Vail Resorts, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended April 30, 2018; comparisons are with the corresponding 2017 periods. The business operates Mountain, Lodging and Real Estate segments and is highly seasonal.
Financial performance
| Metric | Three months ended Apr. 30, 2018 | Year-over-year | Nine months ended Apr. 30, 2018 | Year-over-year |
|---|---|---|---|---|
| Revenue | $844.5 million | Up 6.3% | $1,799.9 million | Up 6.0% |
| Income from operations | $368.0 million | Up from $320.1 million | $521.8 million | Up from $481.8 million |
| Net income attributable to Vail Resorts | $256.3 million | Up 41.5% | $463.6 million | Up 73.2% |
| Diluted earnings per share | $6.17 | Up from $4.40 | $11.13 | Up from $6.68 |
| Total Reported EBITDA | $423.5 million | Up 9.4% | $676.7 million | Up 5.2% |
| Operating cash flow | Not separately provided for the quarter | $583.3 million | Up from $494.2 million |
Reported EBITDA margin was approximately 50.1% for the quarter, versus 48.7% a year earlier, and 37.6% year to date, versus 37.9%. Reported EBITDA is a non-GAAP measure. Quarterly Mountain Reported EBITDA rose 7.3% to $409.3 million; Lodging EBITDA fell 2.1% to $10.5 million. Year-to-date Mountain EBITDA rose 5.2%, while Lodging EBITDA declined 8.5% to $18.5 million.
Cash, debt and liquidity: At April 30, cash and cash equivalents were $181.6 million. Total debt was $1.120 billion and management-defined Net Debt was $934.9 million, down from $1.011 billion at April 30, 2017. Current assets were $519.7 million and current liabilities $497.8 million. Operating cash flow of $583.3 million less capital expenditures of $106.3 million was approximately $477.0 million; this is a simple calculation, not a company-reported free-cash-flow measure. The company reported $331.3 million available under its Vail Holdings revolver and $201.8 million available under the Whistler facility. It was in compliance with debt covenants.
Material changes and notable items
- Growth was driven principally by season-pass sales, higher pricing, and the addition of Stowe, acquired in June 2017. Mountain revenue increased 7.1% both for the quarter and year to date. Quarterly skier visits rose 6.4%; year-to-date visits rose 2.4%.
- Despite growth, western U.S. resorts experienced historically low snowfall for much of the 2017/2018 season, including the Christmas holiday period. Conditions improved later in the season.
- Net income benefited from a provisional $64.6 million net tax benefit under the Tax Cuts and Jobs Act, including an estimated $71.0 million deferred-tax remeasurement benefit offset partly by a $6.4 million transition-tax charge. The nine-month tax result also included $54.5 million of excess tax benefits from employee share awards. These items materially affect comparisons.
- Quarterly results included a $2.5 million gain from a decrease in the estimated fair value of Park City contingent consideration; the comparable 2017 quarter included a $14.5 million expense from that remeasurement.
- Interest expense increased to $46.8 million year to date from $40.4 million, reflecting acquisition-related borrowing. Foreign-currency losses on the Whistler intercompany loan were $6.5 million year to date. The company had $777.5 million of variable-rate debt; a 1 percentage-point rate change would alter annual interest expense by about $7.8 million.
- Cash used in investing fell substantially year over year, primarily because the prior-year period included the Whistler Blackcomb acquisition. Financing cash flow was a $413.9 million use, including $144.7 million of dividends, $25.8 million of share repurchases, and net debt repayments.
Outlook, risks and contingencies
- The filing provides no formal earnings guidance. Early 2018/2019 North American pass sales through May 29, excluding Military Epic products, were up approximately 12% in units and 19% in sales dollars on a constant-currency comparison. Management cautioned that the trend may not continue through the fall campaign and that the effect of prior-season snowfall on next season’s demand is uncertain.
- Management expected approximately $150 million of resort capital expenditures in calendar 2018, including about $80 million of maintenance spending, and described significant planned resort upgrades. About $19 million had been spent through April 30.
- Management expected the Tax Act to generate approximately $40 million of incremental cash flow in calendar 2018, intended for employee wages, resort investment and shareholder returns. Tax calculations remained provisional and could be adjusted within the measurement period.
- On June 4, 2018, after the reporting date, the company agreed to acquire Triple Peaks resorts for $82 million plus $155 million to pay off resort leases, and Stevens Pass for $67 million, subject to approvals and other closing conditions. Funding was expected from cash on hand and/or borrowings.
- Key risks include snowfall and weather, seasonality and high fixed costs, travel and economic conditions, labor availability and cost, foreign exchange, variable interest rates, government permits, and acquisition approvals and integration. Management reported no material change to previously disclosed risk factors. Ordinary-course lawsuits were not expected to have a material effect; Kirkwood’s approximately $0.8 million regulatory settlement penalties and agency costs were covered by insurance.
Important facts for investors to verify
- Whether early season-pass sales gains persist and translate into recognized revenue, visitation and ancillary spending.
- Snowfall, operating conditions and demand for the 2018/2019 season, particularly at western U.S. resorts.
- Final tax accounting, including the provisional deferred-tax and transition-tax amounts and the sustainability of share-award tax benefits.
- Closing conditions, permits, total funding needs and integration plans for the pending resort acquisitions.
- Capital-spending execution, dividend affordability, and exposure to interest-rate and Canadian-dollar movements.