Business context and reporting period
Vail Resorts, Inc. operates Mountain, Lodging and Real Estate businesses; Mountain and Lodging together are reported as Resort. This unaudited Form 10-Q covers the fiscal third quarter and first nine months ended April 30, 2019, compared with the same periods of 2018. Results are seasonal, with North American ski operations concentrated in the second and third fiscal quarters. The filing includes newly acquired resorts prospectively from their acquisition dates.
Financial performance and liquidity
Unless otherwise noted, dollar amounts are in millions. Reported EBITDA is a company-defined, non-GAAP measure.
| Metric | Three months ended April 30 | Nine months ended April 30 |
|---|---|---|
| Revenue | $958.0, up 13.4% from $844.5 | $2,027.6, up 12.6% from $1,799.9 |
| Operating income | $422.6, up 14.8% from $368.0 | $596.9, up 14.4% from $521.8 |
| Net income attributable to Vail Resorts | $292.1, up from $256.3 | $390.7, down from $463.6 |
| Diluted EPS | $7.12, versus $6.17 | $9.48, versus $11.13 |
| Total Reported EBITDA | $479.8, versus $423.5 | $762.9, versus $676.7 |
Operating margin was approximately 44.1% for the quarter and 29.4% year to date, compared with 43.6% and 29.0%, respectively, in the prior-year periods. Resort Reported EBITDA was $480.7 million for the quarter (up 14.5%) and $766.2 million year to date (up 13.6%).
- Cash flow: Nine-month operating cash flow was $665.6 million, versus $580.7 million. Capital expenditures were $146.9 million, versus $106.3 million; operating cash flow less capital expenditures was $518.7 million. Acquisition spending contributed to investing cash use of $552.7 million.
- Debt and liquidity: Total debt, including current maturities, was $1,359.4 million; cash and equivalents were $59.6 million. Net Debt, a non-GAAP measure, was $1,299.7 million, versus $934.9 million a year earlier. Revolver availability was $422.4 million under the Vail Holdings facility and $197.2 million under the Whistler facility. The company reported compliance with debt covenants.
- Margins and interest: Interest expense, net rose 26.5% year to date to $59.2 million, primarily reflecting acquisition-related borrowing and higher rates. Approximately $1.0 billion of debt was variable-rate; a 100-basis-point rate increase was estimated to add about $10 million to annual interest expense.
- Shareholder returns: The quarterly dividend was increased 20% to $1.76 per share. Nine-month dividends paid totaled $189.6 million; share repurchases totaled $85.0 million.
Material changes versus prior periods
- Quarterly revenue and earnings growth reflected stronger pass sales, skier visits and spending, as well as contributions from Stevens Pass and Triple Peaks. Mountain Reported EBITDA rose 14.4% for the quarter and 13.4% year to date. Nine-month skier visits increased 19.3%, while effective ticket price declined 2.6%, partly due to greater season-pass visitation and the acquired resorts’ mix.
- Falls Creek and Hotham in Australia were acquired on April 4, 2019 for approximately $127.4 million. Stevens Pass was acquired in August 2018; Triple Peaks, including Okemo, Crested Butte and Mount Sunapee, was acquired in September 2018. Acquisition-related expenses and integration spending increased.
- Nine-month net income attributable to Vail Resorts fell $72.9 million despite higher operating income. The comparison was affected by a $64.6 million provisional Tax Act benefit in the prior-year period and $49.6 million lower excess tax benefits from employee share awards.
- Real Estate Reported EBITDA shifted to a loss of $3.3 million for the nine months from income of $2.1 million. Land transactions with continuing company involvement were accounted for as financing arrangements, deferring gains and losses.
- Net Debt increased from $934.9 million a year earlier, primarily reflecting incremental term loans used to fund acquisitions, lower cash, and capital returns. The Vail Holdings credit facility was amended to extend maturity to April 2024 and increase the revolver to $500 million.
Outlook, commentary and risks
- Early sales through May 28, 2019 for 2019/2020 North American passes were up approximately 9% in units and 13% in sales dollars year over year, excluding military passes. Management cautioned that this trend may not continue through the fall sales campaign or determine full-season lift revenue.
- Management said the season began challengingly for destination visitation, but results later in the season were largely in line with original expectations, with strong visitation and spending at western U.S. destination resorts. International visitation remained relatively weak, particularly at Whistler Blackcomb.
- Management expected Mountain and Lodging operations to remain significant sources of operating cash flow and believed liquidity was sufficient for near-term needs, planned investment and potential shareholder returns. No specific full-year earnings guidance is provided in the supplied filing text.
- For calendar 2019, planned resort capital expenditures were approximately $139–$143 million, excluding specified integration, acquisition, summer, real estate and reimbursable items. The total capital plan was approximately $190–$195 million, including about $85–$90 million of maintenance spending.
- Key risks include snowfall and weather variability, economic and travel conditions, labor availability and costs, seasonality and fixed operating costs, foreign currency movements, interest rates, reliance on permits and public lands, cyber and technology risks, and successful integration and performance of acquisitions. The company does not hedge its disclosed foreign-currency exposure.
- Contingencies include letters of credit totaling $71.9 million, surety bonds of $10.4 million and ordinary-course legal matters; management reported no material aggregate litigation accrual. A Kirkwood environmental remediation matter was expected to be completed in 2019, subject to permits and weather, with no expected material financial impact.
Most important facts for investors to verify
- Whether early 2019/2020 pass-sales growth persisted through the fall campaign and translated into visitation, pricing and ancillary spending.
- Acquired resorts’ contribution to results, integration costs, planned capital investment and expected synergies.
- The drivers of higher Net Debt and interest expense, available revolver capacity, covenant headroom and sensitivity to variable rates.
- How much of the year-over-year earnings decline reflects prior-year tax benefits and share-award tax effects rather than operating performance.
- Execution and funding of the stated capital plan, dividend and repurchase intentions, and exposure to weather, currency, labor and travel-demand risks.