Business Context and Reporting Period
Vail Resorts, Inc. operates Mountain, Lodging and Real Estate businesses. This unaudited Form 10-Q covers the fiscal quarter and six months ended January 31, 2016; comparisons are with the corresponding 2015 periods. Results are seasonal, with U.S. ski operations concentrated in the second and third fiscal quarters. The company acquired Perisher in June 2015 and Wilmot Mountain in January 2016.
Financial Performance
| Metric | Three months ended Jan. 31, 2016 | Three months ended Jan. 31, 2015 | Six months ended Jan. 31, 2016 | Six months ended Jan. 31, 2015 |
|---|---|---|---|---|
| Revenue | $599.4 million | $530.2 million | $773.9 million | $658.5 million |
| Operating income | $200.1 million | $160.1 million | $113.4 million | $71.2 million |
| Net income attributable to Vail Resorts | $117.0 million | $115.8 million | $57.4 million | $51.5 million |
| Diluted EPS | $3.14 | $3.10 | $1.54 | $1.38 |
| Reported EBITDA (non-GAAP) | $241.8 million | $197.7 million | $196.4 million | $141.3 million |
Quarterly revenue rose 13.0%; six-month revenue rose 17.5%. Quarterly net income attributable to the company increased 1.1%, while six-month net income increased 11.5%. Quarterly reported EBITDA increased 22.3%; six-month reported EBITDA increased 38.9%. Management defines Reported EBITDA as a non-GAAP segment measure; it should not be treated as a substitute for GAAP earnings or cash flow.
- Mountain: Revenue was $532.9 million for the quarter, up 15.1%; Reported EBITDA was $236.6 million, up 21.8%. Skier visits increased 12.5% to 4.581 million and effective ticket price rose 6.8% to $62.80.
- Lodging: Quarterly revenue was $62.8 million, up 5.8%; Reported EBITDA was $5.5 million, up 1.1%. Combined owned-hotel and managed-condominium RevPAR increased 9.8%.
- Real Estate: Quarterly revenue declined 53.0% to $3.7 million; Reported EBITDA improved to a loss of $0.3 million from a loss of $2.0 million. Results depend on the timing and mix of property closings.
Six-month operating cash flow was $309.5 million, compared with $274.2 million. Investing activities used $93.5 million, including $20.2 million for Wilmot and $77.2 million in capital expenditures. Financing activities used $205.2 million, including $45.2 million of dividends and $40.0 million of share repurchases. Cash and cash equivalents were $45.4 million at January 31, 2016.
Total debt was $695.5 million, versus $635.9 million a year earlier; net debt, as defined by the company, was $650.2 million versus $599.4 million. The company reported $262.9 million available under its $400 million revolver, after borrowings and specified letters of credit. It was in compliance with debt covenants at quarter-end. Variable-rate debt was $364.0 million; management estimated a 100-basis-point LIBOR increase would raise annual interest expense by about $3.6 million.
Material Changes and Management Commentary
- Mountain performance benefited from stronger U.S. season-pass sales, improved Tahoe snow and visitation, and better Colorado and Park City results. Pass revenue rose 21.1% for the quarter. Management attributed weaker international visitation in part to the strong U.S. dollar.
- Perisher added revenue and expenses, including off-season fixed costs during the quarter. Its acquired asset valuations remain preliminary. Wilmot was acquired for $20.2 million in cash during January.
- Quarterly interest expense fell to $10.9 million from $13.8 million, and six-month expense fell to $21.5 million from $27.4 million, primarily following redemption of the company’s 6.50% notes and industrial development bonds in May 2015.
- The six-month 2015 comparison included a $16.4 million noncash Park City litigation-settlement gain and a $23.8 million tax benefit from an IRS settlement concerning net operating losses. Neither benefit recurred in the current six-month period. The 2016 quarter’s effective tax rate was 38.2%, compared with 21.0% a year earlier.
- The Board declared a quarterly dividend of $0.81 per share on March 9, 2016, about 30% above the prior rate. Management anticipated approximately $100 million of 2016 resort capital expenditures, plus about $14 million for Epic Discovery summer activities and $13 million for Wilmot improvements. No specific full-year earnings guidance is provided in the supplied filing text.
Outlook, Risks and Contingencies
Management expected operating cash flows, revolver capacity and real-estate proceeds to support near-term liquidity and planned investment, but noted that covenant compliance and liquidity depend on future results. Key risks include snowfall and weather, economic and travel conditions, seasonality and the business’s high fixed-cost structure, foreign-exchange movements, labor availability and costs, public-land permits, competition, acquisition integration and potential asset impairment. The filing reports ordinary-course legal matters with no material accrued loss contingencies. Letters of credit include $53.4 million supporting employee housing bonds; additional letters of credit and indemnities may expose the company to contingent obligations.
Important Facts for Investors to Verify
- Whether skier visitation, pass sales and pricing remain strong through the rest of the U.S. ski season, and how weather and currency trends affect international demand.
- How Perisher and Wilmot contribute after acquisition costs, integration and seasonal effects; whether Perisher’s preliminary purchase-price allocation changes.
- Whether cash generation supports planned capital spending, the increased dividend and any further repurchases while maintaining covenant headroom.
- Debt maturity and interest-rate exposure, including the Canyons lease’s contingent-payment terms and employee-housing letters of credit.
- Timing and proceeds from remaining real-estate inventory sales, which can materially affect segment results and cash flows.