Vail Resorts, Inc. — Form 10-Q Summary
Reporting period: Three months ended October 31, 2016 (fiscal 2017 first quarter). Unaudited results; amounts below are in U.S. dollars. The quarter is seasonally weak because most North American ski operations begin in November.
Financial performance
| Metric | Q1 FY2017 | Q1 FY2016 | Change |
|---|---|---|---|
| Net revenue | $178.3 million | $174.6 million | Up 2.1% |
| Operating loss | $90.5 million | $86.7 million | Loss widened |
| Net loss attributable to Vail Resorts | $62.6 million | $59.6 million | Loss widened |
| Basic and diluted loss per share | $1.70 | $1.63 | Loss per share increased |
| Total Reported EBITDA | $(48.3) million | $(45.4) million | Loss widened |
| Operating cash flow | $45.5 million | $74.6 million | Down $29.1 million |
| Capital expenditures | $46.0 million | $25.1 million | Up $21.0 million |
Mountain revenue rose 9.7% to $110.8 million, while Mountain Reported EBITDA loss widened to $56.7 million from $49.4 million. Lodging revenue increased 4.8% to $67.4 million and Lodging Reported EBITDA rose 16.6% to $3.3 million. Real estate revenue fell to $0.1 million from $9.3 million, but Real Estate Reported EBITDA increased to $5.1 million, primarily because of a $6.5 million gain on a land sale.
Cash and cash equivalents were $106.8 million at October 31, 2016. Total debt was $1,414.8 million and net debt was $1,303.4 million, compared with $828.1 million and $788.5 million, respectively, a year earlier. The company reported $191.2 million available on its Vail Holdings revolver and $81.2 million equivalent available on the Whistler revolver. Variable-rate debt was $1,079.7 million; management estimated a 100-basis-point rate increase would raise annual interest expense by approximately $9.9 million.
Material changes and business context
On October 17, 2016, Vail Resorts completed its acquisition of Whistler Blackcomb for approximately $1.09 billion in cash and shares, including the estimated value of a 25% noncontrolling interest. The company acquired a 75% interest in the operating partnerships. Preliminary purchase accounting recorded $964.6 million of goodwill. Whistler Blackcomb contributed $0.6 million of revenue after closing and an EBITDA loss of $2.6 million; acquisition transaction and integration costs also weighed on Mountain results. The purchase price allocation remains preliminary.
The acquisition was funded in part with $509.4 million of incremental term loans. Debt also includes $142.1 million drawn under Whistler’s credit facility. Interest expense increased to $12.0 million from $10.6 million. The company’s quarterly dividend was $0.81 per share, versus $0.6225 in the prior-year quarter; no shares were repurchased during the period.
Operating cash flow fell despite higher revenue, primarily due to weaker Mountain results, higher estimated tax payments, and no real estate development closings (versus $8.8 million of net proceeds in the prior-year period). Investing cash use rose to $550.2 million, largely due to the $512.3 million net cash acquisition outlay. Financing provided $543.4 million, principally from borrowing.
Outlook, risks and contingencies
- Season pass trends: Through December 4, 2016, North American season pass sales, excluding Whistler Blackcomb and Epic Australia in both periods, were up approximately 16% in units and 20% in sales dollars year over year. Management cautioned that the ultimate effect on lift revenue and effective ticket price was uncertain.
- Capital spending: Management estimated 2016 calendar-year resort capital spending of $95–$100 million, excluding summer activities, Wilmot’s one-time transformation, and Whistler Blackcomb investments. It expected approximately $103 million in 2017 resort capital spending, excluding summer activities, Whistler Blackcomb and integration capital; Whistler’s annual investment was estimated at C$25 million.
- Acquisition execution: Expected Whistler Blackcomb growth and cost synergies are uncertain; integration expenses may exceed estimates. Currency translation, particularly Canadian-dollar movements, may affect results.
- Business risks: Snowfall and weather, seasonality, economic conditions and travel spending, competition, labor costs and availability, dependence on permits and public lands, interest rates, and foreign exchange could affect performance. Real estate results depend on the timing and mix of closings.
- Liquidity and covenants: The company said it was in compliance with debt covenants at October 31 and expected to remain compliant through fiscal 2017, while noting there is no assurance. Failure to comply could require a waiver or amendment and adversely affect liquidity.
- Contingencies: The filing describes environmental and permitting matters at Kirkwood and the Colorado resorts, expected to continue into 2017, but management did not expect them to materially affect results or cash flows. Ordinary-course litigation accruals were not material.
No specific full-year earnings or revenue guidance is provided in the filing. Management stated that operating cash flows, available credit and capital-spending flexibility were expected to support liquidity needs.
Investor verification priorities
- Track Whistler Blackcomb integration, actual synergies and final purchase-price allocation against the preliminary estimates.
- Monitor debt, revolver availability, interest-rate exposure and compliance with financial covenants following the acquisition.
- Compare season-pass sales trends with realized lift revenue, skier visits and effective ticket price as the ski season progresses.
- Assess whether planned capital spending and dividends remain supported by operating cash flow, particularly given the seasonal cash-flow pattern.
- Review the effect of currency movements, weather, and the timing of real estate sales on reported results.