Vail Resorts, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended January 31, 2014. Financial statements are unaudited. Vail Resorts operates Mountain, Lodging and Real Estate businesses; its ski operations are seasonal, with peak operations generally mid-November through mid-April. Amounts below are in millions unless otherwise stated.
Financial performance
| Metric | Three months ended Jan. 31, 2014 | Prior-year quarter | Six months ended Jan. 31, 2014 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $452.7 | $422.5 | $576.1 | $538.8 |
| Income (loss) from operations | $110.7 | $106.0 | $8.6 | $15.7 |
| Net income (loss) attributable to Vail Resorts | $59.3 | $60.6 | $(14.1) | $(0.03) |
| Diluted EPS | $1.60 | $1.65 | $(0.39) | $0.00 |
| Reported EBITDA (non-GAAP) | $148.0 | $140.0 | $81.0 | $81.8 |
| Operating cash flow | Not presented separately | Not presented separately | $174.6 | $175.6 |
- Quarterly revenue increased 7.2%; operating income rose 4.5%, while attributable net income fell 2.1%. Quarterly Reported EBITDA was up about 5.7%.
- For the six-month period, revenue grew 6.9%, but operating income declined and the net loss widened. The first half includes the seasonally weaker period before peak ski operations; results for interim periods are not indicative of full-year results.
- Quarterly Mountain revenue rose 8.3% to $391.7, with Mountain Reported EBITDA up 5.2% to $148.2. Skier visits increased 9.1% and effective ticket price increased 2.0%. Lodging revenue rose 20.7% to $56.2 and Lodging Reported EBITDA increased to $2.9 from $1.7. Real Estate revenue declined 65.6% to $4.9; its EBITDA loss widened to $3.1 from $2.6.
- Six-month Mountain Reported EBITDA fell 5.0% to $81.3 despite higher revenue; Lodging EBITDA rose to $3.2 from $2.4, and the Real Estate EBITDA loss narrowed to $3.5 from $6.3.
Cash, debt and liquidity
- At January 31, 2014, cash and cash equivalents were $205.3, total debt was $799.3, and reported Net Debt (a non-GAAP measure) was $594.0, versus $353.7 a year earlier. The increase principally reflects the Canyons transaction.
- Current assets were $402.9 and current liabilities $409.7. The company also reported $333.3 available under its $400.0 million revolving credit facility, after letters of credit.
- Six-month operating cash flow was $174.6; capital expenditures were $93.8, leaving approximately $80.9 after capital expenditures. Investing activities used $93.6 and financing activities used $14.4. Cash increased $66.7 during the period.
- Approximately $797.0 of total debt was due in fiscal 2019 or later. Variable-rate debt was $52.6; management estimated a 100-basis-point LIBOR change would alter annual interest expense by about $0.5.
- The company reported compliance with its debt covenants at January 31, 2014 and expected to meet maintenance covenants through fiscal 2014, while cautioning that future compliance is not assured.
Material changes and management commentary
- Growth in the quarter reflected strong season-pass sales, improved Colorado resort visitation and the addition of Canyons. Season-pass revenue increased $13.7, or 18.0%, year over year. Deferred season-pass revenue was $89.4 at January 31, expected to be mostly recognized in the third fiscal quarter.
- Tahoe resorts faced poor snowfall: cumulative snowfall was down 73% year over year through January 31, and skier visits declined 27.7%. Improved Colorado results and Canyons partly offset the Tahoe weakness.
- The May 2013 Canyons lease contributed revenue but also increased costs and interest expense. The lease has a 50-year initial term, annual fixed payments beginning at $25 million with annual increases subject to a 2% floor, and contingent payments tied to resort EBITDA. The recorded Canyons obligation was about $309.1.
- Management expected calendar-year 2014 resort capital expenditures of $85–$95, including $48–$53 of maintenance spending. No full-year earnings guidance is provided in the supplied filing text.
- On March 10, 2014, the board declared a quarterly dividend of $0.415 per share, described as a 100% increase, payable April 16 to holders of record April 1. Dividends are subject to board discretion and financing restrictions.
- Management cited uncertain economic and travel demand, weather and snowfall, seasonal labor availability, real-estate market conditions, and the timing of condominium closings as important business sensitivities. Remaining units at The Ritz-Carlton Residences, Vail and One Ski Hill Place may take multiple years to sell; extended market weakness could require price reductions or impairments.
Risks, contingencies and unusual items
- Park City Mountain Resort litigation: The Canyons transaction includes rights tied to litigation over leases covering ski terrain at PCMR. Outcomes could benefit the company or delay access; management said an unfavorable result could cause impairment of goodwill, intangible or other assets. The related Canyons purchase-price allocation remained preliminary.
- Tax litigation: The company’s dispute with the IRS over net operating loss utilization remained unresolved, with settlement discussions ongoing. No potential NOL benefits were recorded; the company disclosed a possible $0–$27.6 benefit from reversal of related long-term liabilities and accrued interest and penalties.
- Guarantees and legal matters: Letters of credit included $53.4 supporting employee housing bonds and $8.1 supporting metropolitan-district bonds. Management said known legal loss accruals were not material; indemnification obligations can be unlimited, although historical payments were not material.
- Interest expense increased $7.7 for the quarter and $15.4 for the six months, primarily due to the Canyons obligation. The six-month cash-flow comparison also reflects a non-material correction to presentation of accrued property, plant and equipment purchases; it did not change net cash movement.
- The filing identifies no material change in previously disclosed risk factors and reports effective disclosure controls. Management’s forward-looking statements are subject to risks including weather, economic conditions, litigation, real-estate markets, financing, permits, and Canyons integration and lease costs.
Important facts for investors to verify
- Track snowfall, skier visits and season-pass revenue through the remainder of the 2013/2014 ski season, particularly Tahoe performance and the realization of deferred pass revenue.
- Review developments and rulings in the PCMR litigation, including any effects on Canyons’ operations, lease rights or recorded asset values.
- Assess Canyons’ operating contribution against its fixed and contingent lease payments, financing-related interest expense, and integration costs.
- Monitor cash generation, capital spending, revolver availability and covenant headroom as debt and dividend commitments remain material.
- Verify condominium sales pace, realized prices and potential impairment exposure, as well as the status and financial impact of the IRS NOL dispute.