Vail Resorts, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended April 30, 2014. Unaudited results; amounts below are in U.S. dollars. Vail operates Mountain, Lodging and Real Estate businesses, with ski operations concentrated from mid-November to mid-April.
Financial performance
| Metric | Three months ended April 30, 2014 | Change vs. 2013 | Nine months ended April 30, 2014 | Change vs. 2013 |
|---|---|---|---|---|
| Revenue | $543.0 million | +15.6% | $1,119.2 million | +11.0% |
| Operating income | $203.2 million | +22.9% | $211.8 million | +17.0% |
| Net income attributable to Vail Resorts | $117.9 million | +20.8% | $103.8 million | +6.4% |
| Diluted EPS | $3.18 | +$0.52 | $2.80 | +$0.14 |
| Reported EBITDA (non-GAAP) | $238.8 million | +19.6% | $319.8 million | +13.7% |
- Quarterly segment results: Mountain Reported EBITDA was $228.0 million (+17.3%); Lodging was $13.1 million (+56.3%); Real Estate was a loss of $2.3 million, improved from a $3.2 million loss.
- Mountain drivers: Quarterly skier visits rose 11.2% and effective ticket price increased 5.3%. Strong Colorado performance, pass sales and Canyons contributed; Tahoe results remained weaker. Nine-month Tahoe skier visits fell 16.2%, reflecting very poor early-season snowfall.
- Lodging: Quarterly revenue excluding payroll reimbursements grew 24.6%, including $6.7 million from Canyons; RevPAR for owned hotels and managed condominiums combined increased 14.5%.
- Real Estate: Nine-month revenue fell 25.2% to $29.9 million, reflecting the timing and mix of condominium closings. Quarterly revenue increased 16.8% to $16.2 million.
- Cash flow: Nine-month operating cash flow was $306.2 million, up from $291.3 million. Capital expenditures were $108.1 million; investing cash outflow was $107.2 million, and dividends paid were $30.0 million. Cash increased $168.8 million to $307.4 million.
- Margins: Third-quarter operating margin was approximately 37.4%, versus 35.2% a year earlier; attributable net margin was approximately 21.7%, versus 20.8%. Nine-month attributable net margin was approximately 9.3%, versus 9.7%.
Financial position and material changes
- At April 30, 2014, total debt was $800.1 million and cash was $307.4 million, producing reported Net Debt of $492.7 million, compared with $252.0 million a year earlier. The increase principally reflects the Canyons transaction and its lease obligation.
- Current assets were $519.4 million and current liabilities $304.7 million (approximately 1.7x current ratio). The company reported $333.3 million of available revolver capacity after letters of credit.
- The March 2014 amended credit agreement extended the $400 million revolving facility to March 2019 and reduced pricing; no revolver borrowings were outstanding at quarter-end. Vail reported compliance with its debt covenants.
- Interest expense increased to $16.4 million for the quarter and $48.7 million for nine months, chiefly due to the Canyons obligation. Most debt principal is not due until fiscal 2019 or later.
- Quarterly dividends were $0.415 per share; the board declared another $0.415 dividend payable July 8, 2014. No shares were repurchased during the period.
Outlook, commentary and risks
- No formal full-year earnings guidance is provided. Management estimated 2014 calendar-year resort capital expenditures of $85–$95 million, including $48–$53 million of maintenance spending.
- Through May 27, 2014, spring presales for the 2014/2015 season were up approximately 14% in units and 20% in sales dollars year over year. Management cautioned that this trend may not continue through the fall campaign or determine full-season lift revenue.
- On June 5, 2014, after quarter-end, Vail gave notice to redeem $175 million of its 6.50% notes on July 7. It expected to use cash on hand and incur an estimated $8.5 million redemption premium plus approximately $2.3 million of debt-cost write-off in fiscal 2014; $215 million of notes would remain.
- The Canyons lease has a 50-year initial term, $25 million annual fixed payments escalating by an inflation-linked measure with a 2% floor, and contingent payments of 42% of resort EBITDA above an approximately $35 million threshold. The associated recorded obligation was approximately $310.5 million.
- A May 21, 2014 court ruling found the PCMR operator’s leases had expired, potentially bringing ski terrain under Vail’s Canyons lease without additional consideration. The ruling is subject to appeal; remaining litigation includes a claim for approximately $7 million and the outcome is uncertain. An adverse outcome could affect Canyons’ expected benefits and asset values.
- Other key exposures include weather and snowfall, economic conditions and travel demand, real-estate sales timing/pricing and possible impairment, seasonal labor, reliance on public-land permits, interest rates, and pending IRS disputes over net operating losses. Vail had not recognized the potential tax benefits; possible liability reversals were estimated at zero to $27.6 million.
Important facts for investors to verify
- Whether 2014/2015 season-pass presales remain strong through the fall and translate into resort visitation and spending.
- The appeal and remaining claims in the PCMR litigation, and the resulting Canyons economics and impairment exposure.
- Completion and cash funding of the $175 million note redemption, including the expected premium and debt-extinguishment charge.
- Real-estate closing volumes, realized prices and inventory carrying/impairment risks.
- Capital spending, cash generation, revolver availability and ongoing compliance with credit-facility covenants.
- Resolution of the IRS NOL disputes and any realized tax benefit.