Vail Resorts, Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended July 31, 2017. This is an annual report, not a filing limited to the fourth quarter; fourth-quarter results are noted separately below. Amounts are U.S. dollars unless stated otherwise.
Business context
Vail Resorts operates Mountain, Lodging and Real Estate segments, which contributed approximately 85%, 14% and 1% of FY2017 net revenue, respectively. Its portfolio included 11 mountain resorts and three urban ski areas. The fiscal year included Whistler Blackcomb, acquired in October 2016, and Stowe, acquired in June 2017; accordingly, year-over-year comparisons are affected by acquisitions and the timing of consolidation.
Key financial and operating metrics
| Metric | FY2017 | FY2016 | Change |
|---|---|---|---|
| Total net revenue | $1,907.2 million | $1,601.3 million | +19.1% |
| Net income attributable to Vail Resorts, Inc. | $210.6 million | $149.8 million | +40.6% |
| Diluted earnings per share | $5.22 | $4.01 | +30.2% |
| Total Reported EBITDA | $593.0 million | $455.4 million | +30.2% |
| Net cash from operating activities | $456.9 million | $426.8 million | +7.1% |
| Cash and cash equivalents at year-end | $117.4 million | $67.9 million | +$49.5 million |
| Total debt, including current maturities | $1,272.4 million | $700.3 million | +$572.2 million |
| Net debt | $1,155.0 million | $632.4 million | +$522.7 million |
Reported EBITDA is a company-defined, non-GAAP measure and should not be treated as a substitute for net income or cash flow. Cash used in investing was $682.8 million, including $553.2 million of net cash payments for acquisitions; capital expenditures were $144.4 million. Cash provided by financing was $271.9 million.
- Mountain: Revenue was $1,611.8 million, up 23.5%; Reported EBITDA was $566.3 million, up 33.4%. Skier visits increased 20.1% to 12.047 million and effective ticket price increased 3.6% to $67.93. Season-pass products generated about 43% of lift revenue.
- Acquisition-adjusted Mountain comparison: Excluding Whistler Blackcomb and Stowe operations and acquisition/integration expenses, Mountain Reported EBITDA increased 9.1%, according to management.
- Lodging: Revenue was $278.5 million, up 1.4%; Reported EBITDA declined 3.8% to $27.1 million. Excluding Whistler Blackcomb, the Keystone hotel sale’s effects and the prior-year Half Moon termination fee, EBITDA increased 9.2%.
- Real Estate: Revenue was $16.9 million, down 23.5%; Reported EBITDA was a loss of $0.4 million versus income of $2.8 million. Results depend on the timing and mix of property closings.
- Fourth quarter: Revenue was $209.1 million versus $179.9 million; net loss attributable to Vail Resorts was $57.1 million versus $65.3 million.
Material changes and management commentary
- Whistler Blackcomb contributed $257.8 million of revenue and $65.6 million of earnings from its October 2016 acquisition through fiscal year-end. Stowe was acquired for $40.9 million in June 2017. Management expects both acquisitions to contribute positively, but cautions that expected synergies and integration outcomes are uncertain.
- Mountain performance benefited from strong season-pass sales and Whistler Blackcomb’s contribution, but was tempered by poor early-season conditions at U.S. resorts. Excluding Whistler Blackcomb, non-pass lift revenue fell 1.5%, while pass revenue rose 18.3%.
- The company reported $54.1 million of net interest expense, up from $42.4 million, primarily reflecting acquisition-related borrowing. A $15.3 million foreign-currency gain on an intercompany loan partially affected results.
- Management reported $117.4 million of cash and $280.2 million available on the Vail Holdings revolver. Whistler Blackcomb also had C$158.0 million (reported as $126.7 million) of unused revolving capacity. The company was in compliance with debt covenants at year-end and expected to meet them in FY2018; this is management’s expectation, not a guarantee.
- Management reported pre-season North American pass sales through September 24, 2017 were up approximately 17% in units and 23% in sales dollars year over year, on a comparable resort and foreign-exchange-adjusted basis. It cautioned that the sales trend and its effect on FY2018 results were not assured. The filing does not provide a specific FY2018 earnings or revenue forecast.
Outlook, risks and unusual items
- The business is highly seasonal: 80% of combined Mountain and Lodging net revenue, excluding payroll reimbursements, was earned in the second and third fiscal quarters. Poor weather or another adverse event during peak periods could have a disproportionate effect.
- Key risks include snowfall variability, drought and water access, climate effects, travel and economic conditions, competition, high fixed costs, labor availability and costs, and dependence on government permits and land-use approvals. International operations expose results to Canadian- and Australian-dollar movements; the company stated it did not hedge operating currency exposure.
- At July 31, 2017, $937.6 million of debt was variable-rate. Management estimated that a 100-basis-point change in LIBOR would change annual interest payments by approximately $8.4 million. The Canyons lease obligation was $328.8 million on the balance sheet, with long-dated escalating payment obligations.
- FY2017 included a $16.3 million loss from an increase in the estimated fair value of Park City contingent consideration, a $4.3 million one-time Real Estate charge related to a Town of Vail parking contingency, and acquisition/integration expenses. Whistler purchase accounting remained subject to finalization.
- Kirkwood’s environmental settlement, subject to regulatory approval, called for approximately $0.8 million in penalties and agency costs, which the company said would be covered by third-party insurance. Remediation could continue into calendar 2018; management did not expect a material impact.
- Management and the auditor reported effective internal control over financial reporting, but excluded certain Whistler Blackcomb and Stowe controls from the FY2017 assessment. Those excluded controls represented approximately 14% of consolidated revenue.
Important facts for investors to verify
- Compare reported growth with acquisition-adjusted performance, particularly Whistler Blackcomb’s contribution and the remaining integration costs and synergies.
- Track advance pass sales, snowfall and visitation, and whether season-pass growth offsets weaker non-pass lift revenue.
- Review debt, variable-rate exposure, the Canyons lease and contingent payments, covenant headroom, and available revolver capacity.
- Assess whether lodging profitability improves and how the timing of real-estate closings affects segment results and cash generation.
- Monitor final purchase-accounting adjustments for Whistler Blackcomb and the integration of acquired-company financial controls.