Vail Resorts, Inc. revealed results for the second quarter of fiscal 2009 ended Jan. 31, 2009, as well as the company's ski season to date metrics through Mar. 1, 2009, and the company's calendar 2009 resort capital plan. Net income of $60.5 million in the second fiscal quarter increased by $9.2 million, or 18.0%, from the prior year second fiscal quarter. Nonetheless, Vail Resorts announced a company-wide wage reduction plan.
Second Quarter Highlights
Net Debt leverage ratio of 1.2 times trailing twelve months. Total Reported EBITDA, $139.2 million of cash and cash equivalents on hand as of Jan. 31, 2009, and no revolver borrowings under the Company's $400 million senior credit facility.
Commenting on our second quarter fiscal 2009 results, Rob Katz, CEO said, “Our second quarter Resort segment results, which encompass the first part of the ski season, reflect the impact of the severe downturn in the economy. The company's Mountain segment results were negatively impacted by lower destination visitation, which drove lower lift revenue and to a greater degree a decline in our ancillary business revenue, including ski school, dining and retail/rental. This was partially offset by strong season pass revenue and pass skier visitation including from our new Epic Season Pass holders. The strong season pass sales enabled us to lock-in sales from a large portion of our Colorado in-state guests as well as a portion of our destination guests before the commencement of the major part of our ski season. Total season pass sales (including the Epic Season Pass) increased by $17.1 million, or 22.1%, as of Jan. 31, 2009, for the 2008/2009 ski season over total season pass sales for the entire 2007/2008 ski season. Our lodging bookings as of Jan. 31, 2009, were down 14.9% to the prior year, and reflect a much closer booking window experienced throughout this winter ski season. In addition, our guests are spending less on average during their stay, especially in the areas of private ski school lessons, fine dining and retail. Lodging segment results benefited from the acquisition of Colorado Mountain Express (“CME”) at the beginning of the current year second quarter, the full period operations of the Arrabelle compared to start-up and pre-opening expenses incurred in the prior year and the renovation of the Lodge at Vail as part of the Vail Front Door real estate project. Our Real Estate segment improved results reflect the timing of closings and mix of units sold, including the current year second quarter closings of six Lodge at Vail Chalets, one Arrabelle unit and three Crystal Peak Lodge units compared to the number and type of closings in the prior year. Overall, relative to the unprecedented environment we are in, our results for the quarter reflect the strength of our assets, brands, season pass programs and the passion of our employees in delivering the highest quality experience to our guests. Very importantly in these times, our balance sheet remains strong with net leverage of only 1.2 times trailing twelve months Total Reported EBITDA, no borrowings under our revolver and virtually no principal maturities due on any of our debt through 2013.”
Mountain Segment
Mountain segment revenue was $258.5 million in the second quarter of fiscal 2009 compared to $279.7 million in the second quarter of fiscal 2008, a decline of 7.6%.
Mountain Reported EBITDA was $103.5 million in the second quarter of fiscal 2009 compared to $117.5 million in the second quarter of fiscal 2008, a decline of 11.9%.
Lift ticket revenue in the current year second fiscal quarter decreased $6.8 million, or 5.1%, from the prior year second fiscal quarter due primarily to a 19.3% decrease in visits excluding season pass holders, partially offset by a 4.6% increase in effective ticket price excluding season passes and an 18.2% increase in season pass revenue, which included an 8.4% increase in effective pass price. The significant increase in visits from season pass holders, which partially caused the offsetting decline in other visits was primarily driven by the introduction of the Epic Season Pass, with the increase in season pass visits causing the overall decline in effective ticket price of 4.4%. Additionally, the mix of destination to in-state guest visits was approximately 52% to 48%, respectively, in the current year quarter compared to approximately 59% to 41%, respectively, in the prior year quarter. Total skier visits increased 0.9% at the company's four Colorado resorts, while total skier visits including Heavenly decreased 0.8%. The company's lift revenue and skier visit year-over-year variance percentages were favorably impacted by the timing of the current year second quarter end, which ended on a higher volume Saturday, compared to the prior year quarter ending on a Thursday. Total skier visits and lift revenue were down approximately 4.5% and 7.5%, respectively, when comparing the season to date period ending Saturday, Jan. 31, 2009, with the prior year period ending Saturday, Feb. 2, 2008.
Revenue for the company's ancillary business, ski school, dining and retail/rental operations, were all impacted by the current downturn in the economic environment and a resulting decrease in destination visitors and overall spending per guest. Ski school revenue decreased $6.2 million, or 17.6%. Dining revenue decreased $2.6 million, or 11.4%, driven by the decline in total on-mountain food and beverage transactions and lower check averages, coupled with a decrease in overall fine dining. Retail/rental revenue decreased $7.5 million, or 11.3%, due to lower sales and rental volumes at the Company's mountain locations. Ski school, dining and retail/rental revenues decreased by approximately 20.1%, 15.5% and 13.9%, respectively, when comparing the current year season to date period ending Saturday, Jan. 31, 2009, with the prior year period ending Saturday, Feb. 2, 2008. Other revenue increased $1.9 million, or 9.3%, due primarily to the opening of the Vail Mountain Club.
Mountain segment operating expenses decreased by $7.0 million, or 4.3%, attributable to a decline in variable-based operating expenses, including U.S. Forest Service fees; credit card fees; other resort fees; ski school and dining labor; dining and retail/rental cost of sales as well as lower allocated corporate overhead expense.
Lodging Segment
Lodging segment revenue was $41.2 million in the second quarter of fiscal 2009 compared to $34.8 million in the second quarter of fiscal 2008, an increase of 18.2%, primarily due to the opening of the Arrabelle in January 2008 and the acquisition of CME on Nov. 1, 2008. Excluding the impact of the Arrabelle and CME, Lodging segment revenue would have decreased 13.2%.
Second quarter average daily rate (“ADR”) decreased 6.4% and revenue per available room (“RevPAR”) decreased 15.1% at the company's owned hotels and managed condominiums on a “same store” basis, excluding the Arrabelle, compared to the prior year second quarter.
Lodging Reported EBITDA was $2.5 million in the second quarter of fiscal 2009 compared to a loss of $2.0 million in the second quarter of fiscal 2008. The prior year quarter included $2.2 million of pre-opening and start-up expenses at the Arrabelle and the current year second quarter included $7.9 million of revenue and $5.4 million of expense from CME.
During the second quarter fiscal 2009, the Lodging segment results were impacted by similar trends realized by the Mountain segment, including the decline in destination visitation at our Mountain resorts as well as being impacted by a decline in group room nights. During the quarter, the company's owned and managed properties offered promotions and packages to attract guests to the mountains, driving a decrease in ADR. Overall, the Lodging segment experienced significantly less visibility with a much shorter booking window in both peak and non-peak periods, while a mix shift occurred from group business to transient business compared to the prior year quarter.
In addition, the second quarter of fiscal 2009 included a full quarter of operations from CME, which was acquired on Nov. 1, 2008. Excluding the acquisition of CME and the operations of the Arrabelle in the current year quarter and the Arrabelle's expenses in the prior year quarter, operating expenses would have decreased 12.5%, attributable to the variable nature of a large part of Lodging segment expenses, which were reduced commensurate with the similar revenue decrease excluding the Arrabelle and CME.
During the second quarter of fiscal 2009, the Company opened The Osprey at Beaver Creek, a RockResort, formerly the Inn at Beaver Creek following a $7 million renovation.
Resort Segment – Combination of Mountain and Lodging Segments
Resort revenue was $299.6 million in the second quarter of fiscal 2009 compared to $314.5 million in the second quarter of fiscal 2008, a decrease of 4.7%.
Resort Reported EBITDA was $105.9 million in the second quarter of fiscal 2009 compared to $115.5 million in the second quarter of fiscal 2008, a decline of 8.3%.
Real Estate Segment
Real estate revenue was $89.2 million in the second quarter of fiscal 2009 compared to $45.5 million in the second quarter of fiscal 2008.
In the second quarter of fiscal 2009, the company closed on six Lodge at Vail Chalets, one Arrabelle unit and three Crystal Peak Lodge units. To date, the company has closed on 12 of 13 Lodge at Vail Chalets, with the remaining unit anticipated to close in the spring of 2009, due to the extensive nature of the buyer upgrades associated with this unit; all 66 Arrabelle units with the final unit closing on Mar. 9, 2009, and 42 of 45 Crystal Peak Lodge units. To date, the company has also closed on 384 Vail Mountain Club memberships for total proceeds of $70.1 million, and has closed on 11 memberships for the newly introduced Arrabelle Club for total proceeds of $1.2 million.
Total Performance
Total revenue was $388.8 million in the second quarter of fiscal 2009 compared to $360.0 million in the second quarter of fiscal 2008, an increase of 8.0%.
Net income was $60.5 million, or $1.65 per diluted share, in the second quarter of fiscal 2009 compared to net income of $51.3 million, or $1.31 per diluted share, in the second quarter of fiscal 2008. In addition, included in the six month net income results in the prior year was the receipt of the final cash settlement from Cheeca Holdings, LLC of which $11.9 million (net of final attorney's fees and on a pre-tax basis) was included in contract dispute credit, net.
Balance Sheet
At Jan. 31, 2009, the company had cash and cash equivalents on hand of $139.2 million, Net Debt of 1.2 times trailing twelve months Total Reported EBITDA and a $400 million senior credit facility, which matures in 2012, with no revolver borrowings under the facility, currently priced at LIBOR plus 50 basis points. The company has approximately $3.0 million of principal maturities due in total through 2013.
Stock Repurchase Program
During the second quarter of fiscal 2009, the company repurchased 317,727 shares of common stock at an average price of $23.48 for a total amount of approximately $7.5 million in the quarter. Since the inception of this program in fiscal 2006, the company has repurchased 3,600,235 shares at an average price of $38.98 for a total amount of approximately $140.3 million, with 2,399,765 shares remaining available under the existing repurchase authorization. The purchases under this program are reviewed by the company's Board quarterly and are based on a number of factors to determine the appropriate uses of excess cash, including the company's expected future financial performance, the company's available cash resources and competing uses for cash that may arise in the future, the restrictions in the company's credit facility and in the indenture governing the outstanding 6.75% senior subordinated notes, prevailing prices of the company's common stock and the number of shares that become available for sale at prices that the company believes are attractive.
New Chairman
Robert A.
Katz, chief executive officer of Vail Resorts, has been named to the additional
position of chairman of the board of directors of the company, replacing Joe
Micheletto, who retired from his positions as chairman of the board and as a
director on Feb. 2, 2009. Katz has been a director of Vail Resorts since June
1996, and served as lead director from June 2003 through February 2006. Concurrently,
Roland A. Hernandez has been named lead director of the board. Hernandez has
been a director of Vail Resorts since December 2002.
Wage Reduction Plan
The companywide
wage reduction plan is designed to reduce labor costs while preserving as many
jobs as possible in this uncertain economic environment. Under the plan, all
affected employees of the company will have their salaries reduced on a sliding
scale from 2.5%for seasonal employees to 10%for executives. In addition, each
full-time, year-round employee will receive a grant of stock-based incentive
compensation with a value on a sliding scale from 1.5%of salary to 7.5%of
salary for executives. This will increase the number of employees owning stock
from approximately 260 to over 2,500, allowing many more employees to
participate in ownership of the company.
Rob Katz,
the company's chief executive officer, has decided to not take any salary for a
12-month period and then receive a 15-percent salary reduction. He will not
participate in the stock issuance. Each outside member of the company's board
of directors has also decided to reduce their annual cash retainer by 20
percent. Wage reductions for seasonal employees will be effective after the
current winter season. The wage reduction for all other employees will be
effective on April 2, 2009. This wage reduction plan, combined with certain
other adjustments, is expected to result in expense savings of over $10 million
on an annualized basis.
“I
am very proud of the effort of our employees and our company's performance in
this unprecedented environment,” said Katz. “However, it's also clear
that with the uncertainty that lies ahead, reducing cost is an imperative. We
have chosen to address this situation by making the preservation of jobs and
protecting the guest experience our highest priorities. By asking everyone to
take less, starting at the top, we can continue to focus on our mission of
extraordinary resorts, exceptional experiences.”
Calendar 2009 Resort Capital Expenditure Announcement
Vail Resorts is committed to offering our guests an exceptional guest experience. Over the past four years, the company has made significant investments in resort assets to enhance the overall guest experience. Highlighting several of these recent major discretionary capital expenditures, the projects have included: the Keystone River Run gondola; the Breckenridge gondola; two new high-speed chairlifts at Vail (Chairs 10 and 14); Heavenly's high-speed Olympic Express chairlift; Beaver Creek's Buckaroo Express gondola and the Ranch, a new children's ski school on-mountain check-in/dining building; the Osprey at Beaver Creek renovation and new central reservations and web platform deployment. Additionally, the company has recently benefited from significant resort assets that have come from the Company's real estate development activity including the Arrabelle (including the Arrabelle hotel, spa, private club, skier services and commercial space) and Vail Front Door (including the Lodge at Vail spa and suite rooms, new skier service area and Vail Mountain Club) projects. Over the past three calendar years of 2006 through 2008, the company has expended close to $300 million in resort capital expenditures, excluding the resort assets that have come from our real estate activities.
In recognition of the current economic climate, and given the significant investments that the company has made in resort assets over the past several years, the company expects to spend approximately $50 million to $60 million of resort capital expenditures in calendar 2009, including $32 million to $37 million for “maintenance” capital expenditures that the Company believes are necessary to maintain the high quality appearance and level of service at the company's five ski resorts and throughout its hotels. Highlights of the “maintenance” capital expenditures include: snow-cat replacements; lift upgrades; snowmaking equipment; lodging furniture, fixture & equipment and rental equipment fleet capital. This year's discretionary projects will include: a skier bridge at Keystone following the completion of the new Keystone gondola, enabling guests easier access to ski across the river to the new base of the gondola and River Run Village; the build-out of a new restaurant at Peak 7 in Breckenridge in conjunction with the Crystal Peak Lodge real estate project; completion of a brand new online planning and booking platform, offering guests a much more seamless and useful way to make reservations at the company's resorts; and a new tubing lift and tubing hill expansion at Heavenly to generate both winter and summer business.
Commenting on the calendar 2009 resort capital expenditure announcement, Katz said, “Our level of planned capital expenditures for calendar 2009, while responding to our current economic environment, still underscores our commitment to the overall guest experience and includes investments to maintain our current high quality standards.”
Season to Date Metrics through Mar. 1, 2009
The company is providing an update on the ski season metrics for the comparative periods from the beginning of the ski season through Sunday, Mar. 1, 2009, and for the similar prior year period through Sunday, Mar, 2, 2008, which includes interim period data and is subject to fiscal third quarter end review and adjustments.
Season to date total skier visits for the company's five mountain resorts were down 5.1% for the season to date period through Mar. 1, 2009, compared to the prior year season to date period ending Mar. 2, 2008.
Season to date total lift ticket revenue through Mar. 1, 2009, including an allocated portion of season pass revenue for each applicable period, was down 8.0% compared to the prior year season to date period ending Mar. 2, 2008.
Additionally, the Company is providing the following update on bookings.
– Bookings through the Company's central reservations and directly
at the company's owned and managed properties as of Feb. 28,
2009, were down 13.9% in room nights compared to the same prior
year period, inclusive of actual guest stays season to date.
Commenting on the ski season metrics season to date, Rob Katz said, “Our season to date metrics through Sunday, Mar. 1, 2009, compared to the prior year period ending Sunday, Mar. 2, 2008, reflect similar trends in the areas of total visits, lift revenue and ski school revenue as we saw through our first interim period through Jan. 4, 2009, compared to Jan. 6, 2008, and then again for the period through Jan. 31, 2009, compared to Feb. 2, 2008, despite a worsening economic environment. Our dining and retail/rental revenue trends, while having worsened during January, have stabilized and are consistent with the trends for the period through Jan. 31, 2009, compared to Feb, 2, 2008. Our bookings trends have improved to down 13.9% from down 23.3% announced in early December and from down 14.9% at Jan. 31, 2009.”
Outlook
Commenting on the company's outlook for the remainder of fiscal 2009, Katz said, “2009 has been a challenging time for the entire travel industry and our company has certainly been impacted with negative trends in our resort business. However, the company remains in a strong position from a capital structure and balance sheet perspective which we believe will enable us to navigate through the current environment, even if prolonged, while still delivering on our mission of extraordinary resorts, exceptional experiences. We do expect that for the remainder of the fiscal year the trend of our results to the prior year will worsen from the results realized in the second quarter. This is due primarily to the third quarter being a historically larger revenue quarter than the second quarter with the continuing negative trends having a greater impact. In addition, our real estate brokerage joint venture, included in Mountain segment results as mountain equity investment income, net, was positively impacted in the first half of the current fiscal year by project related closings with the remainder of the fiscal year anticipated to experience a significant decline in brokerage fees due to virtually no project closings and much lower residential activity. In the fourth quarter of the prior fiscal year, there were also some one-time favorable expense credits in the areas of workers' compensation, property tax and health insurance costs, which are not expected to reoccur in the fourth quarter of fiscal 2009. In our Real Estate segment, minimal second half closings are anticipated as the vast majority of the units are already closed through the first half of the current year on projects now completed.”
Commenting on the fiscal 2009 guidance, Katz continued, “Since we provided our initial fiscal 2009 guidance in late September 2008, the overall macro economic environment has continued to deteriorate, causing us to disclose at the time of our first quarter fiscal 2009 release that results could fall below the lower end of our original guidance range given the advance bookings we were seeing at that time. Based on results to date and our current visibility into March and April, we believe our earlier concerns were well founded and now estimate that fiscal 2009 results will fall below the lower end of our initial guidance range issued before the start of the season. Incorporated in our new guidance range is an increase to our Real Estate Reported EBITDA guidance of $6 million at the low end of the range and $4 million at the high end of the range, which was favorably impacted by an improved contribution from our Crystal Peak Lodge development and other reduced costs.”
Vail Resorts, Inc.
Consolidated Condensed Statements of Operations
(In thousands, except per share amounts)
(Unaudited)Three Months Ended
January 31,
2009 2008
Net revenue:
Mountain $258,489 $279,722
Lodging 41,150 34,827
Real estate 89,157 45,471
Total net revenue 388,796 360,020
Segment operating expense:
Mountain 156,188 163,188
Lodging 38,697 36,782
Real estate 59,508 44,409
Total segment operating expense 254,393 244,379
Other operating income (expense):
Depreciation and amortization (27,438) (23,621)
Gain on sale of real property -- 709
Loss on disposal of fixed assets, net (422) (157)
Income from operations 106,543 92,572
Mountain equity investment income, net 1,161 926
Investment income 336 2,019
Interest expense, net &n
