Vail Resorts, Inc. — Q2 FY2018 Form 10-Q
Reporting period: Three and six months ended January 31, 2018. Figures below are unaudited; dollar amounts are in millions unless stated otherwise. The business operates Mountain, Lodging and Real Estate segments. Results are seasonal, and the six-month comparison is affected by the prior-year timing of the Whistler Blackcomb acquisition and the addition of Stowe in June 2017.
Financial results and key metrics
| Metric | Three months ended Jan. 31, 2018 | Three months ended Jan. 31, 2017 | Six months ended Jan. 31, 2018 | Six months ended Jan. 31, 2017 |
|---|---|---|---|---|
| Total revenue | $734.6 | $725.2 | $955.4 | $903.5 |
| Income from operations | $257.5 | $252.3 | $153.8 | $161.8 |
| Net income attributable to Vail Resorts | $235.7 | $149.2 | $207.3 | $86.6 |
| Diluted EPS | $5.67 | $3.63 | $4.97 | $2.19 |
| Total Reported EBITDA (non-GAAP) | $308.4 | $304.6 | $253.2 | $256.3 |
| Cash provided by operating activities | Not presented for quarter | Not presented for quarter | $420.9 | $329.9 |
Quarterly revenue rose 1.3%; six-month revenue rose 5.8%. Quarterly operating income increased 2.1%, while six-month operating income declined 4.9%. Parent-attributable net income and EPS rose substantially, but comparisons reflect significant tax benefits in FY2018, including a provisional Tax Act benefit and excess tax benefits from employee share awards. The filing reports quarterly net income of $248.7 million and six-month net income of $216.7 million before noncontrolling interests.
Quarterly operating margin was approximately 35.1% versus 34.8% a year earlier; six-month operating margin was approximately 16.1% versus 17.9%. These are calculated from reported revenue and operating income. Reported EBITDA is a company-defined non-GAAP measure and should not be treated as a substitute for GAAP earnings or cash flow.
Segments and material changes
- Mountain: Quarterly revenue increased 2.6% to $670.9 million and Reported EBITDA increased 2.1% to $305.3 million. Skier visits declined 3.1%, but effective ticket price rose 10.0% to $74.40. Six-month Mountain EBITDA increased 1.8% to $246.8 million.
- Weather and passes: Management cited historically low snowfall across western U.S. resorts, including season-to-date snowfall at Vail, Beaver Creek and Park City at the lowest levels in over 30 years. Quarterly pass revenue increased 20.0%, helping offset lower non-pass visits and ancillary sales. North American pass deferred revenue was $192.0 million at January 31, 2018, compared with $162.0 million a year earlier, and was expected to be substantially recognized in the third fiscal quarter.
- Lodging: Quarterly revenue declined 3.6% to $63.5 million and EBITDA declined 40.8% to $3.7 million, primarily reflecting lower Colorado lodging rates and weaker CME results amid poor snowfall. Six-month revenue increased 1.8%, while EBITDA declined 15.8% to $8.0 million.
- Real Estate: Revenue fell to $0.1 million from $5.2 million in the quarter; EBITDA was a loss of $0.6 million. Six-month EBITDA was a loss of $1.6 million versus income of $4.5 million, which included a prior-year $6.5 million gain on a land sale. Management noted that segment results vary with the timing and mix of property closings.
Cash flow, debt and liquidity
- Six-month operating cash flow was $420.9 million, up from $329.9 million. Management attributed the increase largely to working-capital movements, lower estimated tax payments and increased advance pass sales; cash interest payments also increased.
- Six-month capital expenditures were $87.4 million. Investing cash outflow was $81.8 million, compared with $591.8 million in the prior-year period, which included Whistler Blackcomb acquisition spending.
- Cash and cash equivalents were $235.5 million at January 31, 2018, compared with $140.9 million a year earlier. Total debt was $1,224.5 million; net debt, the company-defined measure, was $985.3 million, down from $1,114.2 million a year earlier.
- Available revolver capacity was $299.7 million under the Vail Holdings facility and C$179.1 million (approximately $145.6 million) under the Whistler facility. The company reported compliance with debt covenants. Whistler’s facility maturity was extended to November 2022; the Vail Holdings facility matures in October 2021.
- Approximately $883.3 million of debt carried variable rates. Management estimated that a 100-basis-point rate increase would raise annual interest payments by approximately $8.8 million. Net interest expense increased 19.0% for the six-month period to $31.1 million.
Outlook, commentary and risks
- Management did not provide a full-year revenue or earnings forecast in the supplied filing text. It said it could not predict the remaining-season impact of unusually low snowfall, future pass sales or whether snowfall would improve.
- Management planned approximately $150 million of resort capital expenditures for calendar 2018, excluding certain summer, integration and reimbursed projects. Plans included about $80 million of maintenance spending and approximately $40 million of discretionary investment at Whistler Blackcomb. The company expected to fund plans through cash, credit facilities and operating cash flow.
- Management estimated approximately $40 million of incremental cash flow in calendar 2018 from tax reform and accelerated capital-expense deductions, with intended uses including employee wages, resort investment and shareholder returns. This is an estimate, not a reported result.
- The Tax Act produced a provisional $64.6 million net tax benefit, or approximately $1.55 per diluted share: an estimated $71.0 million deferred-tax remeasurement benefit, partly offset by a $6.4 million Transition Tax charge. The accounting remained subject to revision, with analysis to be completed by December 22, 2018.
- The board declared a quarterly dividend of $1.47 per share on March 7, 2018, a 40% increase, payable April 11, 2018. The company stated future dividends remain subject to board discretion, liquidity, covenants and other factors.
- Key risks include weather and natural disasters, seasonality and high fixed costs, travel and economic conditions, labor availability and costs, reliance on permits and public lands, foreign exchange exposure, interest rates, integration of acquisitions, and uncertainty in tax-law interpretation. The company reported no material off-balance-sheet arrangements. Ordinary-course litigation was not expected to have a material adverse effect; a Kirkwood environmental settlement of approximately $0.8 million was paid by third-party insurance, with remaining remediation expected during calendar 2018.
Most important facts for investors to verify
- How the exceptionally low western U.S. snowfall affected visitation, ancillary spending, remaining-season results and subsequent pass sales.
- How much of the increase in net income and EPS came from provisional Tax Act accounting and employee-award tax benefits, and whether those amounts change as the tax analysis is finalized.
- Whether pass revenue growth and deferred revenue convert into expected third-quarter revenue, and how Mountain and Lodging margins perform as the season progresses.
- Progress and final cost of planned 2018 resort capital projects, especially Whistler Blackcomb investment, and realization of the estimated tax-related cash-flow benefit.
- Debt covenant headroom, variable-rate exposure, dividend funding and the effect of future capital spending or operating results on liquidity.