Vail Resorts, Inc. — Form 10-Q Summary
Business context and period: Unaudited results for the fiscal third quarter and nine months ended April 30, 2015. Vail Resorts operates Mountain, Lodging and Real Estate segments. Mountain and resort lodging revenue are seasonal, with peak ski operations generally from mid-November through mid-April. The results include Park City, acquired September 11, 2014.
Financial performance
| Metric | Three months ended April 30, 2015 | Prior year | Nine months ended April 30, 2015 | Prior year |
|---|---|---|---|---|
| Revenue | $579.3 million | $543.0 million | $1,237.8 million | $1,119.2 million |
| Income from operations | $227.8 million | $203.2 million | $299.0 million | $211.8 million |
| Net income attributable to Vail Resorts | $133.4 million | $117.9 million | $184.9 million | $103.8 million |
| Diluted earnings per share | $3.56 | $3.18 | $4.95 | $2.80 |
| Reported EBITDA (non-GAAP) | $265.9 million | $238.8 million | $407.3 million | $319.8 million |
Quarterly revenue increased 6.7% and attributable net income increased 13.1% year over year. Nine-month revenue rose 10.6%; attributable net income rose 78.0%. The nine-month net income comparison benefited materially from a $23.8 million income tax benefit related to an IRS settlement. Reported EBITDA is a company-defined non-GAAP measure.
- Mountain: Revenue was $499.6 million for the quarter, up 8.5%; Mountain Reported EBITDA was $254.7 million, up 11.8%. For nine months, revenue was $1,023.0 million, up 12.5%, and EBITDA was $394.2 million, up 27.5%, including a $16.4 million noncash litigation-settlement gain.
- Lodging: Quarterly revenue was $67.3 million, up 1.6%, while EBITDA declined 3.9% to $12.6 million. Nine-month revenue increased 3.1% to $185.2 million and EBITDA increased 14.8% to $18.8 million.
- Real Estate: Quarterly revenue fell 22.9% to $12.5 million; EBITDA loss narrowed to $1.4 million. Nine-month revenue was nearly flat at $29.7 million and EBITDA loss was $5.7 million.
Cash flow and liquidity: Nine-month operating cash flow was $394.5 million, versus $306.2 million a year earlier. Investing activities used $264.8 million, including $182.5 million for Park City acquisition; capital expenditures were $85.6 million. Financing activities used $48.8 million, including $52.8 million of dividends. Cash was $125.2 million at April 30, 2015, compared with $307.4 million a year earlier. Total debt was $636.7 million and management-defined net debt was $511.5 million. Current liabilities included $257.0 million of debt classified as due within one year, chiefly notes and bonds subsequently redeemed.
Material changes and unusual items
- Park City contributed $35.4 million of quarterly and $63.8 million of nine-month revenue. Acquisition accounting remained preliminary; recorded goodwill attributable to the acquisition was $92.4 million.
- An IRS settlement completed in January 2015 permitted use of a significant portion of disputed net operating losses. The company reversed $27.7 million of uncertain-tax-benefit liabilities and recorded $23.8 million of income tax benefits; it also received a $19.1 million tax refund during the nine-month period.
- The Park City litigation settlement produced a $16.4 million noncash gain; the company also made a $10.0 million related payment to Talisker. A separate $4.5 million reduction in estimated contingent consideration was recorded as a gain.
- On May 1, 2015, the company redeemed $215.0 million of 6.50% notes and $41.2 million of industrial development bonds, funded with a new $250.0 million term loan and cash. It expects to record an $8.6 million redemption premium and $2.4 million debt-issuance-cost write-off in the fourth quarter.
- The company agreed to acquire Perisher Ski Resort in Australia for approximately AU$176 million; closing was subject to New South Wales government approval.
Outlook, risks and contingencies
- Management reported early 2015/2016 season-pass sales through May 26 up approximately 12% in units and 20% in sales dollars year over year, with comparison limitations noted in the filing; continuation of the trend was not assured.
- Planned calendar-year 2015 resort capital expenditures were approximately $110–$115 million, excluding summer activities; the company also expected approximately $17 million for Epic Discovery projects. Spending plans included major Park City/Canyons upgrades and improvements at other resorts.
- Management cited weather and snowfall, travel demand, seasonality and fixed operating costs as important risks. Unusually warm, low-snow conditions reduced Tahoe visitation, while Colorado results and pass sales were strong.
- Other key risks include successful integration and realization of expected benefits from Park City and Perisher, real-estate sales timing and pricing, potential impairment of real-estate or other assets, government permits and land-use requirements, and compliance with debt covenants.
- At April 30, the company reported $327.7 million available under its then-existing credit facility, net of letters of credit. It was in compliance with debt covenants and expected to remain compliant, while cautioning that future compliance was not assured. A 100-basis-point LIBOR change was estimated to affect annual interest expense by about $0.5 million.
- Legal proceedings in the ordinary course were disclosed; management stated known probable and estimable loss contingencies were accrued or insured and were not material. The filing reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- How much reported earnings growth reflects recurring operations versus the IRS tax benefit and noncash Park City-related gains.
- Whether season-pass sales momentum continued into the fall campaign and translated into visitation, ancillary spending and operating results.
- Final Park City purchase-price allocation, integration costs, and realized operating synergies; and approval, financing and performance of the Perisher acquisition.
- Post-redemption debt balances, borrowing availability, interest costs and covenant headroom under the amended credit agreement.
- Actual capital spending against management’s plans, and the pace and profitability of remaining condominium and land sales.
- Exposure to poor snowfall, real-estate weakness, asset impairment, and contingent payments under the Canyons lease.