Vail Resorts, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended April 30, 2017. Results are unaudited. The company operates Mountain, Lodging and Real Estate segments; results are seasonal. The October 2016 acquisition of Whistler Blackcomb materially expanded the Mountain business and affects period comparisons.
Financial performance
| Metric | Three months ended April 30, 2017 | Change vs. 2016 | Nine months ended April 30, 2017 | Change vs. 2016 |
|---|---|---|---|---|
| Total revenue | $794.6 million | +22.7% | $1,698.1 million | +19.5% |
| Income from operations | $320.1 million | +21.5% | $481.8 million | +27.9% |
| Net income attributable to Vail Resorts | $181.1 million | +14.9% | $267.7 million | +24.5% |
| Diluted EPS | $4.40 | +4.0% | $6.68 | +16.0% |
| Reported EBITDA (non-GAAP) | $387.0 million | +26.8% | $643.4 million | +28.3% |
Segment trends: Mountain revenue rose 25.9% in the quarter and 23.2% year to date; Mountain Reported EBITDA rose 31.0% and 30.4%, respectively, chiefly reflecting Whistler Blackcomb. Excluding that resort and transaction, transition and integration costs, Mountain EBITDA increased 7.9% in both periods. Lodging EBITDA fell 31.0% in the quarter and 15.2% year to date. Real Estate EBITDA was a loss of $4.9 million in the quarter and $0.5 million year to date.
Cash flow and investment: Nine-month operating cash flow was $478.3 million, versus $455.4 million. Capital expenditures were $111.8 million, versus $88.3 million. Investing activities used $609.9 million, mainly due to $512.3 million of net acquisition payments for Whistler Blackcomb. Financing activities provided $260.6 million. Cash and cash equivalents were $195.8 million at April 30, 2017, compared with $68.6 million a year earlier.
Debt and liquidity: Debt including current maturities was $1,206.6 million, versus $627.1 million a year earlier; net debt was $1,010.8 million, versus $558.5 million. Available revolver capacity was $327.0 million under the Vail Holdings facility and C$177.0 million (approximately $129.7 million) under the Whistler facility. The company reported compliance with debt covenants. Approximately 72.1% of debt was variable rate; a 100-basis-point rate increase would raise annual interest payments by about $7.8 million.
Dividends and capital spending: The company paid $2.673 per share in dividends over nine months and increased its quarterly dividend to $1.053 per share. Management estimated approximately $103 million of 2017 resort capital expenditures, excluding Whistler Blackcomb, U.S. summer activities and Whistler integration spending; it separately planned about $17 million each for Whistler maintenance/discretionary projects and integration.
Material changes, outlook and risks
- Whistler Blackcomb was acquired in October 2016 for approximately $1.09 billion in shareholder consideration. Its operations contributed $229.7 million of revenue since acquisition. Purchase accounting remained preliminary; the company cited expected synergies but cautioned that integration and benefits were uncertain.
- Early North American pass sales for the 2017/2018 season, through May 30, were up approximately 10% in units and 16% in sales dollars, including Whistler Blackcomb at comparable exchange rates. Management cautioned this trend might not continue; the filing provides no formal earnings guidance.
- Management attributed year-to-date results partly to strong pass sales, but noted poor early-season U.S. snow conditions reduced visitation. Weather, economic and travel conditions, seasonality, fixed costs, labor, public-land permits, foreign exchange and acquisition integration were identified as risks.
- Quarterly results included a $14.5 million non-cash loss from remeasuring Park City contingent consideration, whose fair value rose to $26.2 million. The increase reflected higher assumed future Park City EBITDA.
- Interest expense increased, including foreign currency losses on the Whistler intercompany loan of $9.1 million in the quarter and $3.9 million year to date. Foreign-currency translation adjustments reduced nine-month comprehensive income by $47.5 million.
- Real Estate results included a $4.3 million one-time charge for resolving a Town of Vail parking-capacity contingency. A subsequent event: Stowe Mountain Resort was acquired June 7, 2017, for approximately $41 million in cash.
- Legal matters described included a California water-quality notice and a Colorado air-quality settlement; management did not expect material effects. The company reported no material change to previously disclosed risk factors.
Key facts for investors to verify
- How much of Mountain growth and EBITDA improvement is attributable to Whistler Blackcomb versus underlying comparable-resort performance, and whether expected acquisition synergies are realized.
- Whether early 2017/2018 pass-sales growth continues and translates into visitation, ancillary spending and margins.
- Debt reduction, variable-rate exposure, covenant headroom and cash requirements for dividends, capital spending and acquisitions.
- Final Whistler Blackcomb purchase-price allocation and the effect of currency movements, contingent consideration and other unusual items on reported earnings.
- Seasonal and weather-related operating trends, including the effect of lodging occupancy and real-estate closings on results.