Vail Resorts, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and first nine months ended April 30, 2013, compared with the periods ended April 30, 2012. The company operates Mountain, Lodging and Real Estate businesses; results are seasonal, with ski operations concentrated from mid-November through mid-April. Amounts below are in U.S. dollars.
Financial performance and position
| Metric | Three months ended April 30, 2013 | Change year over year | Nine months ended April 30, 2013 | Change year over year |
|---|---|---|---|---|
| Revenue | $469.7 million | +11.5% | $1,008.5 million | +10.7% |
| Operating income | $165.3 million | +17.8% | $181.0 million | +29.1% |
| Net income attributable to Vail Resorts | $97.6 million | +22.7% | $97.6 million | +38.9% |
| Diluted earnings per share | $2.66 | vs. $2.17 | $2.66 | vs. $1.92 |
| Reported EBITDA (non-GAAP) | $199.6 million | +14.6% | $281.4 million | +18.5% |
Quarterly operating margin was approximately 35.2% (33.3% a year earlier); net income attributable to Vail Resorts was approximately 20.8% of revenue (18.9% a year earlier). Reported EBITDA is a company-defined non-GAAP measure and should not be treated as a substitute for GAAP results.
- Segments: Quarterly Mountain Reported EBITDA was $194.3 million, up 13.8%; Lodging was $8.4 million, up 22.1%; Real Estate was a $3.2 million loss, versus a $3.5 million loss. For nine months, Mountain EBITDA rose 15.3% to $280.0 million, Lodging rose to $10.8 million from $6.4 million, and Real Estate’s loss narrowed to $9.4 million from $11.7 million.
- Cash flow: Nine-month operating cash flow was $291.3 million, up from $234.0 million. Investing used $84.6 million, including $65.5 million of capital expenditures and $20.0 million for acquisitions. Financing used $15.1 million, including $20.9 million of dividends. Cash increased $191.7 million from the fiscal-year start to $237.7 million.
- Debt and liquidity: Total debt was $489.8 million, nearly unchanged from $490.9 million a year earlier. Net debt, the company’s non-GAAP measure, was $252.0 million versus $343.8 million. Cash was $237.7 million, and reported revolver availability was $333.8 million after letters of credit. Current assets were $435.1 million and current liabilities $260.0 million.
- Shareholder returns: The annualized dividend was increased to $0.83 per share, subject to quarterly declaration. The June 2013 quarterly dividend declaration was $0.2075 per share. No shares were repurchased in the nine-month period.
Material changes and management commentary
- Mountain results benefited from higher visitation, season-pass sales and ancillary spending, as well as the additions of Kirkwood, Afton Alps and Mount Brighton. Nine-month skier visits increased 13.6%; reported effective ticket price was up 0.5%. Weather was mixed: early-season conditions hurt Colorado visitation, while later-period dry and warm conditions slowed Tahoe momentum.
- Lodging revenue excluding reimbursed payroll costs increased 5.6% for the quarter and 5.4% year to date. Higher room rates and occupancy contributed; the RockResorts reorganization reduced reimbursed payroll revenue and related expense, which do not affect segment EBITDA.
- Real Estate revenue increased, but the segment remained loss-making. The company closed 20 condominium units in the first nine months; results depend materially on closing timing and unit mix. Management said remaining sales could take multiple years and noted that prolonged market weakness could require price reductions or lead to impairment.
- Management reported 2013/2014 spring pre-season pass sales through May 28 were up approximately 18% in units and 24% in sales dollars year over year, but said it could not predict whether the trend would persist or its effect on full-season revenue.
- Planned calendar-2013 capital expenditures were $130 million to $140 million, with about $13 million spent through April 30. Projects include resort improvements, summer activities and Urban Ski Area upgrades. Management expected liquidity to come from operating cash flow, cash on hand, revolver capacity and future real estate closings.
Outlook, risks and contingencies
- Canyons Resort lease: After quarter-end, the company assumed Canyons Resort operations under a 50-year lease, with six 50-year renewal options. It provides for $25 million in annual fixed payments, escalating under an inflation-linked formula with a 2% annual floor, plus contingent payments equal to 42% of resort EBITDA above an approximately $35 million threshold, subject to adjustments. The company expected to record approximately $305 million of long-term debt, including capital lease obligations. The parent guarantees the subsidiary’s lease obligations.
- The lease’s potential application to Park City Mountain Resort terrain depends on pending litigation between the current operator and Talisker. An unfavorable outcome could affect expected benefits and potentially cause impairment charges; the company said the transaction accounting was still being finalized.
- Key ongoing risks include snowfall and weather, economic and travel conditions, competition, real estate sales and valuation, government permits for operations on public lands, seasonal staffing, and successful integration of Canyons. The company also highlighted possible impairment if cash flows or economic conditions weaken.
- The IRS dispute concerns use of historical net operating losses. The company had not recorded the potential benefit; the possible reversal of related liabilities and accrued interest and penalties was estimated at zero to $27.6 million. Settlement discussions continued, and appeal and tax-court outcomes remained uncertain.
- The company reported compliance with debt covenants as of April 30, 2013 and expected to remain compliant through fiscal year-end, while noting no assurance. It had $52.6 million of variable-rate debt; a 100-basis-point LIBOR change would change annual interest payments by about $0.5 million.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. No material changes to previously disclosed risk factors were reported.
Most important facts for investors to verify
- Whether spring pass-sales growth continued through the fall campaign and translated into visitation, lift revenue and margins.
- The final accounting, debt recognition and ongoing fixed and contingent cash obligations under the Canyons lease, including the effect of the Park City Mountain Resort litigation.
- Actual capital spending versus the $130–$140 million calendar-year plan and the resulting impact on cash, revolver availability and net debt.
- The timing, pricing and remaining inventory of condominium closings, and any impairment indicators in Real Estate.
- Progress and potential financial effect of the IRS NOL litigation and related proceedings; no benefit was reflected in the reported financial statements.
- Performance against debt covenants and the sustainability of dividends amid seasonal cash flows and planned investment.