421
Revenue per attraction visitor
52.62
52.90
52.54
63.29
63.71
60.70
(16.8
(13.4
Hospitality Key Performance Indicators:
Room nights available
156,306
1,403
154,903
151,159
3.4
2.5
Rooms revenue (in thousands)
317
20,242
11,193
80.8
RevPAR
131.53
225.94
130.69
75.22
74.05
74.9
76.5
Occupancy
67.9
61.6
68.0
40.7
66.8
67.1
ADR
193.70
366.89
192.33
184.63
181.75
4.9
5.8
Hospitality revenue (in thousands)
429
33,672
21,649
55.5
1,034,498
275,539
758,959
261,772
212,694
11,244
27,295
272
8,912
37.25
40.81
35.96
44.27
41.90
(15.9
(14.2
14,059
37,538
386
11,672
49.88
51.02
58.01
54.88
(14.0
(9.9
268,242
266,839
261,068
2.7
2.2
27,145
182
15,957
70.2
70.1
102.38
101.73
61.82
61.12
65.6
66.4
61.9
62.0
41.5
49.2
49.4
165.28
164.20
148.90
147.21
11.0
11.5
43,087
237
28,583
50.7
Attractions. The increase in same-store visitors during 2022 was driven by higher visitation during the first half of 2022, which was impacted in 2021 by border closures and travel restrictions as a result of the COVID-19 pandemic in addition to the temporary government mandated closures at FlyOver Canada and FlyOver Iceland. Revenue per attraction decreased due to increased visitation to attractions with lower ticket prices, which caused our weighted-average effective ticket price to go down.
Hospitality. Room nights available increased as pandemic-related capacity restrictions were lifted in 2022. The increase in RevPAR and ADR was primarily driven by revenue management efforts.
During the first quarter of 2022, we changed our segment reporting as a result of operational changes and how our CODM reviews the financial performance of GES and makes decisions regarding the allocation of resources. Accordingly, GES’ new reportable segments are Spiro and GES Exhibitions. We reclassified prior periods to conform to the current-period presentation.
The following table presents a comparison of GES’ reported revenue and segment operating income (loss) for the three and six months ended June 30, 2022 and 2021:
Segment operating income (loss)(1):
Spiro and GES Exhibitions revenue increased $77.5 million and $141.5 million, respectively, as in-person event activity continued to improve due to the resumption of live event activity and the return of large-scale events that were canceled or postponed into the first half of 2021. Spiro continued to win new clients and benefit from increased client spend, and GES Exhibitions’ same-show revenue continued to improve.
Spiro and GES Exhibitions segment operating income improved $22.1 million and $36.0 million, respectively, primarily due to higher revenue and the continued focus on managing discretionary costs.
Spiro and GES Exhibitions revenue increased $108.2 million and $246.2 million, respectively, as in-person event activity continued to improve due to the resumption of live event activity and the return of large-scale events that were canceled or postponed into the first half of 2021.
Spiro and GES Exhibitions segment operating income improved $29.0 million and $47.3 million, respectively, primarily due to higher revenue and the continued focus on managing discretionary costs. GES Exhibitions’ segment operating loss during the six months ended June 30, 2021 included a $9.1 million gain on sale of a GES warehouse in Orlando.
Other Expenses
14.4
22.0
39.5
28.1
(10.0
20.2
81.2
(42.4
14.3
Corporate Activities – The increase in corporate activities expense during the three and six months ended June 30, 2022 was primarily due to higher performance-based compensation expense.
Interest Expense, net – The increase in interest expense during the three and six months ended June 30, 2022 was primarily due to higher interest rates and higher debt balances in 2022, offset in part by $0.7 million in capitalized interest recorded during the three months ended June 30, 2022 and $2.6 million during the six months ended June 30, 2022.
Restructuring Charges – Restructuring charges during the three and six months ended June 30, 2022 and 2021 were primarily related to facility closures and severance at GES. In response to the COVID-19 pandemic, we accelerated our transformation and streamlining efforts at GES to significantly reduce costs and create a lower and more flexible cost structure focused on servicing our more profitable market segments.
Income Tax Expense (Benefit) – The effective tax rate was 14.3% for the three months ended June 30, 2022 and 4.8% for the three months ended June 30, 2021. The effective tax rate was a negative 8.0% for the six months ended June 30, 2022 and 5.6% for six months ended June 30, 2021. The effective tax rates were lower than the blended statutory rate primarily as a result of excluding the tax benefit
on losses recognized in the United States, the United Kingdom, and other European countries where we have a valuation allowance. The six months ended June 30, 2022 was also impacted by a change in income or loss between jurisdictions.
Liquidity and Capital Resources
Cash, cash equivalents, and restricted cash were $59.9 million as of June 30, 2022, as compared to $64.3 million as of December 31, 2021. Our total available liquidity was $126.8 million, including the available capacity on our revolving credit facility of $72.3 million ($100.0 million total facility size, less $15.0 million of borrowings and $12.7 million in outstanding letters of credit) and unrestricted cash of $54.5 million. During the six months ended June 30, 2022, net cash provided by operating activities was $44.0 million.
Effective July 30, 2021, we entered into the new $500 million 2021 Credit Facility. The 2021 Credit Facility provides for a $400 million Term Loan B with a maturity date of July 30, 2028 and a $100 million revolving credit facility with a maturity date of July 30, 2026. The $400 million in Term Loan B proceeds were offset in part by $14.8 million in related fees. The proceeds from the Term Loan B were used to repay the $327 million outstanding balance under our then $450 million revolving credit facility. The $100 million revolving credit facility and the remaining proceeds from the Term Loan B have been and will be used to provide for financial flexibility to fund future acquisitions and growth initiatives and for general corporate purposes. On March 23, 2022, we entered into an amendment to the 2021 Credit Facility, which modified the revolving credit facility’s financial covenants. The amended 2021 Credit Facility requires us to maintain liquidity of $75 million under the revolving credit facility until financials and a compliance certificate for the quarter ended September 30, 2022 are provided to the banks, with liquidity defined as unrestricted cash and available capacity on our revolving credit facility, and other financial covenants that began January 1, 2022. Refer to Note 12 – Debt and Finance Obligations of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for additional information.
As of June 30, 2022, we held approximately $52.2 million of our cash and cash equivalents outside of the United States, consisting of $26.7 million in Canada, $7.6 million in the United Kingdom, $6.7 million in the Netherlands, $5.8 million in Iceland, $3.1 million in the United Arab Emirates, and $2.3 million in certain other countries.
We believe that our existing sources of liquidity will be sufficient to fund operations and projected capital outlays, including approximately $100 million in capital expenditures for at least the next 12 months.
Cash Flows
Operating Activities
Changes in operating assets and liabilities
15,640
28,045
The change in net cash provided by (used in) operating activities of $83.6 million was primarily due to improved operating results at GES and Pursuit, offset in part by a decrease to working capital.
37
Investing Activities
The increase in net cash used in investing activities of $38.8 million was primarily due to the Glacier Raft Company acquisition and an increase in capital expenditures, whereas in the 2021 period we received proceeds of $14.1 million primarily from the sale of a GES warehouse in Orlando, offset in part by cash paid for the acquisition of the Golden Skybridge in 2021.
Financing Activities
The decrease in net cash provided by financing activities of $44.7 million was primarily due to net debt proceeds of $15.9 million during the six months ended June 30, 2022 compared to $56.6 million during the six months ended June 30, 2021.
Debt and Finance Obligations
Refer to Note 12 – Debt and Finance Obligations of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for further discussion, all of which is incorporated by reference herein.
Share Repurchases
Our Board of Directors previously authorized us to repurchase shares of our common stock from time to time at prevailing market prices. Effective February 7, 2019, our Board of Directors authorized the repurchase of an additional 500,000 shares. In March 2020, our Board of Directors suspended our share repurchase program for the foreseeable future. As of June 30, 2022, 546,283 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 share-based awards.
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 2021 Form 10-K for a discussion of our critical accounting policies and estimates.
Refer to Note 1 – Overview and Basis of Presentation of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for further information.
Non-GAAP Measure
In addition to disclosing financial results that are determined in accordance with United States generally accepted accounting principles (“GAAP”), we also disclose segment operating income (loss). Our use of segment operating income (loss) is supplemental to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. As not all companies use identical calculations, segment operating income (loss) may not be comparable to similarly titled measures used by other companies. We believe
38
that our use of segment operating income (loss) provides useful information to investors regarding our results of operations for trending, analyzing, and benchmarking our performance and the value of our business.
“Segment operating income (loss)” is net income (loss) attributable to Viad before income (loss) from discontinued operations, corporate activities, interest expense and interest income, income taxes, restructuring charges, impairment charges, multi-employer pension plan withdrawal, and certain other corporate expenses that are not allocated to the reportable segments and the reduction for income (loss) attributable to noncontrolling interests. Segment operating income (loss) is used to measure the profit and performance of our operating segments to facilitate period-to-period comparisons. Refer to Note 23 – Segment Information of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for a reconciliation of segment operating income (loss) to income (loss) from continuing operations before income taxes.
We believe segment operating income (loss) is a useful operating metric as it eliminates potential variations arising from taxes, debt service costs, impairment charges, restructuring charges, the reduction of income (loss) attributable to non-controlling interests, and the effects of discontinued operations, resulting in an additional measure considered to be indicative of our ongoing operations and segment performance. Although we use segment operating income (loss) to assess the performance of our business, the use of this measure is limited because this measure does not consider material costs, expenses, and other items necessary to operate our business. As segment operating income (loss) does not consider these items, net income (loss) attributable to Viad should be considered as an important measure of financial performance because it provides a more complete measure of our performance.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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, Iceland, the Netherlands, and Germany. The functional currency of our foreign subsidiaries is their local currency. Accordingly, for purposes of consolidation, we translate the assets and liabilities of our foreign subsidiaries into U.S. dollars at the foreign exchange rates in effect at the balance sheet date. The unrealized gains or losses resulting from the translation of these foreign denominated assets and liabilities are included as a component of 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 $24.3 million as of June 30, 2022 and $16.2 million as of December 31, 2021. We recorded unrealized foreign currency translation losses in other comprehensive income (loss) of $8.1 million during the six months ended June 30, 2022 and gains of $7.7 million during the six months ended June 30, 2021.
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 (loss).
We are exposed to foreign exchange transaction risk, as our foreign subsidiaries have certain revenue transactions and loans denominated in currencies other than the functional currency of the respective subsidiary. As of June 30, 2022 and December 31, 2021, 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.
Item 4. Controls and Procedures
We have established disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. Management, together with our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2022. Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of June 30, 2022.
There were no changes in our internal control over financial reporting during the three months ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 1. Legal Proceedings
Refer to Note 21 – Litigation, Claims, Contingencies, and Other of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for information regarding legal proceedings in which we are involved, which information is incorporated by reference herein.
Item 1A. Risk Factors
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 2021 Form 10-K, which could materially affect our business, financial condition, or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes the total number of shares of our common stock that were repurchased during the three months ended June 30, 2022 pursuant to publicly announced plans or programs, as well as certain previously owned shares of common stock that were surrendered by employees, former employees, and non-employee directors for tax withholding requirements on vested share-based awards.
ISSUER PURCHASES OF EQUITY SECURITIES
Period
Total Number ofShares Purchased
Average PricePaidPer Share
Total Number ofSharesPurchased as Part ofPubliclyAnnounced Plans orPrograms
Maximum Numberof SharesThat May Yet BePurchasedUnder the Plansor Programs
April 1, 2022 - April 30, 2022
36.00
546,283
May 1, 2022 - May 31, 2022
105
33.10
June 1, 2022 - June 30, 2022
137
33.78
Pursuant to previously announced authorizations, our Board of Directors 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. In March 2020, our Board of Directors suspended future dividend payments and our share repurchase program for the foreseeable future. The Board of Directors’ authorization does not have an expiration date. During the second quarter of 2022, certain previously owned shares of common stock were surrendered by employees, former employees, and non-employee directors for tax withholding requirements on vested share-based awards.
Item 6. Exhibits
Incorporated by Reference
Exhibit
Number
Exhibit Description
Form
Ending
Filing Date
10.1
2017 Viad Corp Omnibus Incentive Plan, amended and restated effective May 24, 2022.
8-K
5/26/2022
31.1
*
Certification of Chief Executive Officer of Viad Corp pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer of Viad Corp pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certifications of Chief Executive Officer and Chief Financial Officer of Viad Corp pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
***
Inline XBRL Instance Document
101.SCH
****
Inline XBRL Taxonomy Extension Schema Document.
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document.
104
Cover Page Interactive Data File
Filed herewith.
Furnished herewith.
The Inline XBRL Instance Document and Cover Page Interactive Data File do not appear in the Interactive Data File because their XBRL tags are embedded within the Inline XBRL document.
Submitted electronically herewith.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant)
August 5, 2022
By:
/s/ Leslie S. Striedel
(Date)
Leslie S. Striedel
Chief Accounting Officer and Duly Authorized Officer