Vail Resorts reports huge jump in earnings, season pass sales during third quarter

By Real Vail
Real AspenJune 6, 2013
Vail Resorts on Thursday reported a massive jump in spring season ski pass sales and other earnings for the third quarter of 2013 compared to the same period last year.

The ski company saw revenues from pass sales jump 24 percent for the period after adding Eldora ski area on Colorado's Front Range, The Canyons in Utah, the Arlberg region of Austria and two Midwestern ski areas to its popular Epic Pass.

Also, net income for the period jumped more than 22 percent over last year, and skier visits were up more than 9 percent.

"We delivered record revenue and EBITDA [earnings before interest, taxes and amortization], had a solid recovery in skier visits from the prior year and achieved robust increases in spending per guest. Vail Resorts CEO Rob Katz said in a press release. Here's the full text of the release:

The snow was better and so were the earnings at Vail last season (Vail Resorts/Jack Affleck photo).

Vail Resorts, Inc. (NYSE: MTN) today reported results for the third quarter of fiscal 2013 ended April 30, 2013, as well as the Company's results of its spring pass sales for the 2013/2014 ski season. Additionally, the Company provided its outlook for the full fiscal year ending July 31, 2013, reflecting the impact of the recently announced Canyons Resort transaction.

Highlights

Resort Reported EBITDA increased 14.2% to $202.7 million for the third quarter of fiscal 2013 compared to the same period in the prior year. Excluding Canyons related transaction fees, Resort Reported EBITDA increased 15.6% to $205.3 million for the quarter.
Net Income attributable to Vail Resorts, Inc. increased 22.7% to $97.6 million for the third quarter of fiscal 2013, compared to the same period in the prior year.
Excluding Kirkwood, Afton Alps and Mt. Brighton (the "Acquisitions"), all of which were acquired subsequent to the beginning of the third quarter of fiscal 2012:
Total Mountain net revenue increased 9.6% for the third quarter of fiscal 2013 compared to the same period in the prior year.
Mountain Reported EBITDA increased 11.2% for the third quarter of fiscal 2013 compared to the same period in the prior year.
Total skier visitation increased 9.1% for the third quarter of fiscal 2013 compared to the same period in the prior year.
During the third quarter of fiscal 2013, sales of seven units at One Ski Hill Place and two units at the Ritz-Carlton Residences, Vail were closed. Net Real Estate Cash Flow for the third quarter was $6.0 million and was $20.4 million year-to-date. Subsequent to quarter end, an $11.1 million land sale in Breckenridge closed and the sale of one additional One Ski Hill Place unit closed.
Spring season pass sales for the 2013/2014 ski season were up approximately 18% in units and approximately 24% in sales dollars through May 28, 2013 compared with the prior year period ended May 29, 2012.
Vail Resorts entered into a long-term lease to operate Canyons Resort in Park City, Utah and added Canyons to Epic Pass for the 2013/2014 ski season.

Robert Katz, Chief Executive Officer, commented, "We are very pleased with our performance in the third quarter of fiscal 2013. We delivered record revenue and EBITDA, had a solid recovery in skier visits from the prior year and achieved robust increases in spending per guest. Skier visits at our Colorado resorts for the quarter were up 11.8% over the prior year, offset somewhat by a decline of 0.4% in skier visits in Tahoe (excluding Kirkwood), where unusually warm and dry temperatures this spring negatively impacted results. For the quarter, excluding the Acquisitions, lift revenue excluding season pass revenue was up 13.4% compared with the same period in the prior year and we saw continued growth in ancillary revenue, driven by increased guest spend, with dining revenue up 13.9%, ski school revenue up 11.8%, and retail/rental revenue up 7.4%. Retail/rental results were modestly tempered by results in our city store locations."

Regarding Lodging, Katz said, "Our lodging segment benefited from increased visitation, especially during peak holiday periods at our resorts, with total occupancy increasing by 2.3 percentage points along with rate increases as Average Daily Rate ("ADR") increased 2.9% at our owned hotels and managed condominiums. As a result of improved operating efficiency, we increased lodging EBITDA margins by 2.9 percentage points, contributing to a 22.1% increase in Lodging Reported EBITDA as compared to the same period in the prior year."

Regarding Real Estate, Katz said, "We continue to see increased demand and are encouraged by the level of interest and rate of sales we are seeing at both of our development projects. During the quarter, we closed on sales of seven One Ski Hill Place units and two Ritz-Carlton Residences, Vail units. Net Real Estate Cash Flow for the third quarter was $6.0 million and was $20.4 million year-to-date. Additionally, subsequent to the end of the quarter, we closed on the sale of 2.1 acres of land at the base of Breckenridge Ski Resort's Peak 8 for $11.1 million and one additional One Ski Hill Place unit."

Katz continued, "Our balance sheet remains in a very strong position. We ended the quarter with $237.7 million of cash on hand and no borrowings under the revolver component of our senior credit facility and our Net Debt was 1.1 times trailing twelve months Total Reported EBITDA. I am also very pleased to announce that our Board of Directors has declared a quarterly cash dividend on Vail Resorts' common stock," Katz commented. "The quarterly dividend will be $0.2075 per share of common stock and will be payable on July 9, 2013 to shareholders of record on June 24, 2013."

Operating Results
A complete Management's Discussion and Analysis of Financial Condition and Results of Operations can be found in the Company's Form 10-Q for the third quarter of fiscal 2013 ended April 30, 2013 filed today with the Securities and Exchange Commission. The following are segment highlights:

Mountain Segment

Lift revenue excluding the Acquisitions and excluding season pass holders, increased $16.4 million, or 13.4%, for the three months ended April 30, 2013 as compared to the same period in the prior year.
ETP excluding season pass holders, and excluding the Acquisitions, increased $4.51, or 5.9% for the quarter as compared to the same period in the prior year.
Mountain Reported EBITDA increased $23.6 million, or 13.8% to $194.3 million for the quarter compared to the same period in the prior year. Excluding Canyons related transaction fees, Mountain Reported EBITDA increased 15.4% to $197.0 million for the quarter.
Mountain Reported EBITDA includes $2.1 million and $1.6 million of stock-based compensation expense for the three months ended April 30, 2013 and 2012, respectively.

Lodging Segment

Total Lodging net revenue (excluding payroll cost reimbursements) for the three months ended April 30, 2013 increased $2.7 million, or 5.6%, as compared to the same period in the prior year.
For the three months ended April 30, 2013, ADR increased 2.9% and revenue per available room ("RevPAR") increased 8.2% at the Company's owned hotels and managed condominiums compared to the same period in the prior year.
Lodging Reported EBITDA increased 22.1% to $8.4 million for the third quarter of fiscal 2013 compared to the same period in the prior year.
Lodging Reported EBITDA includes $0.5 million and $0.4 million of stock-based compensation expense for the three months ended April 30, 2013 and 2012, respectively.

Resort — Combination of Mountain and Lodging Segments

Resort net revenue was $455.9 million for the third quarter of fiscal 2013 up 11.6% compared to $408.6 million in the third quarter of the prior year.
Resort Reported EBITDA was $202.7 million for the third quarter of fiscal 2013 up 14.2% compared to $177.6 million in the same period in the prior year. Excluding Canyons related transaction fees, Resort Reported EBITDA was $205.3 million for the quarter, up 15.6% from the prior year.

Real Estate Segment

Real Estate segment net revenue was $13.8 million for the third quarter of fiscal 2013 up 10.0% compared to $12.6 million in the third quarter of the prior year.
Net Real Estate Cash Flow (a non-GAAP measure defined as Real Estate Reported EBITDA, plus non-cash real estate cost of sales, plus non-cash stock-based compensation expense, plus change in real estate deposits less investment in real estate) was a positive $6.0 million for the third quarter of fiscal 2013.
Real Estate Reported EBITDA was a negative $3.2 million for the third quarter of fiscal 2013 compared to a negative $3.5 million in the same period in the prior year. Real Estate Reported EBITDA includes $0.3 million and $0.5 million of stock-based compensation expense for the three months ended April 30, 2013 and 2012, respectively.

Total Performance

Total net revenue in the third quarter of fiscal 2013 was $469.7 million, or an 11.5% increase, when compared to the same quarter in the prior year.
Net income attributable to Vail Resorts, Inc. was $97.6 million, or $2.66 per diluted share, for the third quarter of fiscal 2013 compared to net income attributable to Vail Resorts, Inc. of $79.6 million, or $2.17 per diluted share, in the third quarter of the prior year.

Share Repurchase
The Company did not repurchase any shares of common stock during the three months ended April 30, 2013. Since inception of this stock repurchase program in 2006, the Company has repurchased an aggregate of 4,949,111 shares at a cost of approximately $193.2 million. As of April 30, 2013, 1,050,889 shares remained available to repurchase under the existing repurchase authorization.

Spring Pass Sales
Commenting on the Company's spring season pass sales for the upcoming 2013/2014 ski season, Katz said, "We are extremely pleased that our spring season pass sales through May 28, 2013 for the upcoming 2013/2014 ski season, increased approximately 18% in units and approximately 24% in sales dollars, as compared to the prior year period through May 29, 2012. These very strong results, over record sales last spring, are due to more intensive efforts to move fall purchasers to the spring, increasing our overall renewal rate and the introduction of new products and access to new resorts. We also saw very strong growth from the Minneapolis and Detroit metro areas, which surround our recently acquired Afton Alps and Mt. Brighton resorts, with pass sales in those markets representing a significant portion of this spring's pass sales outside of Colorado and Tahoe."

Katz continued, "Our efforts to drive spring pass sales over the years have dramatically changed the nature of how and when our guests purchase their passes for skiing and riding. The 138,000 passes we sold this spring is more than double the number of passes we sold in the spring of 2008. As always, it is important to note that we do not believe that the growth rates from this spring will be maintained through the fall, as our spring growth includes pass holders who purchased last fall. However, we believe the earlier we can move our guest's purchase decision in the year, the more opportunity it provides us for more stable and consistent growth. It is also important to remember that nearly all of the 2013 spring pass sales will be recorded as revenue in fiscal 2014, over the course of the 2013/2014 ski season."

Katz added, "Our strong results from this spring do not include the impact we may see from recently adding Canyons Resort in Park City, UT to our pass products. The addition of Canyons to the Epic Pass comes on top of dramatically improving the benefits of the Epic Pass this year by adding full season access to Eldora Mountain Resort in Colorado, five days at five resorts in the Arlberg region in Austria, including St. Anton, Lech and Zurs, and expanding access to Verbier in Switzerland from three to five days. We are pleased we will enter our fall pass selling season with strong momentum."

Canyons Resort in Park City, Utah
Katz continued, "Looking ahead to next season, we are incredibly excited to be expanding our portfolio of world-class resorts with the recent announcement of the long-term lease for Canyons Resort in Park City, Utah. With 4,000 skiable acres, $75 million of recent improvements and four million square feet of third party land to be developed, Canyons is truly a perfect complement to our existing portfolio of world-class resorts. In North America, there are only a handful of resorts that have the right combination of ski terrain, air access, town experience, developable land and upscale real estate markets to drive significant destination visitation from around the world. We are confident that Canyons offers that potential, as the resort matures over the coming years."

The Canyons transaction incorporates the potential for the lease to include the land that serves as the majority of the ski terrain of Park City Mountain Resort (PCMR), adjacent to Canyons. This land is subject to litigation regarding whether the current operator of PCMR renewed its existing lease for the land in April 2011. Katz commented, "There are many different potential outcomes from this situation and we are hopeful that the ultimate resolution provides a benefit to the guests of both resorts."

Katz continued, "We believe Canyons presents a significant growth opportunity for our Company for a number of reasons. First, we will include Canyons in our industry leading season pass programs. We believe the addition of a Utah destination will be incredibly well received by our existing pass holders and make our pass products even more appealing to skiers and riders in the US and around the world, particularly in Los Angeles and Southern California. We also expect to be able to drive growth by leveraging our extensive marketing efforts to benefit Canyons through our sizeable guest database and our CRM processes that personalize our messages and through Epic Mix which creates an interactive experience for our guests on the mountain and after their trips with engaging statistics and photos."

Katz went on to say, "We believe the transaction will add incremental Resort EBITDA in fiscal 2014 of approximately $15 million (excluding transition and integration expenses). Further, we expect the transaction to be cash flow positive in fiscal 2014, with the $25 million in cash lease payments and $3 million of anticipated maintenance capital more than offset by Resort EBITDA and the favorable cash tax benefits we expect from the transaction. These projections do not include any impact from our potential lease of the land under PCMR, which we believe presents further opportunity for EBITDA and cash flow growth."

Updated Guidance
Turning to guidance for fiscal 2013, Katz commented, "With the addition of Canyons resort operations beginning with the signing of the long-term lease on May 29, 2013, we are providing updated guidance for fiscal 2013. We now estimate Resort Reported EBITDA to be between $236 million to $242 million, which includes $8.7 million of estimated losses relating to Canyons, comprised of approximately $2.2 million of estimated Canyons operating losses in the fourth quarter of fiscal 2013 and approximately $6.5 million of one-time Canyons related transaction and transition costs in fiscal 2013. Excluding Canyons, Resort Reported EBITDA is forecasted to grow between 19% and 22% in fiscal 2013. The addition of Canyons related depreciation and amortization and interest expense is expected to result in fiscal 2013 depreciation and amortization of $133 million to $135 million and total interest expense of $37 million to $41 million."

Commenting on real estate, Katz said, "We are raising our fiscal 2013 Real Estate Reported EBITDA guidance to negative $7 million to negative $11 million, including approximately $2 million of non-cash stock-based compensation expense. We estimate that Net Real Estate Cash Flow for fiscal 2013 will be $23 million to $27 million (defined as Real Estate Reported EBITDA, plus non-cash real estate cost of sales, plus non-cash stock-based compensation expense, plus change in real estate deposits less investment in real estate)."


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