Vail Resorts, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended July 31, 2019. The filing also presents fourth-quarter results; FY2019 results exclude Peak Resorts, acquired after year-end on September 24, 2019.
Business context
Vail Resorts operates Mountain, Lodging and Real Estate segments, representing approximately 86%, 14% and 0% of FY2019 revenue, respectively. At year-end, the Mountain segment included 17 mountain resorts and three urban ski areas. The business is highly seasonal, with approximately 80% of combined Mountain and Lodging revenue earned in the second and third fiscal quarters.
Financial and operating performance
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Total net revenue | $2.272 billion | $2.012 billion | +12.9% |
| Income from operations | $476.3 million | $408.8 million | +16.5% |
| Net income attributable to Vail Resorts | $301.2 million | $379.9 million | -20.7% |
| Diluted earnings per share | $7.32 | $9.13 | -19.8% |
| Operating cash flow | $634.2 million | $548.5 million | +15.6% |
| Total Reported EBITDA | $702.4 million | $617.6 million | +13.7% |
Revenue and operating income improved, but net income fell primarily because FY2018 included a $61.0 million one-time net tax benefit from U.S. tax reform and $71.1 million of excess tax benefits from employee share awards, compared with $12.9 million in FY2019. The effective tax rate was 18.9% in FY2019 versus a tax benefit rate of 18.0% in FY2018. FY2019 net income attributable to the company was approximately 13.3% of revenue, compared with 18.9% in FY2018.
- Mountain: Revenue rose 13.5% to $1.956 billion and Reported EBITDA rose 14.7% to $678.6 million. Skier visits increased 21.5% to 14.998 million, reflecting acquisitions and stronger visitation at western U.S. resorts. Lift revenue increased 17.4%; total effective ticket price declined 3.4% to $68.89, partly due to greater season-pass visitation and acquired resorts’ lower average pricing.
- Lodging: Revenue increased 10.5% to $314.7 million and Reported EBITDA increased 12.4% to $28.1 million, primarily due to acquired operations. Combined owned-hotel and managed-condominium RevPAR decreased 7.1% to $121.81, partly reflecting the mix of acquired properties.
- Real Estate: Reported EBITDA was a loss of $4.3 million, versus income of $1.0 million in FY2018. Two FY2019 land transactions were accounted for as financing arrangements; associated estimated gains and losses were deferred because of continuing involvement.
- Fourth quarter: Revenue was $244.0 million, versus $211.6 million in FY2018 Q4. The company reported an operating loss of $120.6 million and an attributable net loss of $89.5 million, compared with losses of $113.0 million and $83.7 million, respectively, in the prior-year quarter.
Cash, debt and liquidity
Cash and cash equivalents were $108.9 million at July 31, 2019, down from $178.1 million. Net cash provided by operating activities was $634.2 million; investing activities used $596.0 million, including $419.0 million net cash paid for acquisitions and $192.0 million in capital expenditures; financing activities used $99.6 million. Capital expenditures increased from $140.6 million in FY2018.
Total debt, including the $340.3 million Canyons obligation, was $1.580 billion; net debt was $1.467 billion, up from $1.095 billion. Approximately $1.2 billion of debt was variable-rate. Management estimated a 100-basis-point LIBOR increase would raise annual interest expense by approximately $12.2 million. At year-end, $214.4 million was available under the Vail Holdings revolver and $181.2 million under the Whistler revolver. The company reported compliance with debt covenants and expected to remain compliant through FY2020.
Changes, outlook and risks
- FY2019 Mountain results benefited from strong pass sales and visitation, plus the full or partial-year contributions of Stevens Pass, Triple Peaks and Falls Creek/Hotham. Foreign-exchange movements reduced Mountain EBITDA by approximately $8 million on management’s constant-currency estimate; acquisition and integration expenses were $16.4 million, versus $10.2 million in FY2018.
- As of September 22, 2019, North American season-pass sales for the 2019/2020 season were up approximately 14% in units and 15% in sales dollars year over year, excluding Peak Resorts and adjusting for currency. Management cautioned that this early trend might not persist and did not provide a clear full-year earnings forecast in the provided filing text.
- Peak Resorts added 17 U.S. ski areas in September 2019 for approximately $265 million, funded through an additional term-loan borrowing of approximately $335.6 million, also used to prepay certain assumed debt. The acquisition was expected to contribute positively, but its ultimate impact was uncertain.
- Management estimated calendar-year 2019 capital spending of $190–$195 million, including $139–$143 million of resort capital expenditures before specified integration, real-estate and reimbursable items. Planned projects included Colorado snowmaking upgrades and investments at acquired resorts.
- Key risks include snowfall variability and climate change, travel and economic conditions, seasonality and high fixed costs, labor availability and costs, water supply, reliance on government permits and leases, cybersecurity and data protection, foreign-currency exposure, acquisition integration, interest-rate changes and restrictions under debt agreements.
- Other notable items: FY2019 included a $5.4 million loss from remeasurement of Park City contingent consideration, whose year-end fair value was $27.2 million. The company disclosed $78.5 million of reserves for uncertain tax positions, including related interest and penalties. The auditor identified valuation of Park City contingent consideration and acquired property and equipment as critical audit matters. No material adverse impact was expected from the disclosed Kirkwood environmental settlement; its approximately $0.8 million costs had been paid by insurance.
Most important facts for investors to verify
- Whether pass-sales momentum translated into realized visitation, lift revenue and margins in the 2019/2020 season.
- How Peak Resorts performed after acquisition, including integration costs, debt incurred and realized synergies.
- Whether operating cash flow can support planned capital spending, dividends and debt service as leverage rises.
- The sensitivity of earnings and cash flow to variable interest rates, foreign exchange, weather and seasonality.
- Resolution of uncertain tax positions and final purchase-price allocations for recent acquisitions.
- The significance of the Canyons lease and other long-term contractual commitments; the filing reports $340.3 million as its balance-sheet obligation and separately provides a larger undiscounted payment schedule.