Vail Resorts, Inc. — Form 10-Q Summary
Reporting period: Three months ended October 31, 2013, the first quarter of fiscal 2014. The filing is unaudited. Vail Resorts operates Mountain, Lodging and Real Estate businesses; results are highly seasonal, and ski operations generally begin in the second fiscal quarter.
Financial performance and liquidity
| Metric | Q1 FY2014 | Q1 FY2013 |
|---|---|---|
| Revenue | $123.4 million | $116.4 million |
| Operating loss | $102.1 million | $90.3 million |
| Net loss attributable to Vail Resorts | $73.4 million | $60.6 million |
| Loss per diluted share | $2.04 | $1.70 |
| Operating cash flow | $29.3 million | $34.6 million |
| Capital expenditures | $46.8 million | $35.9 million |
| Cash and cash equivalents, period end | $114.2 million | $44.0 million |
| Total debt, period end | $798.1 million | $490.4 million |
| Net debt, period end | $683.8 million | $446.4 million |
Revenue increased approximately 6.1%, but net loss widened. Mountain revenue rose 10.4% to $57.3 million, while Mountain Reported EBITDA, a non-GAAP measure, declined to negative $66.8 million from negative $55.2 million. Lodging revenue increased 9.0% to $57.2 million, but Lodging Reported EBITDA fell to $0.3 million from $0.7 million. Real Estate revenue decreased 25.9% to $8.8 million; its Reported EBITDA improved to negative $0.4 million from negative $3.7 million.
The company generated $29.3 million of operating cash flow, used $46.7 million in investing activities and $7.0 million in financing activities, and ended the quarter with a $24.4 million net decrease in cash. Cash flow was supported by working-capital movements, including collections and increased accounts payable; it declined year over year partly due to lower Resort Reported EBITDA and increased inventory and other balances. Current assets were $311.0 million versus current liabilities of $410.5 million.
At October 31, 2013, the company reported $333.6 million available under its $400 million revolving credit facility after letters of credit. It had $797.1 million of long-term debt plus $1.0 million due within one year. Most debt principal is not due until fiscal 2019 or later. The company was in compliance with debt covenants and expected to remain compliant through fiscal 2014, while noting there is no assurance it will do so.
Material changes and notable items
- Debt and interest expense increased substantially from the prior year, primarily following the May 2013 Canyons transaction. The recorded Canyons obligation was approximately $307.7 million at quarter end; total debt associated with the transaction, including capital lease obligations, was reported at $308.5 million.
- Canyons and the two Midwest Urban ski areas acquired in December 2012 contributed to year-over-year revenue and expense. The acquisitions generated $7.4 million of negative Mountain EBITDA in the quarter, including $2.7 million of integration and Park City Mountain Resort litigation-related costs. Canyons contributed $5.2 million of revenue and $2.7 million of transaction-related expenses.
- Interest expense increased to $16.1 million from $8.4 million, mainly due to the Canyons obligation. Depreciation and amortization rose to $34.2 million from $31.7 million, primarily reflecting acquired assets.
- Mountain and Lodging results also reflected summer visitation and group business; Grand Teton Lodge Company was adversely affected by the October federal government shutdown and a marina closure due to low water levels.
- Real Estate results depend on timing and mix of condominium closings. The quarter included closings of two Ritz-Carlton Residences, Vail units and one One Ski Hill Place unit. Twenty units at the Vail project and 28 at One Ski Hill Place were available for sale at quarter end.
Outlook, risks and contingencies
- Management reported 2013/2014 season-pass sales through December 7, 2013 were up approximately 13% in units and 16% in sales dollars year over year. It cautioned that the effect on total lift revenue and realized ticket prices was uncertain.
- Management expected calendar-year 2013 resort capital expenditures of approximately $125 million to $135 million, with about $90 million spent as of October 31. The calendar-year 2014 resort capital plan was approximately $85 million, excluding new summer-activity spending and future acquisitions.
- The Canyons lease has an initial 50-year term, annual fixed payments of $25 million that rise by an inflation-linked formula with a 2% minimum, and potential contingent payments tied to resort EBITDA. The parent guarantees lease payments.
- Pending Park City Mountain Resort litigation could determine whether ski terrain becomes subject to the Canyons lease. An unfavorable outcome could reduce expected benefits and potentially lead to impairment charges; the acquisition’s asset and liability valuations were preliminary.
- Other important risks include snowfall and weather, economic conditions affecting travel and leisure, real estate sales and potential impairment, permitting for planned summer activities, seasonal staffing, interest rates and inflation. A 100-basis-point change in LIBOR was estimated to alter annual interest payments by about $0.5 million.
- The company’s IRS dispute concerns net operating loss carryforwards. A district court ruled in the company’s favor, but appeals and related tax proceedings remained unresolved. The filing reports a potential reversal of other long-term liabilities and accrued interest and penalties ranging from zero to $27.6 million; no NOL benefits were reflected in the financial statements.
- Management anticipated continuing quarterly dividends subject to board discretion and contractual restrictions. The quarter’s dividend was $0.2075 per share; a subsequent quarterly dividend of the same amount was declared for payment in January 2014.
Key investor verification points
- Track winter snowfall, visitation, pass sales and guest spending against the company’s seasonality-driven expectations.
- Assess whether acquired operations, particularly Canyons, can improve Mountain and Lodging profitability enough to support lease costs, higher debt and interest expense.
- Monitor the Park City Mountain Resort litigation and any resulting impact on Canyons’ expected economics, recorded goodwill or other assets.
- Verify cash generation, capital spending, real estate closings, available revolver capacity and compliance with financial covenants.
- Follow the IRS NOL proceedings and the potential liability reversal, as well as the pace and pricing of remaining real estate sales.