Vail Resorts, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2018, the three months ended October 31, 2017. The unaudited results are seasonally affected: North American ski operations generally begin in November, so the first fiscal quarter typically produces a Mountain segment loss.
Financial performance
- Revenue: $220.9 million, up 23.9% from $178.3 million. Resort revenue was $220.2 million; Real Estate revenue was $0.6 million.
- Profit and loss: Operating loss widened to $103.7 million from $90.5 million. Net loss attributable to Vail Resorts improved to $28.4 million from $62.6 million; diluted loss per share was $0.71 versus $1.70.
- Tax benefit: The $93.4 million income tax benefit included $51.8 million of excess tax benefits from employee share awards, or $1.29 per diluted share. This discrete benefit materially reduced the reported net loss; the quarter’s effective tax benefit rate was 74.5%.
- Segment results: Mountain Reported EBITDA was negative $58.4 million versus negative $56.7 million; Lodging Reported EBITDA increased to $4.4 million from $3.3 million; Real Estate Reported EBITDA fell to negative $1.1 million from positive $5.1 million. Total Reported EBITDA was negative $55.1 million versus negative $48.3 million.
- Cash flow: Operating cash flow was $148.8 million versus $57.0 million. Investing cash outflow was $33.7 million versus $550.2 million, reflecting the prior-year Whistler Blackcomb acquisition. Financing cash outflow was $88.6 million versus $531.9 million of inflow. Cash increased $23.0 million to $140.4 million.
- Debt and liquidity: Total debt was $1.305 billion and net debt was $1.160 billion, down from $1.303 billion net debt a year earlier. Cash was $140.4 million. Revolver availability was $234.0 million under the Vail Holdings facility and $127.1 million under the Whistler facility. The company reported compliance with debt covenants.
- Other metrics: Dividends paid were $1.053 per share. The company had $964.7 million of variable-rate debt; a 100-basis-point rate increase would add approximately $9.6 million to annual interest expense.
Changes and drivers versus prior year
- Revenue growth reflected a full quarter of Whistler Blackcomb operations versus only the post-acquisition portion of the prior-year quarter, Stowe operations, and increased activity at Perisher and other locations. Mountain revenue rose 33.7%; total skier visits increased 16.1% and effective ticket price rose 2.4%.
- Mountain operating costs increased 23.1%, including higher labor and costs associated with Whistler Blackcomb and Stowe. Mountain EBITDA remained negative and declined 3.1%.
- Lodging revenue rose 7.0% and Lodging EBITDA rose 31.1%, primarily reflecting higher occupancy. Real Estate EBITDA declined mainly because the prior-year quarter included a $6.5 million gain on a Breckenridge land sale.
- Interest expense increased 26.8% to $15.2 million, primarily due to acquisition-related borrowings. A $7.3 million foreign-currency loss arose from remeasurement of the Whistler intercompany loan. Foreign currency translation adjustments reduced comprehensive income by $45.4 million.
Outlook, risks and unusual items
- As of December 3, 2017, North American pass sales for the upcoming season were up approximately 14% in units and 20% in sales dollars year over year, adjusted for foreign currency. Management cautioned that the ultimate effect on lift revenue and ticket price was uncertain.
- Management expected approximately $150 million of resort capital expenditures in calendar 2018, excluding Stowe integration and summer investments, funded through cash, credit facilities and operating cash flow. It anticipated continuing quarterly dividends, subject to board discretion and contractual restrictions.
- The business is seasonal and sensitive to snowfall, weather and natural disasters, travel and leisure demand, labor availability and costs, foreign exchange rates, and reliance on permits for public lands. Management also cited acquisition integration, technology, and variable interest-rate risks.
- Park City contingent consideration was recorded at $23.8 million, a Level 3 fair-value estimate sensitive to assumptions. A Kirkwood environmental settlement, if approved, involved approximately $0.8 million in penalties and agency costs, expected to be covered by insurance; remediation was to continue into 2018. Management did not expect these matters or ordinary-course litigation to materially affect results or cash flows.
- The company adopted stock-compensation tax accounting guidance in the quarter; the resulting $51.8 million tax benefit was a material unusual factor in reported earnings. Management said it expected increased tax-rate volatility under the new guidance.
Key facts for investors to verify
- How much of the reported loss improvement came from the one-time $51.8 million share-award tax benefit, and what are expected tax results without it?
- Whether pass-sales growth translates into higher full-season lift revenue, visitation and effective ticket prices.
- Whistler Blackcomb and Stowe integration costs, operating contribution and capital requirements.
- Debt levels, revolver availability, covenant headroom, foreign-currency exposure and sensitivity to interest-rate changes.
- Actual capital spending versus management’s 2018 estimate, and the sustainability of dividends amid seasonal cash flows.