Vail Resorts, Inc. — Form 10-Q Summary
Reporting period: First fiscal quarter ended October 31, 2014, compared with the three months ended October 31, 2013, unless otherwise noted. Vail Resorts operates Mountain, Lodging, and Real Estate businesses. The quarter is seasonally weak: most ski operations begin in mid-November, and mountain revenue is concentrated in the second and third fiscal quarters.
Financial performance and liquidity
| Metric | Three months ended Oct. 31, 2014 | Prior-year period | Change |
|---|---|---|---|
| Total revenue | $128.3 million | $123.4 million | Up 4.0% |
| Loss from operations | $88.8 million | $102.1 million | Loss narrowed |
| Net loss attributable to Vail Resorts | $64.3 million; $1.77 per diluted share | $73.4 million; $2.04 per diluted share | Loss narrowed |
| Operating cash flow | $24.5 million | $16.3 million | Up $8.1 million |
| Capital expenditures | $27.8 million | $33.8 million | Down $6.0 million |
| Cash and cash equivalents, Oct. 31 | $29.8 million | $114.2 million | Down $84.4 million |
| Total debt, Oct. 31 | $820.3 million | $798.1 million | Up $22.2 million |
| Net debt, Oct. 31 | $790.4 million | $683.8 million | Up $106.6 million |
Reported EBITDA, a company-defined non-GAAP measure, was a loss of $56.3 million, versus a loss of $66.9 million. Mountain Reported EBITDA improved to a loss of $54.8 million from a loss of $66.8 million, including a $16.4 million litigation-settlement gain. Lodging Reported EBITDA rose to $0.7 million from $0.3 million. Real Estate Reported EBITDA declined to a loss of $2.2 million from a loss of $0.4 million. The filing does not present consolidated gross or operating margins as a headline metric; the seasonally weak quarter and non-GAAP segment measure limit direct margin comparisons.
At October 31, cash was $29.8 million and unused availability under the $400 million credit facility was $150.2 million, after $183.0 million of borrowings and $66.8 million of letters of credit. Current assets were $232.0 million against current liabilities of $422.9 million. Debt maturities are concentrated in 2019 and thereafter; $818.7 million of total debt was not due until fiscal 2019 or later. The company reported compliance with its debt covenants.
Changes and notable items
- Revenue increased in Mountain, Lodging, and Real Estate. Lodging benefited partly from improved summer visitation and the prior-year government shutdown’s adverse effect on Grand Teton Lodge Company operations.
- Park City resort operations were acquired on September 11, 2014, for a stated cash purchase price of $182.5 million, funded with credit-facility borrowings. The preliminary purchase-price allocation included $78.9 million of goodwill; the company said valuations remained subject to change. Park City contributed $0.8 million of revenue during the reported quarter.
- The Park City litigation was settled in connection with the acquisition. The company recorded a $16.4 million non-cash gain and made a $10.0 million payment to Talisker. It also recorded a $4.5 million gain from a decrease in the estimated fair value of contingent payments under the Canyons lease; the remaining liability was $6.0 million.
- Interest expense fell to $13.6 million from $16.1 million, primarily following the July 2014 redemption of $175 million of 6.50% notes, partly offset by acquisition-related revolver interest.
- Dividends paid were $0.415 per share, versus $0.2075 a year earlier. The board declared another $0.415 quarterly dividend, payable January 12, 2015.
Outlook, risks, and contingencies
- Management reported season-pass sales through December 4, 2014, up approximately 13% in units and 16% in sales dollars year over year, including Park City in both comparison periods. It cautioned that the ultimate effect on total lift revenue and realized ticket prices was uncertain.
- Management expected resort operating cash flow, particularly in the second and third fiscal quarters, available credit, and proceeds from remaining real-estate closings to support liquidity. No earnings or revenue guidance was provided in the supplied filing text.
- Planned resort capital expenditures were approximately $85–$95 million for calendar 2014 and $110–$115 million for calendar 2015. The 2015 plan included approximately $50 million for Park City and Canyons, including a gondola connection and other resort upgrades.
- Key exposures include weather and snowfall, seasonality and high fixed costs, travel demand, competition, labor availability and costs, integration and realization of expected Park City/Canyons benefits, real-estate closing timing and pricing, impairment risk, reliance on permits and public lands, and interest-rate changes. A 100-basis-point change in LIBOR would change annual interest payments by approximately $2.4 million, based on variable-rate debt outstanding.
- The company had unresolved IRS litigation over the use of historical net operating losses. It had not recognized the potential benefit; possible reversal of related liabilities and accrued interest and penalties was estimated at $0–$27.6 million. Other disclosed lawsuits and guarantees were not reported as material accrued contingencies.
Important facts for investors to verify
- Whether the Park City acquisition’s preliminary asset and liability valuations, integration costs, and expected operating benefits ultimately change materially.
- How much of the reported improvement in Mountain results reflects recurring operations versus the $16.4 million settlement gain and $4.5 million contingent-consideration gain.
- Season-pass sales, snowfall, resort visitation, and the resulting full-season revenue and cash flow, given the company’s strong seasonality.
- Execution and funding of the 2015 capital plan, debt and covenant headroom, and the effect of variable interest rates.
- Real-estate unit sales, closing timing and prices, and the outcome of the IRS NOL proceedings, including whether any tax benefit is ultimately realized.