Vail Resorts, Inc. — Form 10-Q summary
Reporting period: Fiscal second quarter and six months ended January 31, 2020. The company operates Mountain, Lodging and Real Estate segments; results are seasonal, with North American ski operations concentrated in the second and third fiscal quarters. Amounts below are in U.S. dollars.
Key financial results
| Metric | Three months ended Jan. 31, 2020 | Change year over year | Six months ended Jan. 31, 2020 | Change year over year |
|---|---|---|---|---|
| Total revenue | $924.6 million | +8.8% | $1,192.4 million | +11.5% |
| Net income attributable to Vail Resorts | $206.4 million | Approximately flat | $99.9 million | +1.4% |
| Diluted earnings per share | $5.04 | +$0.02 | $2.44 | +$0.05 |
| Total Reported EBITDA (non-GAAP) | $377.0 million | +$20.2 million | $299.4 million | +$16.3 million |
| Cash from operating activities | Not presented for the quarter | — | $537.7 million | +$31.5 million |
| Capital expenditures | Not presented for the quarter | — | $121.8 million | +$8.3 million |
For the quarter, Mountain revenue rose 9.0% to $845.5 million and Mountain Reported EBITDA increased 5.9% to $373.0 million. Lodging revenue rose 7.7% to $78.9 million, while Lodging Reported EBITDA fell 8.0% to $5.3 million. Real Estate revenue was $0.2 million and its Reported EBITDA loss was $1.3 million. Reported EBITDA is a non-GAAP measure and should not be treated as a substitute for net income or cash flow.
Quarterly operating income was $310.7 million versus $301.8 million. Net income was $217.0 million versus $218.0 million. Interest expense rose 24.4% to $26.1 million, primarily reflecting acquisition-related borrowing. The quarterly effective tax rate was 23.7%, compared with 22.7%.
Liquidity, debt and capital returns
- At January 31, cash and cash equivalents were $126.8 million; restricted cash was $13.7 million. Net debt, as defined by the company, was $1.754 billion, versus $1.235 billion a year earlier. Total debt outstanding was $1.867 billion; the company reported $1.881 billion of net carrying debt including current maturities.
- Available revolving capacity was $393.8 million under the Vail Holdings facility and C$264.1 million (approximately $199.6 million) under the Whistler facility. The company reported compliance with debt covenants.
- Operating cash flow was $537.7 million for the six months. Investing activities used $445.7 million, including $327.6 million for acquisitions; financing activities used $69.8 million. Cash, cash equivalents and restricted cash ended the period at $140.4 million.
- Dividends paid totaled $142.1 million, or $3.52 per share, for the six months. On March 5, 2020, the board declared a quarterly dividend of $1.76 per share. The company repurchased $21.4 million of shares during the six months, compared with $85.0 million in the prior-year period.
- Management estimated calendar 2020 resort capital expenditures of $155–$160 million, excluding specified one-time and real-estate items; the total capital plan including one-time items was estimated at $210–$215 million. These are forward-looking estimates, not guarantees.
Material changes and management commentary
- Peak Resorts was acquired on September 24, 2019. The total purchase price, including repayment of certain debt and lease obligations, was approximately $334.7 million, primarily funded with incremental term borrowing. Peak’s acquired resorts contributed to year-over-year revenue and expenses; acquisition results are included prospectively from closing. Purchase accounting remained preliminary.
- Mountain results benefited from stronger North American pass sales, the introduction of the Epic Day Pass and Peak Resorts operations. Company-reported North American pass revenue increased 17.2% for the quarter. Mountain results were partly offset by weaker results at western U.S. resorts and Whistler Blackcomb; skier visits at the latter and Stevens Pass were affected by exceptionally low early-season snowfall.
- Management said destination visitation improved during the holiday period and through January overall, but some western resorts remained below expectations. For the 2019/2020 season, management said pass revenue recognition was shifting toward the third fiscal quarter; recognized pass revenue through January was approximately $11 million lower than it would have been under the prior-year allocation.
- After the reporting date, management reported a marked negative change in performance in the week ended March 8, 2020, with destination skier visits modestly below expectations, and said the trend could continue or worsen. It cited uncertainty about the coronavirus outbreak, travel restrictions and broader economic effects. This was a subsequent-period development, not a January 31 result.
- The company adopted the new lease accounting standard on August 1, 2019, recording operating lease right-of-use assets and liabilities. Management said adoption did not materially affect reported operating results. The balance sheet is therefore not directly comparable with prior periods for these lease items.
Risks, contingencies and unusual items
- Key exposures include weather and snowfall, seasonality, travel demand and economic conditions, labor availability and cost, high fixed operating costs, reliance on government permits and public lands, acquisition integration, foreign currency movements and interest rates. Management also identified the coronavirus outbreak as a current uncertainty.
- Approximately $0.9 billion of variable-rate debt was outstanding. The filing estimated that a 100-basis-point interest-rate change would change annual interest payments by about $9.4 million. Swaps fixed the floating-rate component on $400 million of principal at an effective rate of 1.46%.
- Peak Resorts added secured notes with stated rates of 8.43%–11.61%, along with restrictive covenants and potential contingent interest. The company also had $51.5 million of EB-5 Development Notes maturing in 2021, subject to possible extension terms.
- Other disclosed exposures included $75.5 million of letters of credit, $9.6 million of surety bonds, indemnifications and minimum-revenue commitments under season-pass alliances. Ordinary-course litigation accruals were not material, and management did not expect pending or threatened claims to have a material adverse effect.
- Management cautioned that covenant compliance in future periods is not assured; a breach could require a waiver or amendment and could adversely affect liquidity. The company reported no material off-balance-sheet arrangements.
Investor verification points
- Assess the effect of the coronavirus outbreak and subsequent travel and visitation trends on the remainder of the ski season; the filing gives no quantified forecast for that impact.
- Separate organic resort performance from revenue, costs and debt added through Peak Resorts and other acquisitions; review the final purchase-price allocation and integration spending.
- Track pass sales, pass revenue recognition timing, snowfall and resort-level visitation, particularly at Whistler Blackcomb and other western resorts.
- Monitor net debt, variable-rate exposure, acquired high-rate secured notes, covenant headroom and the funding of dividends and planned capital expenditures.
- Review the non-GAAP Reported EBITDA and Net Debt definitions and reconciliations, as well as the effect of lease accounting on balance-sheet comparisons.