Vail Resorts, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended January 31, 2019. The company operates Mountain, Lodging and Real Estate businesses; results are seasonal, with North American ski operations concentrated in the second and third fiscal quarters. Financial statements are unaudited.
Financial performance
| Metric | Three months ended Jan. 31, 2019 | Prior year | Six months ended Jan. 31, 2019 | Prior year |
|---|---|---|---|---|
| Total revenue | $849.6 million | $734.6 million | $1,069.6 million | $955.4 million |
| Income from operations | $301.8 million | $257.5 million | $174.3 million | $153.8 million |
| Net income attributable to Vail Resorts | $206.3 million | $235.7 million | $98.6 million | $207.3 million |
| Diluted EPS | $5.02 | $5.67 | $2.39 | $4.97 |
| Total Reported EBITDA | $356.8 million | $308.4 million | $283.1 million | $253.2 million |
Quarterly revenue rose 15.7%; quarterly operating income rose 17.2%, while net income attributable to the company fell 12.5%. Six-month revenue increased 11.9%, but attributable net income declined 52.5%. Management attributed the six-month earnings decline primarily to $48.4 million less in excess tax benefits and the absence of the prior-year $64.6 million provisional Tax Act benefit. Reported EBITDA is a non-GAAP measure.
- Mountain: Quarterly revenue increased 15.7% to $776.1 million and Reported EBITDA rose 15.4% to $352.2 million. Skier visits increased 27.0%, including acquired resorts and stronger visitation; effective ticket price declined 7.8% to $68.63, reflecting a higher share of pass-holder visits and product mix.
- Lodging: Quarterly revenue increased 15.3% to $73.2 million and Reported EBITDA increased 57.0% to $5.8 million, primarily reflecting acquired and newly managed properties.
- Real Estate: Quarterly Reported EBITDA was a loss of $1.1 million. Real estate activity and earnings vary with the timing and mix of property sales.
Cash flow, debt and liquidity
- Six-month operating cash flow was $506.2 million, up from $433.7 million. Capital expenditures were $113.5 million. Investing cash outflow was $404.3 million, including $292.6 million for acquisitions, net of cash acquired.
- At January 31, 2019, cash and cash equivalents were $158.6 million; total debt including current maturities was $1,393.8 million, and reported Net Debt was $1,235.2 million, up from $985.3 million a year earlier.
- Available revolver capacity was $317.9 million under the Vail Holdings facility and C$219.1 million ($166.8 million) under the Whistler facility. The company said it was in compliance with debt covenants.
- Approximately $1.1 billion of debt was variable-rate. A 100-basis-point rate increase would raise annual interest payments by approximately $10.5 million. Six-month net interest expense increased to $39.6 million from $31.1 million.
- The company paid $2.94 per share in dividends during the six months. In March 2019, the board declared a quarterly dividend of $1.76 per share, a 20% increase from the prior quarterly rate.
Changes, outlook and risks
- Stevens Pass was acquired in August 2018 for $64.0 million. Triple Peaks, which owns Okemo, Crested Butte and Mount Sunapee, was acquired in September 2018; total consideration including repayment of lease obligations was $229.1 million. Acquisition-related purchase allocations remained preliminary.
- Management reported lower-than-expected destination visitation before the holidays, with visitation generally in line with expectations during key holidays and through January. It noted favorable U.S. resort conditions, but said the effect of future weather and visitation on the remainder of the ski season could not be predicted.
- The company forecast calendar-year 2019 resort capital expenditures of $139–$143 million, excluding specified integration, summer and real-estate items; its broader capital plan was approximately $180–$185 million. It did not provide an earnings or revenue forecast in the supplied filing text.
- In February 2019, the company agreed to buy Falls Creek and Hotham resorts in Australia for approximately AU$174 million, subject to adjustments, approvals and closing conditions. It expected to close before the June 2019 Australian ski season and to fund the purchase with cash and/or additional borrowing.
- Key risks include snowfall and other weather variability, travel and economic conditions, seasonal operations and fixed costs, labor availability and costs, acquisition integration, foreign exchange exposure, interest rates, reliance on public-land permits, and regulatory or approval conditions for the pending Australian acquisition. The filing reported no material change to previously disclosed risk factors.
- Unusual earnings comparability items include the prior-year Tax Act benefit and excess share-award tax benefits. The company also recorded a $1.9 million six-month increase in the estimated fair value of Park City contingent consideration. It reported ordinary-course legal matters and stated that related accruals were not material.
Investor verification points
- Check subsequent ski-season visitation, snowfall and destination guest trends, and whether pass sales translate into expected visits and ancillary spending.
- Assess acquisition contributions, integration costs, preliminary purchase allocations and expected synergies from Stevens Pass and Triple Peaks.
- Monitor variable-rate debt, covenant headroom, available revolver capacity and financing needs for capital spending, dividends and the proposed Australian acquisition.
- Compare capital-spending plans and the increased dividend with operating cash generation and future liquidity.
- Review the effects of tax items, Canadian and Australian currency movements, and Park City contingent consideration on reported earnings.