Vail Resorts, Inc. — Form 10-Q Summary
Reporting period: Three months ended October 31, 2011 (first fiscal quarter); filed December 7, 2011. Amounts below are in millions unless stated otherwise. Vail Resorts operates Mountain, Lodging and Real Estate businesses. Resort operations are highly seasonal; ski operations generally begin in mid-November, and first-quarter losses are typical.
Financial performance
| Metric | Q1 FY2012 | Q1 FY2011 | Change |
|---|---|---|---|
| Total revenue | $116.4 | $241.2 | Down 51.8% |
| Operating loss | $(84.4) | $(64.3) | Loss increased |
| Net loss attributable to Vail Resorts | $(55.7) | $(43.0) | Loss increased |
| Basic and diluted loss per share | $(1.54) | $(1.20) | — |
| Operating cash flow | $38.3 | $118.2 | Down $79.8 |
| Capital expenditures | $51.0 | $36.9 | Up $14.1 |
The sharp revenue decline principally reflects the prior-year quarter’s unusually large real estate closings, including 57 Ritz-Carlton Residences, Vail units. Resort revenue (Mountain and Lodging combined) rose 12.4% to $103.3 million. Mountain revenue increased 21.8% to $49.7 million, including Northstar-at-Tahoe; excluding Northstar, it increased 12.8%. Lodging revenue rose 4.8% to $53.6 million. Real Estate revenue fell 91.2% to $13.1 million.
Total Reported EBITDA, a company-defined non-GAAP measure, was a loss of $54.9 million versus a loss of $35.8 million. Mountain Reported EBITDA was $(48.5) million (prior year $(41.6) million); Lodging was $(1.7) million (prior year $1.5 million); Real Estate was $(4.7) million (prior year $4.2 million). Resort EBITDA was $(50.2) million versus $(40.0) million. Segment results reflect the seasonal first quarter and, for Real Estate, the timing and mix of unit closings.
Operating cash flow remained positive but fell substantially, mainly because net proceeds from real estate closings were $11.5 million versus $128.8 million in the prior-year quarter. Investing activities used $51.1 million; financing activities used $12.6 million. Cash decreased by $25.4 million to $44.7 million. Cash flow from operations less capital expenditures was negative $12.7 million.
Balance sheet, debt and liquidity
- At October 31, 2011, total assets were $1.940 billion, total debt was $491.4 million, and net debt (company-defined) was $446.7 million. Net debt was $495.4 million a year earlier.
- Cash was $44.7 million; current assets were $221.6 million and current liabilities were $337.2 million. Restricted cash of $13.6 million is reported separately.
- The company reported $332.7 million available under its $400 million revolving credit facility after $67.3 million of letters of credit. The revolver matures in 2016; new borrowings were priced at LIBOR plus 1.50%.
- Approximately $487.9 million of total debt principal was not due until fiscal 2019 or later. Variable-rate debt was $52.6 million; management estimated a 100-basis-point LIBOR change would alter annual interest expense by about $0.5 million.
- The company was in compliance with debt covenants at quarter-end and expected to remain compliant through the fiscal year ending July 31, 2012, while cautioning that covenant compliance is not assured.
Material changes, outlook and management commentary
- Mountain and Lodging revenue benefited from summer and group activity, retail sales and the Northstar-at-Tahoe acquisition. The company cited higher summer visitation and sales at pre-season retail events. Mountain operating expenses rose 18.5%; excluding Northstar-related amounts, they rose 10.4%.
- Lodging Reported EBITDA declined from $1.5 million to a loss of $1.7 million. Combined owned-hotel and managed-condominium ADR increased 6.3%, but combined RevPAR decreased 12.4%, reflecting lower occupancy.
- Real Estate recorded six unit closings in the quarter: four at The Ritz-Carlton Residences, Vail and two at One Ski Hill Place. The company reported 84 units available for sale across those projects and said sales may take multiple years. It warned that prolonged market weakness or discounted sales could lead to impairment charges.
- Through December 4, 2011, season-pass sales for the 2011/2012 ski season were up approximately 13% in sales dollars and 5% in units versus the comparable prior-year period. Management cautioned that it could not predict the effect on total lift revenue or realized ticket prices.
- Calendar-year 2011 resort capital expenditure plans were $88–$98 million excluding Northstar and an additional $28–$32 million for Northstar. Approximately $94 million had been spent through October 31, leaving an estimated $22–$36 million for the rest of calendar 2011. Planned projects included lifts, dining facilities, lodging renovations and Northstar improvements.
- The board had authorized a regular quarterly dividend with an indicated annual rate of $0.60 per share, subject to quarterly declaration. The company paid $0.15 per share in the quarter and declared another $0.15 dividend payable January 6, 2012. It also repurchased 203,377 shares for $7.9 million; 1,531,819 shares remained authorized for repurchase.
- Management identified economic and travel-industry weakness, snowfall and weather variability, real estate market and credit conditions, and potential asset impairments as significant risks. Seasonality means quarterly results are not indicative of full-year results.
Unusual items, contingencies and reporting matters
- The 2010 comparison includes $149.3 million of Real Estate revenue, principally from the 57-unit Ritz-Carlton transaction; the 2011 quarter included $13.1 million. This makes reported year-over-year consolidated revenue and earnings comparisons unusually sensitive to closing timing.
- The company revised presentation of managed-hotel payroll reimbursements to report revenue and matching expense gross. The 2010 comparison was adjusted: Lodging revenue and expense each increased by $6.7 million, with no effect on operating income or net income. The 2011 quarter included $7.7 million of such reimbursements.
- Vail Resorts won summary judgment in federal litigation over use of net operating losses, but the refund amount remains unresolved and the IRS may appeal. The company had not recognized the potential tax benefits; it disclosed a possible $0–$27.6 million benefit from reversal of related liabilities and accrued interest and penalties.
- Letters of credit included $53.4 million supporting employee housing bonds and $8.1 million supporting metropolitan-district bonds. The company also disclosed broad contractual indemnities; it had not recorded significant additional liabilities for these guarantees, and historical payments were not material.
- Management said there were no material changes to previously disclosed risk factors, no material off-balance-sheet arrangements, and no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether season-pass momentum translated into ski-season visitation, lift revenue and pricing, particularly given snowfall and consumer-demand uncertainty.
- Closings, pricing, carrying costs and potential impairment exposure for the 84 unsold Ritz-Carlton and One Ski Hill Place units.
- Cash generation and liquidity through the seasonal low period, including planned capital spending and reliance on revolver availability.
- Future covenant headroom and the effect of letters of credit and other commitments on borrowing capacity.
- Outcome and timing of the NOL tax litigation, including any appeal and the amount, if any, of tax benefit ultimately recognized.
- Comparability of reported results: the prior-year real estate closings and the gross presentation adjustment for reimbursed payroll costs materially affect year-over-year revenue comparisons.