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 September 30, 2023
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
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 November 1, 2023, there were 20,919,370 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 September 30, 2023 and December 31, 2022
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022
2
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2023 and 2022
3
Condensed Consolidated Statements of Stockholders’ Equity and Mezzanine Equity for the Three Months Ended March 31, June 30, and September 30, 2023 and 2022
4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022
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
40
Item 4.
Controls and Procedures
41
PART II - OTHER INFORMATION
Legal Proceedings
42
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
Item 5.
Other Information
Item 6.
Exhibits
43
SIGNATURES
44
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)
September 30,
December 31,
(in thousands, except share data)
2023
2022
Assets
Current assets
Cash and cash equivalents
$
106,268
59,719
Accounts receivable, net of allowances of $2,900 and $2,174, respectively
134,997
122,373
Inventories
10,697
10,785
Current contract costs
34,120
14,331
Prepaid insurance
4,591
13,370
Other current assets
27,677
18,977
Total current assets
318,350
239,555
Property and equipment, net
571,372
549,578
Other investments and assets
17,703
17,457
Operating lease right-of-use assets
112,763
102,777
Deferred income taxes
2,623
565
Goodwill
121,595
121,429
Other intangible assets, net
56,138
58,985
Total Assets
1,200,544
1,090,346
Liabilities, Mezzanine Equity, and Stockholders’ Equity
Current liabilities
Accounts payable
81,494
73,020
Contract liabilities
82,398
43,950
Accrued compensation
29,760
25,839
Operating lease obligations
14,854
13,463
Other current liabilities
50,234
41,653
Current portion of debt and finance obligations
8,191
13,192
Total current liabilities
266,931
211,117
Long-term debt and finance obligations
460,181
456,752
Pension and postretirement benefits
16,199
16,769
Long-term operating lease obligations
110,067
101,297
Other deferred items and liabilities
68,325
70,024
Total liabilities
921,703
855,959
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
4,808
4,956
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
571,501
570,271
Accumulated deficit
(308,787
)
(334,301
Accumulated other comprehensive loss
(46,655
(47,185
Common stock in treasury, at cost, 4,027,453 and 4,216,044 shares, respectively
(201,711
(211,657
Total Viad stockholders’ equity
51,750
14,530
Non-redeemable noncontrolling interest
89,692
82,310
Total stockholders’ equity
141,442
96,840
Total Liabilities, Mezzanine Equity, and Stockholders’ Equity
Refer to Notes to Condensed Consolidated Financial Statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
Nine Months Ended
(in thousands, except per share data)
Revenue:
Services
285,119
306,199
765,598
711,468
Products
80,780
76,522
181,403
167,816
Total revenue
365,899
382,721
947,001
879,284
Costs and expenses:
Costs of services
222,794
251,433
681,409
646,564
Costs of products
67,063
64,932
161,602
152,431
Corporate activities
3,579
3,768
10,255
9,881
ON Services sale purchase price adjustment
—
204
Interest expense, net
12,476
10,252
37,081
23,890
Other expense, net
554
280
1,533
1,530
Restructuring charges
480
1,387
1,125
3,467
Impairment charges
583
Total costs and expenses
306,946
332,052
893,209
838,346
Income from continuing operations before income taxes
58,953
50,669
53,792
40,938
Income tax expense
9,173
8,810
13,623
9,587
Income from continuing operations
49,780
41,859
40,169
31,351
Income (loss) from discontinued operations
(654
(42
(855
285
Net income
49,126
41,817
39,314
31,636
Net income attributable to non-redeemable noncontrolling interest
(7,716
(3,784
(8,221
(3,031
Net (income) loss attributable to redeemable noncontrolling interest
(139
88
270
354
Net income attributable to Viad
41,271
38,121
31,363
28,959
Diluted income per common share:
Continuing operations attributable to Viad common stockholders
1.44
1.29
0.96
0.78
Discontinued operations attributable to Viad common stockholders
(0.03
(0.04
0.01
Net income attributable to Viad common stockholders
1.41
0.92
0.79
Weighted-average outstanding and potentially dilutive common shares
21,174
20,889
21,025
20,781
Basic income per common share:
1.46
1.30
0.97
1.43
0.93
0.80
Weighted-average outstanding common shares
20,885
20,612
20,825
20,567
Amounts attributable to Viad
41,925
38,163
32,218
28,674
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Other comprehensive income (loss):
Unrealized foreign currency translation adjustments
(7,840
(26,846
110
(34,977
Change in fair value of interest rate cap
(122
316
Change in net actuarial loss, net of tax (1)
60
444
48
910
Change in prior service cost, net of tax (1)
17
67
56
Comprehensive income (loss)
41,241
15,482
39,844
(2,364
Non-redeemable noncontrolling interest:
Comprehensive income attributable to non-redeemable noncontrolling interest
(1,513
(5,056
287
(6,333
Redeemable noncontrolling interest:
Comprehensive (income) loss attributable to redeemable noncontrolling interest
Comprehensive income (loss) attributable to Viad
31,873
6,730
32,180
(11,374
(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, 2022
Net loss
(20,869
(398
(21,267
(123
Dividends on convertible preferred stock
(1,950
(800
Payment of payroll taxes on stock-based compensation through shares withheld
(204
Employee benefit plans
(4,677
5,468
791
Share-based compensation - equity awards
3,064
Unrealized foreign currency translation adjustment
1,195
1,760
142
Amortization of net actuarial loss, net of tax
(45
Amortization of prior service cost, net of tax
35
Other, net
5
Balance, March 31, 2023
568,661
(357,120
(46,800
(206,391
(4,248
82,477
78,229
4,975
Net income (loss)
10,961
903
11,864
(286
Distributions from noncontrolling interest
(1,126
1,238
(4
(1,773
2,628
855
2,830
6,755
1,235
7,990
38
33
15
(2
13
Balance, June 30, 2023
569,733
(348,109
(38,770
(203,769
16,487
83,489
99,976
4,727
7,716
48,987
139
(966
2,058
1,092
2,722
(9,353
(58
12
Balance, September 30, 2023
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND MEZZANINE EQUITY (Continued)
Balance, December 31, 2021
566,741
(349,720
(27,429
(220,712
6,282
85,556
91,838
5,444
(29,001
(1,204
(30,205
(138
(349
(1,286
1,972
686
2,385
3,412
737
4,149
49
407
(41
351
Balance, March 31, 2022
567,799
(380,671
(23,610
(219,089
(18,169
85,089
66,920
5,706
19,839
451
20,290
(128
(570
(5
(648
1,481
833
3,370
(11,543
(2,014
(13,557
(167
59
(25
412
Balance, June 30, 2022
570,496
(362,782
(35,094
(217,613
(7,591
82,956
75,365
5,823
3,784
41,905
(88
(2,079
2,655
576
2,492
(31,902
(478
(1
Balance, September 30, 2022
570,913
(326,611
(61,429
(214,959
5,316
81,684
87,000
5,257
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
37,707
39,442
(923
(646
(Income) loss from discontinued operations
(285
Gains on dispositions of property and other assets
(99
(209
Share-based compensation expense
8,647
7,998
Other non-cash items, net
4,423
11,894
Change in operating assets and liabilities:
Receivables
(12,528
(62,503
130
(3,125
(19,849
(15,333
9,904
34,939
Restructuring liabilities
(1,001
(2,442
2,126
11,093
38,425
24,174
Income taxes payable
1,285
8,538
Other assets and liabilities, net
7,013
16,264
Net cash provided by operating activities
116,554
105,485
Cash flows from investing activities
Capital expenditures
(54,739
(54,770
Cash paid for acquisitions, net
(25,494
Proceeds from sale of ON Services
1,168
Proceeds from dispositions of property and other assets
108
237
Net cash used in investing activities
(53,504
(80,027
Cash flows from financing activities
Proceeds from borrowings
49,044
94,849
Payments on debt and finance obligations
(54,235
(86,643
Dividends paid on preferred stock
(5,850
Distributions to noncontrolling interest, net of contributions from noncontrolling interest
Payments of debt issuance costs
(226
(418
Payment of payroll taxes on stock-based compensation through shares withheld or repurchased
(508
(940
Net cash (used in) provided by financing activities
(12,901
428
Effect of exchange rate changes on cash, cash equivalents, and restricted cash
(348
(5,989
Net change in cash, cash equivalents, and restricted cash
49,801
19,897
Cash, cash equivalents, and restricted cash, beginning of year
64,564
64,303
Cash, cash equivalents, and restricted cash, end of period
114,365
84,200
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, 2022, filed with the SEC on February 28, 2023 (“2022 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.
We operate through three reportable segments: Pursuit, Spiro, and GES Exhibitions. Spiro and GES Exhibitions are both live event businesses and are referred to collectively as “GES.”
Pursuit
Pursuit is a collection of inspiring and unforgettable travel experiences that includes recreational attractions, 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 also delivers a broad range of unique and impactful experiences for its clients, including meetings and events, exhibition and program management, environments and permanent installations, brand and product activations, and marketing and measurement.
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.
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 Recently Adopted
Accounting Standards Update (“ASU”) 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
The adoption of this new standard did not have a material impact on our consolidated financial statements.
ASU 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50) Disclosure of Supplier Finance Program Obligations
Amendment requires that a buyer in a supplier finance program disclose key terms about the program in connection with the purchase of goods and services along with information about their obligations under these programs, including a rollforward of those obligations.
We provide disclosure about supplier finance programs in Note 12 - Debt and Finance Obligations under the heading “Financing arrangements.” The required rollforward requirement is effective in the first quarter of 2024. The adoption of this new standard on January 1, 2023, did not otherwise have a material impact on our related disclosures.
Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with 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. These estimates and assumptions may change as a result of the impact of global economic conditions, global inflationary pressures, and volatility in foreign exchange rates. Actual results could differ from these and other estimates.
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. 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 consist of the following:
Restricted cash included in other current assets
8,097
4,845
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.
8
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 per share. Refer to Note 23 – Noncontrolling Interests – 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. Dividends paid-in-kind increase the redemption value of the preferred stock. 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 Condensed Consolidated Balance Sheets 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 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 29 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 incremental borrowing
9
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 customer deposits 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, 2022
44,757
Cash additions
185,615
Revenue recognized
(147,819
Foreign exchange translation adjustment
(9
Balance at September 30, 2023
82,544
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:
16,568
Additions
57,186
Expenses
(37,920
35,793
As of September 30, 2023, capitalized contract costs consisted of $2.3 million to obtain contracts and $33.5 million to fulfill contracts. We did not recognize an impairment loss with respect to capitalized contract costs during the three and nine months ended September 30, 2023 or 2022.
10
Disaggregation of Revenue
The following tables disaggregate Pursuit and GES revenue by major service and product lines, timing of revenue recognition, and markets served:
Services:
Ticket revenue
71,741
60,825
122,545
99,364
Rooms revenue
48,674
42,453
78,370
69,915
Transportation
6,010
6,251
11,644
11,185
Other
8,994
7,581
13,694
11,968
Total services revenue
135,419
117,110
226,253
192,432
Products:
Food and beverage
28,394
25,105
47,897
41,369
Retail operations
23,127
21,581
33,927
31,378
Total products revenue
51,521
46,686
81,824
72,747
186,940
163,796
308,077
265,179
Timing of revenue recognition:
Services transferred over time
Products transferred at a point in time
Markets:
Banff Jasper Collection
96,503
80,829
161,022
134,121
Alaska Collection
26,846
25,591
40,000
39,407
Glacier Park Collection
42,806
41,080
57,991
55,670
FlyOver
9,675
8,276
22,550
18,285
Sky Lagoon
11,110
8,020
26,514
17,696
11
GES
Service lines:
58,887
73,277
199,617
205,518
122,115
147,872
446,146
414,303
Intersegment eliminations
(2,043
(2,224
(6,839
(5,716
178,959
218,925
638,924
614,105
149,700
189,089
539,345
519,036
Products transferred over time(1)
13,518
11,231
42,497
35,194
15,741
18,605
57,082
59,875
Geographical markets:
North America
148,569
186,787
506,816
505,484
EMEA
42,325
43,088
154,506
127,435
(11,935
(10,950
(22,398
(18,814
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, bringing the total number of reserved shares to 2,590,000. As of September 30, 2023, there were 879,550 shares available for future grant under the 2017 Plan.
The following table summarizes share-based compensation expense:
Performance-based restricted stock units
845
16
2,486
735
Restricted stock awards and restricted stock units
1,540
1,705
4,864
5,054
Stock options
350
808
1,297
2,209
Share-based compensation expense before income tax
2,735
2,529
Income tax benefit(1)
(34
(31
(100
(78
Share-based compensation expense, net of income tax
2,701
2,498
8,547
7,920
Note 4. Acquisition and Disposition
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. 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 final allocation of the aggregate purchase price and amounts of assets acquired and liabilities assumed based upon the estimated fair value at the date of acquisition. During the first quarter of 2023, we made a purchase accounting measurement period adjustment of approximately $41,000 to working capital based on refinements to assumptions used in the preliminary valuation.
Purchase price paid as:
Cash
26,507
Working capital adjustment
(920
Purchase price adjustment
125
Cash acquired
(177
Purchase price, net of cash acquired
25,535
Fair value of net assets acquired:
Inventory
370
Prepaid expenses and other
57
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”)
16,828
Under the acquisition method of accounting, the purchase price as shown in the table above 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 relating to the Glacier Raft Company acquisition 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
14 years
The results of operations of the Glacier Raft Company have been included in the consolidated financial statements from the date of acquisition.
2022 Disposition
ON Services
On December 15, 2022, we completed the sale of substantially all of the assets of GES’ United States audio-visual production business, ON Services – AV Specialists, Inc. (“ON Services”), for approximately $30.0 million, subject to customary working capital adjustments. We recognized a gain on sale of $19.6 million. During the second quarter of 2023, we made a sale purchase price adjustment of approximately $0.2 million. ON Services had a net carrying value of $10.4 million, which included $4.9 million of net working capital and net non-current assets of $5.5 million. Working capital consisted primarily of accounts receivable of $8.2 million and other current
assets of $0.7 million, offset in part by current liabilities of $4.0 million. Net non-current assets consisted primarily of property and equipment of $6.0 million, offset in part by other liabilities of $0.5 million. The staging business of ON Services was included in the Spiro reportable segment and the venue services business in the United States was included in the GES Exhibitions reportable segment. The ON Services sale did not represent a strategic shift that has or will have a major effect on our operations and financial results, and therefore was not classified as a discontinued operation for any of the periods presented.
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
979
1,403
Finished goods
9,718
9,382
Note 6. Other Current Assets
Other current assets consisted of the following:
Restricted cash
Prepaid software maintenance
6,552
4,650
Prepaid project deposit
3,615
Prepaid vendor payments
2,982
2,084
Prepaid taxes
1,841
Income tax receivable
277
322
Prepaid other
2,218
1,836
2,095
1,483
Note 7. Property and Equipment, Net
Property and equipment consisted of the following:
Land and land interests
30,944
30,902
Buildings and leasehold improvements
433,421
409,852
Equipment and other
442,708
413,485
Gross property and equipment
907,073
854,239
Accumulated depreciation
(392,169
(362,195
Property and equipment, net (excluding finance leases)
514,904
492,044
Finance lease ROU assets, net
56,468
57,534
Depreciation expense was $10.1 million during the three months ended September 30, 2023 and $31.0 million during the nine months ended September 30, 2023. Depreciation expense was $10.5 million during the three months ended September 30, 2022 and $32.3 million during the nine months ended September 30, 2022.
Capitalized interest was $0.6 million during the three months ended September 30, 2023 and $1.3 million during the nine months ended September 30, 2023. Capitalized interest was $0.1 million during the three months ended September 30, 2022 and $2.7 million during the nine months ended September 30, 2022, which was primarily related to the development of Pursuit’s FlyOver attractions.
14
Note 8. Other Investments and Assets
Other investments and assets consisted of the following:
Self-insured liability receivable
8,211
Other mutual funds
3,898
3,490
Contract costs
1,673
2,237
3,921
3,519
Note 9. Goodwill and Other Intangible Assets, Net
The changes in the carrying amount of goodwill are as follows:
Foreign currency translation adjustments
Other(1)
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.
Other intangible assets consisted of the following:
September 30, 2023
December 31, 2022
Useful Life(Years)
GrossCarryingValue
AccumulatedAmortization
NetCarryingValue
Intangible assets subject to amortization:
Customer contracts and relationships
7.8
34,574
(29,317
37,194
(30,109
7,085
Operating contracts and licenses
33.6
39,740
(4,412
35,328
38,993
(3,504
35,489
In-place lease
33.0
14,418
(1,705
12,713
14,420
(1,404
13,016
Tradenames
3.5
5,545
(3,852
1,693
5,546
(3,324
2,222
4.4
769
(188
581
770
(163
607
Total amortized intangible assets
95,046
(39,474
55,572
96,923
(38,504
58,419
Indefinite-lived intangible assets:
Business licenses
566
95,612
97,489
Intangible asset amortization expense (excluding amortization expense of ROU assets) was $1.3 million during the three months ended September 30, 2023 and $3.6 million during the nine months ended September 30, 2023. Intangible asset amortization expense was $1.4 million during the three months ended September 30, 2022 and $4.0 million during the nine months ended September 30, 2022.
At September 30, 2023, the estimated future amortization expense related to intangible assets subject to amortization is as follows:
Year ending December 31,
Remainder of 2023
1,032
2024
3,635
2025
2,337
2026
2,304
2027
1,907
Thereafter
44,357
Note 10. Other Current Liabilities
Other current liabilities consisted of the following:
Continuing operations:
Foreign income taxes payable
9,036
8,354
Accrued sales and use taxes and personal property taxes
9,202
4,082
Accrued concession fees
6,525
4,297
Commissions payable
5,460
5,059
Self-insured liability
4,497
4,909
Accrued employee benefit costs
4,043
4,920
Current portion of pension and postretirement liabilities
1,258
1,426
Accrued professional fees
1,180
898
Accommodation service deposits
991
2,208
6,925
4,958
Total continuing operations
49,117
41,111
Discontinued operations:
92
458
Environmental remediation liabilities
25
46
1,000
Total discontinued operations
1,117
542
Total other current liabilities
Note 11. Other Deferred Items and Liabilities
Other deferred items and liabilities consisted of the following:
Foreign deferred tax liability
26,121
27,564
Multi-employer pension plan withdrawal liability
13,462
13,815
Self-insured excess liability
6,796
5,028
5,176
4,977
Accrued restructuring
2,686
3,245
1,973
3,071
64,425
65,911
2,163
2,177
1,737
1,631
305
3,900
4,113
Total other deferred items and liabilities
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, 10.8% interest rate at September 30, 2023 and 9.4% at December 31, 2022, due through 2028(1)
392,000
395,000
Jasper Term Loan, 6.5% interest rate at September 30, 2023, due through 2028(1)
12,367
Jasper Revolving Credit Facility, 9.5% weighted-average interest rate at September 30, 2023, due through 2028(1)
5,164
Forest Park Hotel Construction Loan, 8.8% interest rate at December 31, 2022(1)
11,491
FlyOver Iceland Credit Facility, 8.7% interest rate at September 30, 2023 and 6.9% at December 31, 2022, due through 2027(1)
4,108
4,965
FlyOver Iceland Term Loans, 13.7% weighted-average interest rate at September 30, 2023 and 10.1% at December 31, 2022, due through 2024(1)
500
594
Less unamortized debt issuance costs
(9,273
(11,848
Total debt
404,866
400,202
Finance lease obligations, 9.2% weighted-average interest rate at September 30, 2023 and 9.1% at December 31, 2022, due through 2067
63,506
64,729
Financing arrangements
5,013
Total debt and finance obligations (2)(3)
468,372
469,944
Current portion
(8,191
(13,192
2021 Credit Facility
Effective July 30, 2021, we entered into a $500 million credit facility (the “2021 Credit Facility”). The 2021 Credit Facility provides for a $400 million term loan (“Term Loan B”) and a $100 million revolving credit facility (“Revolving Credit Facility”). The proceeds of
the Term Loan B, net of $14.8 million in related fees, were used to repay the $327 million outstanding balance under our then $450 million revolving credit facility and to provide for financial flexibility to fund future acquisitions and growth initiatives and for general corporate purposes.
LIBOR Transition Amendment
On February 6, 2023, we entered into the LIBOR Transition Amendment to the 2021 Credit Facility to replace the London Interbank Offered Rate (“LIBOR”) with the Secured Overnight Financing Rate (“SOFR”). In accordance with the LIBOR replacement provisions outlined in the 2021 Credit Facility, additional credit spread adjustments apply to SOFR ranging from 0.11448% (for a one-month duration) up to 0.71513% (for a 12-month duration).
Term Loan B
The Term Loan B has a maturity date of July 30, 2028 and is subject to quarterly amortization of principal of $1.0 million. Interest rates are based on SOFR (plus additional credit spread adjustments as detailed above under “LIBOR Transition Amendment”) plus a 5.00% credit spread, with a SOFR floor of 0.50%. The Term Loan B carries no financial covenants.
As discussed in Note 13 – Derivative, we entered into an interest rate cap agreement that manages our exposure to interest rate increases on $300 million of borrowings under the Term Loan B and provides us with the right to receive payment if the one-month SOFR exceeds 5.0% (“strike rate”).
Revolving Credit Facility
The Revolving Credit Facility has a maturity date of July 30, 2026. As of September 30, 2023, capacity remaining under the Revolving Credit Facility was $95.0 million, reflecting $100.0 million total facility size, less $5.0 million in outstanding letters of credit.
In addition to borrowing based on one, three, six, or twelve month SOFR tenors (plus additional credit spread adjustments as detailed above under “LIBOR Transition Amendment”), we also have the option to borrow based on the “Base Rate”, which for any day is a fluctuating rate equal to the highest of the Fed Funds Rate plus 0.50%, Bank of America’s publicly announced “prime rate”, and SOFR plus 1.00%. Credit spreads for SOFR and Base Rate borrowings are based on Viad’s total net leverage ratio and range from 2.50% to 3.50% for SOFR borrowings and from 1.50% to 3.50% for Base Rate borrowings. Additionally, a 1.00% floor applies to the Base Rate.
The Revolving Credit Facility includes an undrawn fee ranging from 0.30% to 0.50% that is based on Viad’s total net leverage ratio.
The Revolving Credit Facility carries financial covenants. On March 23, 2022, we entered into the First Amendment to the 2021 Credit Facility and on March 28, 2023, we entered into the Second Amendment to the 2021 Credit Facility. The amendments modified the financial covenants to the following:
As of September 30, 2023, our total net leverage ratio was 2.54 to 1.00, the interest coverage ratio was 2.97 to 1.00, and we were in compliance with all covenants under the Revolving Credit Facility.
In addition to U.S. dollar borrowings, we may borrow funds on the Revolving Credit Facility in Canadian Dollars based on the Canadian Dollar Offered Rate, Pound Sterling based on the Sterling Overnight Index Average, and Euros based on the Euro Interbank Offered Rate, plus applicable credit spreads. No such borrowings had been made as of September 30, 2023.
On October 6, 2023, we entered into a third amendment to the 2021 Credit Facility, which among other things: increased the principal amount of the Revolving Credit Facility by $70 million, bringing the total amount of revolving capacity to $170 million. In connection with the amendment, we prepaid $70 million of the outstanding balance on our existing Term Loan B using $60 million from the Revolving Credit Facility and $10 million of cash from the Company’s balance sheet. The credit spread on the Term Loan B is 5.00% for SOFR borrowings, which is 200 basis points higher than the current credit spread on our Revolving Credit Facility. Refer to Note 25 – Subsequent Event for additional information.
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. Construction of the hotel was completed in August 2022. During January 2023, we completed our final borrowing under the construction loan facility bringing the total amount borrowed to approximately $16.8 million Canadian dollars.
The construction loan facility required interest only payments at Canada Prime plus 2.35% through January 31, 2023, at which time it was converted to a 6.5% fixed rate term loan. On May 16, 2023, Pursuit entered into an amendment to the Forest Park Hotel Construction
18
Loan Facility wherein the loan was converted into a $27.0 million Canadian dollar (approximately $20.0 million U.S. dollars) credit facility (the “Jasper Credit Facility”). See below for additional details.
Jasper Credit Facility
The Jasper Credit Facility provides for a $17.0 million Canadian dollar term loan (“Jasper Term Loan”) and a $10.0 million Canadian dollars revolving credit facility (“Jasper Revolving Credit Facility”). The Jasper Credit Facility matures on January 31, 2028.
The Jasper Revolving Credit Facility carries financial covenants as follows:
As of September 30, 2023, the pre-compensation and post-compensation fixed-charge coverage ratio was 3.91 to 1.00, and Pursuit was in compliance with all covenants under the Jasper Credit Facility.
Jasper Term Loan
The proceeds of the Jasper Term Loan reflect the outstanding balance of the Forest Park Construction Loan Facility at the time it was converted to the Jasper Term Loan of $16.8 million Canadian dollars. The Jasper Term Loan bears interest at a 6.5% fixed rate.
Jasper Revolving Credit Facility
The proceeds of the Jasper Revolving Credit Facility will be used to fund capital improvements. As of September 30, 2023, capacity remaining under the Jasper Revolving Credit Facility was $3.0 million Canadian dollars (approximately $2.2 million U.S. dollars). The Jasper Revolving Credit Facility bears interest at the Canadian Prime Rate plus 2.25%.
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 an original maturity date of March 1, 2022. The loan proceeds were used to complete the development of the FlyOver Iceland attraction. The loan bears interest at the three month Euro Interbank Offered Rate plus 4.9%.
FlyOver Iceland 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, which was further extended to September 1, 2027 by way of an option as permitted in the addendum, 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), which was completed in January 2022, in order to strengthen FlyOver Iceland’s liquidity position. There were no other changes to the terms of the FlyOver Iceland Credit Facility. Effective November 2, 2022, FlyOver Iceland received a financial covenant waiver for the 2022 through 2023 testing periods.
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 and matured on April 1, 2023. It bore interest on a seven-day term deposit rate 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 an original maturity date of February 1, 2023 and bears interest at one-month Reykjavik InterBank Offered Rate (“REIBOR”) plus 4.99%. Effective November 23, 2022, FlyOver Iceland entered into an amendment to the ISK 50.0 million term loan wherein the maturity date was extended to February 1, 2024. 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.
19
Note 13. Derivative
Interest Rate Cap
On January 4, 2023, we entered into an interest rate cap agreement with an effective date of January 31, 2023. The interest rate cap manages our exposure to interest rate increases on $300 million in borrowings under the Term Loan B and provides us with the right to receive payment if the one-month SOFR exceeds 5.0% (“strike rate”). Beginning on February 28, 2023, we pay a fixed monthly deferred premium based on an annual rate of 0.3335% for the interest rate cap, which matures on January 31, 2025.
We designated the interest rate cap as a cash flow hedge designed to hedge the variability of the SOFR-based interest payments on the Term Loan B. Changes in the fair value of the interest rate cap are recorded in “Accumulated other comprehensive income (loss)” (“AOCI”) in the Condensed Consolidated Balance Sheets. Amounts accumulated in AOCI are reclassified to “Interest expense, net” in the Condensed Consolidated Statements of Operations when the hedged item affects earnings. We recognized $0.1 million of unrealized losses in AOCI during the three months ended September 30, 2023 and unrealized gains of $0.3 million during the nine months ended September 30, 2023. We reclassified approximately $0.3 million to Interest expense, net, during the three months ended September 30, 2023 and $0.4 million during the nine months ended September 30, 2023. We estimate that $1.2 million will be reclassified to earnings within the next 12 months.
The fair value of the interest rate cap is as follows:
Classification
Derivatives designated as hedging instruments
Interest rate cap - short-term
421
Interest rate cap - long-term
136
Total derivatives designated as hedging instruments
557
The fair value of the interest rate cap is determined using widely accepted valuation techniques and reflects the contractual terms of the interest rate cap including the period to maturity. While there are no quoted prices in active markets, our calculation uses observable market-based inputs, including interest rate curves. The interest rate cap is classified as Level 2 within the fair value hierarchy. Refer to Note 14 – Fair Value Measurements for related fair value disclosures.
Note 14. 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.
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.
The fair value of assets and liabilities measured at fair value on a recurring basis are as follows:
Fair Value Measurements at Reporting Date Using
Quoted Pricesin ActiveMarkets(Level 1)
SignificantOtherObservableInputs(Level 2)
SignificantUnobservableInputs(Level 3)
Assets:
Other mutual funds (1)
Interest rate cap (2)
Total assets at fair value on a recurring basis
4,455
20
The carrying values of cash and cash equivalents, accounts receivable, 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.
Note 15. Income Per Share
The components of basic and diluted income per share are as follows:
Less: Allocation to participating securities
(9,522
(9,368
(6,194
(5,991
Convertible preferred stock dividends paid in cash
Adjustment to the redemption value of redeemable noncontrolling interest
(763
Net income allocated to Viad common stockholders (basic)
29,799
26,803
19,319
16,355
Add: Allocation to participating securities
98
94
Net income allocated to Viad common stockholders (diluted)
29,897
26,897
19,363
16,401
Basic weighted-average outstanding common shares
Additional dilutive shares related to share-based compensation
289
200
214
Diluted weighted-average outstanding shares
Income per share:
Basic income per common share attributable to Viad common stockholders
Diluted income per common share attributable to Viad common stockholders
Diluted income 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 available to common stockholders and assumes conversion of all potential shares other than the participating securities. The if-converted method uses net income 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 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 per share. The adjustment to the carrying value of the redeemable noncontrolling interest is reflected in income per common share.
21
We excluded the following weighted-average potential common shares from the calculations of diluted net income per common share during the applicable periods because their inclusion would have been anti-dilutive:
Unvested restricted share-based awards
29
Unvested performance share-based awards
159
372
138
216
Note 16. 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 each of September 30, 2023 and December 31, 2022. Upon the occurrence of a change in control event, the holders have a right to require Viad to repurchase such preferred stock. During the nine months ended September 30, 2023, $5.9 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 September 30, 2023, 546,283 shares remain available for repurchase under all prior authorizations.
Note 17. Accumulated Other Comprehensive Income (Loss)
Changes in AOCI by component are as follows:
CumulativeForeign Currency Translation Adjustments
Unrecognized Net Actuarial Loss and Prior Service Credit, Net
Unrealized Gain on Interest Rate Cap
AccumulatedOtherComprehensiveIncome (Loss)
(42,983
(4,202
Other comprehensive income before reclassifications
556
666
Amounts reclassified from AOCI, net of tax
104
(240
(136
Net other comprehensive income
530
(42,873
(4,098
22
Balance at December 31, 2021
(16,162
(11,267
Other comprehensive loss before reclassifications
977
Net other comprehensive income (loss)
(34,000
Balance at September 30, 2022
(51,139
(10,290
Amounts reclassified from AOCI 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 19 – Pension and Postretirement Benefits for additional information.
Note 18. Income Taxes
The effective tax rate was 15.6% for the three months ended September 30, 2023 and 25.3% for the nine months ended September 30, 2023. The effective tax rate was 17.4% for the three months ended September 30, 2022 and 23.4% for the nine months ended September 30, 2022.
The income tax provision for 2023 was computed based on our estimated Annualized Effective Tax Rate (“AETR”) and the full-year forecasted income or loss plus the tax impact of unusual, infrequent, or nonrecurring significant items during the period. The amount and change of pre-tax income and loss recognized between jurisdictions impacted the reported effective tax rate for the three months and nine months ended September 30, 2023 as we do not recognize a tax benefit on losses in the United States and other European countries where we have a valuation allowance while recognizing tax expense in Canada, Netherlands, Saudi Arabia, and Iceland. The rate was lower than the 21% federal rate for the three months ended September 30, 2023 and higher than 21% for the nine months ended September 30, 2023 due to the mix of income in jurisdictions where we have recorded a valuation allowance and the change in income or loss in those jurisdictions.
The effective tax rate for the nine months ended on September 30, 2023 was further impacted by the release of $2.1 million of our valuation allowance during the first quarter on the deferred tax assets recorded on certain U.S. separate state filing, partially offset by $0.8 million of foreign withholding taxes where no benefit of the foreign tax credit was recorded.
We paid net cash for income taxes of $3.3 million during the three months ended September 30, 2023 and $16.0 million during the nine months ended September 30, 2023. We received net cash refunds of $2.1 million during the three months ended September 30, 2022 and $1.3 million during the nine months ended September 30, 2022.
Note 19. Pension and Postretirement Benefits
The components of net periodic benefit cost of our pension and postretirement benefit plans for the three months ended September 30, 2023 and 2022 consist of the following:
Domestic Plans
Pension Plans
Postretirement Benefit Plans
Foreign Pension Plans
Service cost
75
Interest cost
212
109
74
26
78
Expected return on plan assets
(15
(87
(97
Amortization of prior service credit
(13
27
23
Recognized net actuarial loss (gain)
77
65
(62
(160
34
Net periodic benefit cost (income)
261
195
(106
86
90
Settlement cost
Total expenses (income)
The components of net periodic benefit cost of our pension and postretirement benefit plans for the nine months ended September 30, 2023 and 2022 consist of the following:
132
236
634
359
260
134
245
(95
70
(259
(320
(29
85
Recognized net actuarial (gain) loss
219
333
(150
(114
102
105
Net periodic benefit cost
729
762
211
112
252
266
115
533
Total expenses
877
799
We expect to contribute $0.6 million to our funded pension plans, $0.8 million to our unfunded pension plans, and $0.7 million to our postretirement benefit plans in 2023. During the nine months ended September 30, 2023, we contributed $0.5 million to our funded pension plans, $0.6 million to our unfunded pension plans, and $0.4 million to our postretirement benefit plans.
Note 20. 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. 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 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
1,609
1,818
3,439
460
456
209
Cash payments
(426
(548
(223
(1,197
Adjustment to liability
1,643
1,736
3,379
As of September 30, 2023, $1.5 million of the liabilities related to severance and employee benefits and $1.5 million of liabilities related to facilities will remain unpaid by the end of 2023. The liabilities related to facilities primarily include dilapidations and non-lease expenses that will be paid over the remaining lease terms. Refer to Note 24 – Segment Information for information regarding restructuring charges by segment.
24
Note 21. 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 ROU assets
Finance lease ROU assets
Total lease ROU assets
169,231
160,311
Liabilities:
Current:
Finance lease obligations
2,680
2,978
Noncurrent:
60,826
61,751
Total lease liabilities
188,427
179,489
The components of lease expense consisted of the following:
Finance lease cost:
Amortization of ROU assets
1,060
3,196
3,156
Interest on lease liabilities
1,430
1,478
4,267
4,380
Operating lease cost
6,753
6,426
19,546
18,452
Short-term lease cost
1,431
968
2,816
2,081
Variable lease cost
1,220
1,420
3,958
3,966
Total lease cost, net
11,926
11,352
33,783
32,035
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
6,862
5,480
20,183
17,347
Operating cash flows from finance leases
1,512
1,551
4,564
4,517
Financing cash flows from finance leases
687
854
2,415
2,451
ROU assets obtained in exchange for lease obligations:
Operating leases
5,803
8,095
23,390
18,806
Finance leases(1)
433
805
796
5,129
Weighted-average remaining lease term (years):
7.80
8.51
Finance leases
33.94
34.07
Weighted-average discount rate:
7.87
%
7.25
9.16
9.12
As of September 30, 2023, 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
3,983
2,136
6,119
27,391
8,052
35,443
25,157
7,227
32,384
24,255
30,807
20,752
6,250
27,002
70,664
180,718
251,382
Total future lease payments
172,202
210,935
383,137
Less: Amount representing interest
(47,281
(147,429
(194,710
Present value of minimum lease payments
124,921
(14,854
(2,680
(17,534
Long-term portion
170,893
As of September 30, 2023, the estimated future minimum rental income under non-cancellable leases, which includes rental income from facilities that we own, are as follows:
869
1,925
1,722
1,562
918
2,838
Total minimum rents
9,834
Lease Not Yet Commenced
As of September 30, 2023, we had executed a facility lease for which we did not have control of the underlying assets. Accordingly, we did not record the lease liability and ROU asset on our Condensed Consolidated Balance Sheets. This lease is for a new FlyOver attraction, FlyOver Canada Toronto. The lease commencement date was originally planned for 2023, however, it has been postponed due to permitting and other related delays. Upon commencement date, it will have a lease term of 20 years.
Note 22. 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 September 30, 2023 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 immediately reported the accident to our relevant insurance carriers, who have supported our investigation and subsequent claims relating to the accident. In May 2023, we resolved charges from the Canadian office of Occupational Health and Safety in relation to this accident, resulting in fines and related payments in an aggregate amount of $0.5 million Canadian dollars (approximately $0.3 million U.S. dollars). We continue to manage our legal defense of various claims from the victims and their families. In addition, we believe that our reserves and, subject to customary deductibles, our insurance coverage is sufficient to cover potential claims 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 September 30, 2023, 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 September 30, 2023, 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 September 30, 2023 would be approximately $86.0 million. These guarantees relate to our leased equipment and facilities through January 2044. 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 2023 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 $11.3 million as of September 30, 2023, which includes $6.7 million related to workers’ compensation liabilities, and $4.6 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 September 30, 2023. We are also self-insured for certain employee health benefits and the estimated employee health benefit claims incurred but not yet reported was $1.5 million as of September 30, 2023. 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 $1.2 million for the three months ended September 30, 2023 and $3.4 million for the nine months ended September 30, 2023 and $0.9 million for the three months ended September 30, 2022 and $3.5 million for the nine months ended September 30, 2022.
In addition, as of September 30, 2023, we have recorded insurance liabilities of $8.2 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, $6.4 million is related to workers’ compensation liabilities and $1.8 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 23. 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 September 30, 2023. 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 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 Put Option Condition has not been met as of September 30, 2023. If the FlyOver Iceland attraction has not achieved the Put Option Condition by December 31, 2024, the put option expires.
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:
Net loss attributable to redeemable noncontrolling interest
(270
Foreign currency translation adjustment
122
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)
16,690
55,702
9,918
2,268
3,733
2,220
8,221
Distributions to non-controlling interests
(60
352
18,953
59,375
11,364
Equity ownership interest that we do not own
Note 24. 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 chief operating decision maker (“CODM”) in deciding how to allocate resources and assess performance. Our CODM is our Chief Executive Officer.
We measure the profit and performance of our operations on the basis of segment operating income which excludes restructuring charges, impairment charges, 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.
28
Our reportable segments, with reconciliations to consolidated totals, are as follows:
GES:
GES intersegment eliminations
Total GES
Segment operating income (loss):
81,375
59,749
72,074
44,122
179
3,720
11,632
18,328
(5,529
2,870
20,235
17,788
(5,350
6,590
31,867
36,116
Segment operating income
76,025
66,339
103,941
80,238
Corporate eliminations (1)
51
(3,579
(3,768
(10,255
(9,881
(12,476
(10,252
(37,081
(23,890
(554
(280
(1,533
(1,530
Restructuring charges:
(192
(201
(155
(71
(331
(1,297
(125
(1,316
(585
(2,140
Corporate
(8
(30
Impairment charges:
(583
Additional information of our reportable segments is as follows:
Nine Months Ended September 30,
Depreciation:
7,708
7,501
24,121
23,149
527
912
1,627
2,693
1,830
5,148
6,419
10,083
10,480
30,953
32,288
Amortization:
1,356
1,351
3,811
3,846
69
194
160
920
1,068
2,749
3,148
2,345
2,476
6,754
7,154
Capital expenditures:
18,945
20,178
44,260
48,888
892
1,042
2,157
1,628
2,703
1,898
8,301
4,146
Corporate and other
22,546
23,131
54,739
54,770
We do not report total assets by segment because this is not a metric used to allocate resources or evaluate segment performance by our CODM.
Note 25. Subsequent Event
On October 6, 2023, we entered into a third amendment to the 2021 Credit Facility, which among other things:
In connection with the amendment, we prepaid $70 million of the outstanding balance on our existing Term Loan B using $60 million from the Revolving Credit Facility and $10 million of cash from the Company’s balance sheet. The credit spread on the Term Loan B is 5.00% for SOFR borrowings, which is 200 basis points higher than the current credit spread on our Revolving Credit Facility.
30
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 “aim,” “anticipate,” “believe,” “could,” “deliver,” “estimate,” “expect,” “intend,” “may,” “might,” “outlook,” “plan,” “potential,” “seek,” “target,” “will,” and similar expressions are intended to identify our forward-looking statements. Similarly, statements that describe our business strategy, outlook, objectives, plans, initiatives, intentions, or goals also are forward-looking statements. These forward-looking statements are not historical facts and are subject to a host of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those in the forward-looking statements.
Important factors that could cause actual results to differ materially from those described in our forward-looking statements include, but are not limited to, the following:
For a more complete discussion of the risks and uncertainties that may affect our business or financial results, refer to Item 1A, “Risk Factors,” of our 2022 Form 10-K. We disclaim and do not undertake any obligation to update or revise any forward-looking statement except as required by applicable law or regulation.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our 2022 Form 10-K and the condensed consolidated financial statements and related notes included in this Form 10-Q. The MD&A is intended to assist in understanding our financial condition and results of operations.
Overview
We are a leading global provider of extraordinary experiences, including hospitality and leisure activities, experiential marketing, and live events. We operate through three reportable segments: Pursuit, Spiro, and GES Exhibitions. Spiro and GES Exhibitions are both live event businesses, and are collectively referred to as “GES.”
Current Macroeconomic Factors
International tourism and live event activity continues to improve and demand for our products and services remains strong despite ongoing macroeconomic volatility. During the nine months ended September 30, 2023, we operated with little to no COVID-19 related disruptions, and supply chain and labor challenges continued to improve. Changes in macroeconomic factors, particularly high inflation and the resulting rise in interest rates, have increased our interest expense. Any future impacts from these and other macroeconomic developments on our operations cannot be predicted with certainty, but could have adverse effects on our business, financial condition, and results of operations.
Seasonality
Pursuit’s peak activity occurs during the summer months. During 2022, 81% of Pursuit’s revenue was earned in the second and third quarters.
GES’ live event activity can vary significantly from quarter to quarter and year to year depending on the frequency and timing of shows. Some shows are not held annually and some shift between quarters. Show rotation refers to shows that occur less frequently than annually, as well as annual shows that shift quarters from one year to the next.
Results of Operations
Financial Highlights
% Change
(4.4)%
7.7
8.3%
8.3
Segment operating income(1)
14.6%
29.5
Diluted income per common share from continuing operations attributable to Viad common stockholders
11.6%
23.1
Three months ended September 30, 2023 compared with the three months ended September 30, 2022
Nine months ended September 30, 2023 compared with the nine months ended September 30, 2022
Analysis of Revenue and Operating Results by Reportable Segment
The following table presents a comparison of Pursuit’s reported revenue and segment operating income for the three and nine months ended September 30, 2023 and 2022:
Revenue(1):
Pursuit:
Attractions
95,820
81,330
17.8
162,850
132,927
22.5
Hospitality
84,345
75,327
12.0
131,984
118,843
11.1
5,560
6,173
(9.9
)%
10,974
11,298
(2.9
1,215
966
25.8
2,269
2,111
7.5
Total Pursuit
14.1
16.2
Segment operating income(2):
36.2
63.4
Pursuit revenue increased $23.1 million primarily due to increases in attractions revenue of $14.5 million and hospitality revenue of $9.0 million. The growth in attractions revenue was driven primarily by stronger international tourism to Western Canada and Iceland, as well as higher revenue per attraction visitor of 2.4%. The growth in hospitality revenue was driven primarily by revenue management efforts to drive stronger Revenue per Available Room (“RevPAR”) and increased guest demand in Western Canada, as well as higher ancillary revenue and an increase in room nights available of 2.7% with the addition of the Forest Park Alpine Hotel, which opened in August 2022.
Pursuit segment operating income increased $21.6 million from the prior year period primarily due to the increase in revenue, offset in part by the increase in operating costs to support higher business volume during the three months ended September 30, 2023.
Pursuit revenue increased $42.9 million primarily due to increases in attractions revenue of $29.9 million and hospitality revenue of $13.1 million. The growth in attractions revenue was driven primarily by stronger international tourism to Western Canada and Iceland, as well as higher revenue per attraction visitor of 1.8%. The growth in hospitality revenue was driven primarily by revenue management
efforts to drive stronger RevPAR and increased guest demand in Western Canada, as well as higher ancillary revenue and an increase in room nights available of 3.4% with the addition of the Forest Park Alpine Hotel, which opened in August 2022.
Pursuit segment operating income increased $28.0 million from the prior year period primarily due to the increase in revenue, offset in part by the increase in operating costs to support higher business volume during the nine months ended September 30, 2023.
Performance Measures
We use the following key business metrics to evaluate the performance of Pursuit’s attractions business:
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:
September 30, 2022
As Reported
New Experiences(1)
Same-Store(2)
AsReported
FX Impact(3)
Attractions Key Performance Indicators:
Number of visitors
1,668,203
28,623
1,639,580
1,450,559
30,879
1,419,680
15.0
15.5
Ticket revenue (in thousands)
2,265
69,476
2,465
821
57,539
17.9
20.7
Effective ticket price
43.01
79.14
42.37
41.93
79.82
40.53
2.6
4.6
Attractions revenue (in thousands)
4,325
91,495
4,582
1,127
75,621
21.0
Revenue per attraction visitor
57.44
151.10
55.80
56.07
148.38
53.27
2.4
4.8
Hospitality Key Performance Indicators:
Room nights available
202,356
10,212
192,144
197,065
7,484
189,581
2.7
1.4
Rooms revenue (in thousands)
3,281
45,393
1,152
40,736
14.7
11.4
RevPAR
240.54
321.33
236.24
215.43
153.90
214.88
11.7
9.9
Occupancy
89.6
90.6
89.5
85.3
39.5
87.1
4.3
ADR
268.49
354.60
263.85
252.62
389.38
246.79
6.3
6.9
Hospitality revenue (in thousands)
3,554
80,791
1,456
726
73,145
10.5
2,991,656
36,951
2,954,705
2,485,057
37,329
2,447,728
20.4
2,891
119,654
2,945
2,495
93,924
23.3
27.4
40.96
78.25
40.50
39.98
78.89
38.37
5.5
5,528
157,322
5,399
3,435
124,093
26.8
54.43
149.60
53.24
53.49
144.64
50.70
1.8
5.0
481,121
29,192
451,929
465,307
8,887
456,420
3.4
(1.0
5,250
73,120
1,469
66,965
12.1
9.2
162.89
179.83
161.80
150.25
165.27
146.72
8.4
10.3
75.0
68.9
75.4
71.8
43.0
72.4
3.2
3.0
217.09
261.08
214.49
209.20
384.30
202.69
3.8
5.8
5,650
126,334
1,885
1,905
115,053
9.8
Attractions. The increase in number of attractions visitors during the three and nine months ended September 30, 2023 was primarily driven by strengthening international tourism to Western Canada and Iceland. The increase in same-store effective ticket price during the three and nine months ended September 30, 2023 was driven by revenue management efforts.
Attractions ticket revenue on a same-store basis increased $11.9 million on a 15.5% increase in visitors and a 4.6% increase in effective ticket price during the three months ended September 30, 2023 and increased $25.7 million on a 20.7% increase in visitors and a 5.5% increase in effective ticket price during the nine months ended September 30, 2023.
Hospitality. The increase in room nights available during the three and nine months ended September 30, 2023 was primarily driven by the addition of the Forest Park Hotel, which opened in August 2022. The increase in RevPAR during the three and nine months ended September 30, 2023 was due to increases in ADR and occupancy primarily driven by revenue management efforts and increased guest demand in Western Canada.
During the three months ended September 30, 2023, rooms revenue on a same-store basis increased $4.7 million on a 9.9% increase in RevPAR and a 1.4% increase in room nights available. During the nine months ended September 30, 2023 rooms revenue on a same-store basis increased $6.2 million on a 10.3% increase in RevPAR and a 1.0% decrease in room nights available.
The following table presents a comparison of GES’ reported revenue and segment operating income during the three and nine months ended September 30, 2023 and 2022:
(19.6
(17.4
8.1
(18.3
4.0
Segment operating income (loss)(1):
(95.2
(36.5
**
13.8
(11.8
Spiro revenue decreased $14.4 million primarily due to negative show rotation from major non-annual shows of approximately $12 million during the three months ended September 30, 2023, and the sale of substantially all of the assets of ON Services in December of 2022, which contributed revenue of $6.7 million during the three months ended September 30, 2022, offset in part by higher revenue from existing clients and new client wins.
GES Exhibitions revenue decreased $25.8 million primarily due to negative show rotation from major non-annual shows of approximately $38 million during the three months ended September 30, 2023 and the sale of substantially all of the assets of ON Services in December of 2022, which contributed revenue of $7.1 million during the three months ended September 30, 2022, offset in part by same-show revenue growth of approximately 13.9% and higher revenue from new clients.
Spiro segment operating income decreased $3.5 million primarily due to decreased revenue.
GES Exhibitions segment operating loss was $5.5 million during the three months ended September 30, 2023 as compared to segment operating income of $2.9 million during the three months ended September 30, 2022. This decrease is primarily due to decreased revenue.
Spiro revenue decreased $5.9 million primarily due to the sale of substantially all of the assets of ON Services in December of 2022, which contributed revenue of $20.9 million during the nine months ended September 30, 2022, offset in part by new clients obtained during 2023 and positive show rotation of approximately $3 million.
GES Exhibitions revenue increased $31.8 million, primarily due to same-show revenue growth of approximately 20.6% and higher revenue from new clients, offset in part by negative show rotation of approximately $36 million and the sale of substantially all of the assets of ON Services in December of 2022, which contributed revenue of $16.9 million during the nine months ended September 30, 2022.
Spiro segment operating income decreased $6.7 million primarily due to lower revenue and the restaffing of the workforce from pandemic levels.
GES Exhibitions segment operating income increased $2.4 million, primarily due to the increase in revenue, offset in part by the restaffing of the workforce from pandemic levels.
36
Other Expenses
(5.0
21.7
55.2
97.9
0.2
(65.4
(67.6
(100.0
4.1
42.1
** Change is greater than +/- 100%
Interest Expense, net – The increase in interest expense during the three and nine months ended September 30, 2023 was primarily due to higher interest rates in 2023, and to a lesser extent to a $1.4 million reduction in capitalized interest recorded during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.
Restructuring Charges – The decrease in restructuring charges during the three and nine months ended September 30, 2023 reflects primarily our 2022 transformation and streamlining efforts at GES to significantly reduce costs and create a lower and more flexible cost structure focused on servicing our more profitable market segments.
Income Tax Expense – The effective tax rate was 15.6% for the three months ended September 30, 2023 and 17.4% for the three months ended September 30, 2022. The effective tax rate was 25.3% for the nine months ended September 30, 2023 and 23.4% for nine months ended September 30, 2022. The effective rate differed from the 21% federal rate for the three months ended September 30, 2023 and 2022 as a result of excluding the tax benefit in jurisdictions where we have a valuation allowance and the change in income or loss in those jurisdictions. The effective rate differed from the 21% federal rate for the nine months ended September 20, 2023 and 2022 also as a result of excluding tax benefits in certain jurisdictions and the mix of income or loss by jurisdiction, partially offset by the $2.1 million benefit taken in the first quarter of 2023 on certain separate U.S. state jurisdictions.
Income (Loss) from Discontinued Operations – The loss from discontinued operations during the three and nine months ended September 30, 2023 was primarily due to legal matters related to previously sold operations.
Liquidity and Capital Resources
We believe that our existing sources of liquidity will be sufficient to fund operations and projected capital outlays for at least the next 12 months and the longer term.
When assessing our current sources of liquidity, we include the following:
Unrestricted cash and cash equivalents(1)
Available capacity on Revolving Credit Facility(2)
95,039
86,670
Total available liquidity
201,307
146,389
Cash provided by operating activities, supplemented by our existing cash and cash equivalents, is our primary source of liquidity for funding our strategic business requirements. During the nine months ended September 30, 2023, net cash provided by operating activities was $116.6 million.
Our short-term and long-term funding requirements include debt obligations, capital expenditures, working capital requirements, and potential acquisitions and strategic investments as we focus on scaling Pursuit with investments in high-return unforgettable, inspiring
37
experiences through its Refresh, Build, Buy growth strategy. Our projected capital outlays can be adjusted for changes in the operating environment.
Debt Obligations
Effective July 30, 2021, we entered into the $500 million 2021 Credit Facility. The 2021 Credit Facility provides for a $400 million Term Loan B and a $100 million Revolving Credit Facility. The proceeds of the Term Loan B, net of $14.8 million in related fees, were used to repay the $327 million outstanding balance under our then $450 million revolving credit facility and to provide for financial flexibility to fund future acquisitions and growth initiatives and for general corporate purposes. On January 4, 2023, we entered into an interest rate cap agreement with an effective date of January 31, 2023. The interest rate cap manages our exposure to interest rate increases on $300 million in borrowings under the Term Loan B. Refer to Note 13 – Derivative of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for additional information.
The Revolving Credit Facility carries financial covenants. On March 28, 2023, we entered into the Second Amendment to the 2021 Credit Facility, which modified the interest coverage financial covenant. As of September 30, 2023, we were in compliance with all covenants under the Revolving Credit Facility. Refer to Note 12 – Debt and Finance Obligations of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for additional information.
On October 6, 2023, we entered into a Third Amendment to the 2021 Credit Facility, which among other things: increased the principal amount of the Revolving Credit Facility by $70 million, bringing the total amount of revolving capacity to $170 million. In connection with the amendment, we prepaid $70 million of the outstanding balance on our existing Term Loan B using $60 million from the Revolving Credit Facility and $10 million of cash from the Company’s balance sheet. The credit spread on the Term Loan B is 5.00% for SOFR borrowings, which is 200 basis points higher than the current credit spread on our Revolving Credit Facility. Refer to Note 25 – Subsequent Event of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for additional information.
Capital Expenditures
As of September 30, 2023, we have planned capital expenditures of approximately $80 million to $90 million for the next 12 months, including approximately $30 million on select growth projects, such as the development of FlyOver Chicago. We intend to continue making selective investments to advance Pursuit’s Refresh, Build, Buy growth strategy while maintaining a solid liquidity position.
Other Obligations
We have additional obligations as part of our ordinary course of business, beyond those committed for debt obligations and capital expenditures. Refer to Note 21 – Leases and Other and Note 19 – Pension and Postretirement Benefits of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for further information. The expected timing of payments of our obligations is estimated based on current information. Timing of payments and actual amounts paid may be different, depending on changes to agreed-upon amounts for certain obligations.
Cash Flows
Operating Activities
Changes in operating assets and liabilities
25,505
11,605
Net cash provided by operating activities increased $11.1 million primarily due to improved segment operating results at Pursuit.
Investing Activities
Net cash used in investing activities decreased $26.5 million primarily due to cash paid for the Glacier Raft Company acquisition in April of 2022.
Financing Activities
The change in net cash (used in) provided by financing activities of $13.3 million was primarily due to net debt payments of $5.2 million during the nine months ended September 30, 2023 compared to net debt proceeds of $8.2 million during the nine months ended September 30, 2022.
Debt and Finance Obligations
Refer to Note 12 – Debt and Finance Obligations of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for further discussion, all of which is incorporated by reference herein.
Share Repurchases
Our Board of Directors previously authorized us to repurchase shares of our common stock from time to time at prevailing market prices. Effective February 7, 2019, our Board of Directors authorized the repurchase of an additional 500,000 shares. As of September 30, 2023, 546,283 shares remained available for repurchase under all prior authorizations. In March 2020, our Board of Directors suspended our share repurchase program. The Board of Directors’ authorization does not have an expiration date.
Critical Accounting Estimates
Refer to Part II, Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2022 Form 10-K for a discussion of our critical accounting estimates.
Refer to Note 1 – Overview and Basis of Presentation of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for further information.
Non-GAAP Measure
In addition to disclosing financial results that are determined in accordance with GAAP, we also disclose segment operating income (loss) as a non-GAAP financial measure. Our use of segment operating income (loss) is supplemental to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. As not all companies use identical calculations, segment operating income (loss) may not be comparable to similarly titled measures used by other companies. We believe that our use of segment
39
operating income (loss) provides useful information to investors regarding our results of operations for trending, analyzing, and benchmarking our performance and the value of our business.
“Segment operating income (loss)” is net income (loss) attributable to Viad before income (loss) from discontinued operations, corporate activities, interest expense and interest income, income taxes, restructuring charges, impairment charges, and certain other corporate expenses and charges that are not allocated to the reportable segments, and the reduction for income (loss) attributable to noncontrolling interests. Segment operating income (loss) is used to measure the profit and performance of our operating segments to facilitate period-to-period comparisons. Refer to Note 24 – Segment Information of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for a reconciliation of segment operating income (loss) to income (loss) from continuing operations before income taxes.
We believe segment operating income (loss) is a useful operating metric as it eliminates potential variations arising from taxes, debt service costs, impairment charges, restructuring charges, the reduction of income (loss) attributable to non-controlling interests, and the effects of discontinued operations, resulting in an additional measure considered to be indicative of our ongoing operations and segment performance. Although we use segment operating income (loss) to assess the performance of our business, the use of this measure is limited because this measure does not consider material costs, expenses, and other items necessary to operate, or resulting from, our business. As segment operating income (loss) does not consider these items, net income attributable to Viad should be considered as an important measure of financial performance because it provides a more complete measure of our performance.
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. The foreign exchange risk is composed of both potential losses from the translation of foreign currency financial information and the remeasurement of foreign currency transactions. Interest rate risk is the risk that changing interest rates will adversely affect our financial position or results of operations.
Our foreign operations are primarily in Canada, the United Kingdom, Iceland, the Netherlands, United Arab Emirates, and Germany. The functional currency of our foreign subsidiaries is their local currency. Accordingly, for purposes of consolidation, we translate the assets and liabilities of our foreign subsidiaries into U.S. dollars at the foreign exchange rates in effect at the balance sheet date. The unrealized gains or losses resulting from the translation of these foreign denominated assets and liabilities are included as a component of AOCI in the Condensed Consolidated Balance Sheets. As a result, significant fluctuations in foreign exchange rates relative to the U.S. dollar may result in material changes to our net equity position reported in the Condensed Consolidated Balance Sheets. We do not currently hedge our equity risk arising from the translation of foreign denominated assets and liabilities. We recorded cumulative unrealized foreign currency translation losses in stockholders’ equity of $42.9 million as of September 30, 2023 and $43.0 million as of December 31, 2022. We recorded unrealized foreign currency translation gains in other comprehensive income (loss) of $0.1 million during the nine months ended September 30, 2023 and unrealized foreign currency translation losses of $35.0 million during the nine months ended September 30, 2022.
For purposes of consolidation, revenue, expenses, gains, and losses related to our foreign operations are translated into U.S. dollars at the average foreign exchange rates for the period. As a result, our consolidated results of operations are exposed to fluctuations in foreign exchange rates as revenue and segment operating income (loss) of our foreign operations, when translated, may vary from period to period, even when the functional currency amounts have not changed. Such fluctuations may adversely impact overall expected profitability and historical period-to-period comparisons. We do not currently hedge our earnings exposure arising from the translation of our foreign revenue and segment operating income (loss).
We are exposed to foreign exchange transaction risk, as our foreign subsidiaries have certain loans and leases denominated in currencies other than the functional currency of the respective subsidiary. As of September 30, 2023, we had long-term contractual liabilities that were denominated in nonfunctional currencies of $47.0 million. As foreign exchange rates fluctuate, these liabilities are remeasured, and the corresponding adjustment is recorded in the Condensed Consolidated Statements of Operations. As of September 30, 2023 and December 31, 2022, we did not have any outstanding foreign currency forward contracts.
On January 4, 2023, we entered into an interest rate cap agreement with an effective date of January 31, 2023 to hedge cash flows on $300 million of our Term Loan B. Refer to Note 13 – Derivative of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Form 10-Q) for further information. We are exposed to short-term and long-term interest rate risk on certain of our other debt obligations.
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 September 30, 2023. Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2023.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the three months ended September 30, 2023.
Item 1. Legal Proceedings
Refer to Note 22 – 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 2022 Form 10-K, which could materially affect our business, financial condition, or future results.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and issuer purchases of equity securities
The following table summarizes the total number of shares of our common stock that were repurchased during the three months ended September 30, 2023 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
July 1, 2023 - July 31, 2023
546,283
August 1, 2023 - August 31, 2023
September 1, 2023 - September 30, 2023
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.
Item 5. OTHER INFORMATION
Securities Trading Plans of Directors and Executive Officers
During the three months ended September 30, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item 6. Exhibits
Incorporated by Reference
Exhibit
Number
Exhibit Description
Form
Ending
Filing Date
10.1
Third Amendment, dated as of October 6, 2023, among the Company, Brewster Inc., as a co-borrower, the other loan parties party thereto, the lenders party thereto, the revolver increase lenders party thereto, the L/C issuers party thereto, the swing line lender and Bank of America, N.A., as administrative agent, which amends the Credit Agreement, dated as of July 30, 2021 (as amended by the First Amendment, dated as of March 23, 2022, and the Second Amendment, dated as of March 28, 2023), among the Company, Bank of America, N.A., as administrative agent, the swing line lender and the lenders and L/C issuers party thereto from time to time.
8-K
10/11/2023
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.
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)
November 3, 2023
By:
/s/ Leslie S. Striedel
(Date)
Leslie S. Striedel
Chief Accounting Officer and Duly Authorized Officer