Vail Resorts, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended January 31, 2017. Figures are unaudited. The company operates Mountain, Lodging and Real Estate businesses; results are highly seasonal, with North American ski operations concentrated in the second and third fiscal quarters.
Financial and operating performance
| Metric | Three months ended Jan. 31, 2017 | Six months ended Jan. 31, 2017 |
|---|---|---|
| Total revenue | $725.2 million, up 21.0% year over year | $903.5 million, up 16.7% |
| Income from operations | $252.3 million, versus $200.1 million | $161.8 million, versus $113.4 million |
| Net income attributable to Vail Resorts | $149.2 million, versus $117.0 million | $86.6 million, versus $57.4 million |
| Diluted EPS | $3.63, versus $3.14 | $2.19, versus $1.54 |
| Reported EBITDA (company-defined, non-GAAP) | $304.6 million, versus $241.8 million | $256.3 million, versus $196.4 million |
| Cash from operating activities | $316.9 million for the six months, versus $309.5 million | |
| Capital expenditures | $93.4 million for the six months, versus $77.2 million |
Mountain revenue rose 22.7% and Mountain Reported EBITDA rose 26.4% in the quarter. Including Whistler Blackcomb and related transaction, transition and integration costs, Mountain EBITDA growth was 26.4%; excluding those effects, management reported growth of 6.6%. Quarterly skier visits increased 15.7% and effective ticket price increased 7.7%. Lodging EBITDA rose 12.8%. Real Estate EBITDA was a loss of $0.6 million for the quarter; six-month EBITDA increased to $4.5 million, substantially reflecting a land-sale gain.
At January 31, 2017, cash and cash equivalents were $140.9 million and total debt, including current maturities, was $1.255 billion. Company-defined net debt was $1.114 billion, up from $648.0 million a year earlier, primarily reflecting the Whistler Blackcomb acquisition. The current ratio was approximately 0.59, based on current assets of $373.7 million and current liabilities of $630.8 million. Available revolver capacity was $326.4 million under the Vail Holdings facility and C$129.4 million under the Whistler facility. The company reported compliance with its debt covenants.
Material changes and significant transactions
- Vail acquired Whistler Blackcomb on October 17, 2016, for approximately $1.09 billion paid to shareholders, comprising cash and shares. The preliminary total acquisition valuation, including the estimated noncontrolling interest and previously held investment, was $1.274 billion. Whistler Blackcomb contributed $105.5 million of revenue from the acquisition date through January 31.
- The acquisition increased goodwill by approximately $956.1 million and added acquisition-related debt. The purchase-price allocation remained preliminary and subject to revision. Vail owns 75% of the operating partnerships; Nippon Cable holds the remaining 25%.
- Operating results benefited from strong season-pass sales and the acquired resort, but U.S. resorts experienced weak early-season snowfall and lower early-season visitation. Conditions had returned to or exceeded historical snowfall levels by January 31, though future conditions were uncertain.
- On February 17, 2017, the company agreed to acquire Stowe Mountain Resort for $50 million in cash, subject to adjustments and Vermont administrative review. This was a subsequent event, not part of the reported-period results.
Outlook, risks and other notable items
- No specific earnings or revenue guidance was provided. Management expected Mountain and Lodging cash generation to remain a significant funding source, while emphasizing uncertainty around snowfall, visitation, travel spending and acquisition integration.
- Management anticipated approximately $103 million of resort capital expenditures for calendar 2017, excluding Whistler Blackcomb, U.S. summer activities and one-time Whistler integration spending. Separately, it planned approximately $17 million for Whistler maintenance and discretionary projects and $17 million for integration, plus approximately $6 million for Epic Discovery summer activities.
- The board declared a quarterly dividend of $1.053 per share on March 9, 2017, a 30% increase, payable April 13, 2017. Future dividends remain subject to board discretion, cash needs and credit-agreement restrictions.
- Approximately 73.3% of debt was variable-rate. Management estimated that a 100-basis-point rate increase would raise annual interest payments by about $8.3 million. Currency movements, especially the Canadian and Australian dollars, also affect reported results.
- Key risks include weather and natural disasters, seasonality and fixed costs, economic and travel conditions, competition, labor availability and costs, reliance on permits and public lands, integration of acquired businesses, foreign-exchange movements and debt-covenant compliance.
- The filing reported ordinary-course legal matters and environmental or regulatory proceedings involving Kirkwood and Colorado resorts; management did not expect these matters to have a material effect. Disclosure controls were deemed effective; integration-related internal-control work following the Whistler acquisition was ongoing.
Most important facts for investors to verify
- How much of reported growth reflects Whistler Blackcomb versus underlying resort performance, and whether anticipated synergies are realized.
- Whether snowfall, skier visits, pass sales and deferred pass revenue support results through the remainder of the ski season.
- Debt levels, variable-rate exposure, available borrowing capacity and compliance with credit-agreement covenants, particularly after the Stowe transaction.
- Final Whistler Blackcomb purchase accounting, including goodwill and acquired asset valuations, and the effect of foreign exchange on results.
- Execution and cost of the disclosed capital and integration plans, and the sustainability of the increased dividend.