VAIL RESORTS INC quarterly report, Q1 FY2019

Vail Resorts, Inc. — Form 10-Q Summary

Reporting period: First quarter of fiscal 2019, the three months ended October 31, 2018. The quarter is seasonally weak: most North American ski operations typically begin in November. Amounts below are in U.S. dollars unless noted.

Financial performance and liquidity

Metric	Q1 FY2019	Q1 FY2018
Net revenue	$220.0 million	$220.9 million
Loss from operations	$127.6 million	$103.7 million
Net loss attributable to Vail Resorts	$107.8 million	$28.4 million
Basic and diluted loss per share	$2.66	$0.71
Operating cash flow	$177.1 million	$155.4 million
Capital expenditures	$47.9 million	$37.4 million

• Revenue was nearly flat year over year. Resort revenue was $219.9 million, down 0.1%; Mountain revenue fell 2.1% to $145.0 million, while Lodging revenue rose 3.9% to $74.9 million. Real Estate revenue was $0.1 million.
• Total Reported EBITDA, a non-GAAP measure, was a loss of $73.8 million versus a loss of $55.1 million. Resort Reported EBITDA was a loss of $72.5 million versus $54.1 million; Mountain Reported EBITDA was a loss of $76.4 million versus $58.4 million. Lodging Reported EBITDA was $3.9 million versus $4.4 million. The filing describes Q1 as seasonally loss-making; the decline also reflects higher costs and acquisition-related expenses. As a simple calculation, Resort Reported EBITDA was approximately negative 33.0% of Resort revenue, compared with negative 24.6% a year earlier.
• Net loss widened by $79.4 million. A major comparison factor was the prior-year $51.8 million excess tax benefit from employee share awards; that benefit was $4.6 million this quarter. The income tax benefit fell to $36.4 million from $93.4 million.
• Operating cash flow increased, primarily from season-pass collections and sales, partly offset by weaker Mountain results and higher cash interest. Cash flow is affected by seasonal advance sales and deferred revenue, which was $450.3 million at October 31, 2018.
• Cash and cash equivalents were $141.0 million. Total debt was $1.540 billion, including $48.5 million due within one year; management-defined Net Debt was $1.394 billion, up from $1.160 billion a year earlier. Cash plus available revolver capacity was approximately $502 million: $206.0 million under the Vail facility and $155.1 million equivalent under the Whistler facility.
• Current assets were $393.0 million and current liabilities were $790.4 million. The balance sheet reflects the seasonal buildup of advance customer payments and other accrued liabilities.

Material changes and significant items

• Vail acquired Stevens Pass on August 15, 2018, for approximately $64.0 million, and Triple Peaks—parent of Okemo, Crested Butte and Mount Sunapee—on September 27. Triple Peaks’ total transaction cost, including $155.0 million to settle resort lease obligations, was approximately $229.4 million. The acquired businesses are included from their respective acquisition dates; purchase-price allocations remained preliminary.
• Investing cash outflow was $340.7 million, including $292.9 million of net acquisition payments. Financing cash inflow was $135.9 million, including incremental term-loan borrowings used to fund acquisitions.
• Debt increased, primarily reflecting acquisition financing. Interest expense rose 22.8% to $18.6 million, due to additional borrowings and higher rates. Approximately $1.2 billion of debt was variable-rate; a 100-basis-point rate change would alter annual interest expense by about $11.9 million.
• The company repurchased 197,896 shares for $50.0 million and paid $59.5 million in dividends during the quarter. The board declared a further $1.47-per-share quarterly dividend after quarter-end.
• Adoption of the new revenue standard reduced opening retained earnings by $7.5 million, primarily due to loyalty-program accounting. Its impact on quarterly revenue and net loss was described as immaterial.

Outlook, risks and contingencies

• Management reported North American season-pass sales through December 2 were up approximately 21% in units and 13% in sales dollars year over year, including military passes and the acquired resorts. Excluding military passes sold to new purchasers, sales increased approximately 8% in units and 10% in dollars. Management cautioned that the ultimate effect on lift revenue and effective ticket price was uncertain.
• Management expected approximately $40 million of incremental calendar-2018 cash flow from U.S. tax reform and accelerated capital deductions, for reinvestment in wages, resort projects and shareholder returns.
• Planned capital spending was approximately $150 million for calendar 2018 on resort projects, excluding specified summer and one-time acquisition/integration items. The calendar-2019 capital plan was estimated at $139–$143 million excluding specified one-time and other items, and $175–$180 million including them. These are plans, not guarantees.
• Management expected operating cash flow and available credit facilities to meet near-term liquidity needs, and expected to meet debt covenants during fiscal 2019; it cautioned there was no assurance. Principal payments on most debt were not due until fiscal 2023 or later. Credit agreements contain financial covenants and restrictions on distributions, investments and additional debt.
• Key risks include snowfall and weather, economic conditions and travel demand, seasonality and high fixed costs, labor availability and costs, foreign-exchange movements, interest rates, reliance on public-land permits, and integration and performance of acquired resorts. The company does not currently hedge its foreign-currency exposure.
• Letters of credit totaled $68.3 million and surety bonds $10.4 million. The company disclosed ordinary-course litigation and indemnities, but said legal accruals were not material. Kirkwood’s environmental remediation remained in progress, with completion expected in calendar 2019 subject to permits and weather; related penalties and agency costs had been paid by third-party insurance. No material change to previously disclosed risk factors was reported.

Important facts for investors to verify

• Whether season-pass sales translate into expected skier visits, lift revenue and ticket pricing, and how snowfall affects the season.
• Integration costs, final purchase-price allocations and operating performance of Stevens Pass and Triple Peaks.
• Debt levels, variable-rate exposure, revolver availability and ongoing compliance with credit covenants.
• Execution and funding of the 2018–2019 capital plans alongside dividends and share repurchases.
• The effects of tax reform, foreign-exchange changes and seasonal cash-flow timing on full-year results.