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Vail Resorts, Inc. (NYSE:MTN) announced today financial results for the second quarter of fiscal 2008 ended January 31, 2008.
The Company uses the term "Reported EBITDA," "Reported EBITDA excluding stock-based compensation," "net income excluding stock-based compensation" and "Net Debt" when reporting financial results in accordance with Securities and Exchange Commission rules regarding the use of non-GAAP financial measures. The Company defines Reported EBITDA as segment net revenue less segment operating expense plus segment equity investment income or loss and for the Real Estate segment, plus gain on sale of real property. The Company defines Net Debt as long-term debt plus long-term debt due within one year less cash and cash equivalents.
SECOND QUARTER PERFORMANCE
Mountain Segment
Mountain revenue increased $7.7 million, or 2.8%, in the second quarter of fiscal 2008 to $279.7 million from $272.0 million for the same quarter last fiscal year. Mountain operating expense increased $3.3 million, or 2.1%, to $163.2 million. Mountain equity investment income, net decreased $0.6 million. Mountain Reported EBITDA increased $3.8 million, or 3.4%, to $117.5 million compared to $113.7 million for the same quarter last fiscal year.
Lodging Segment
Lodging revenue increased $2.0 million, or 6.2%, in the second quarter of fiscal 2008 to $34.8 million from $32.8 million for the same quarter last fiscal year. Lodging operating expense increased $6.0 million, or 19.6%, to $36.8 million. Lodging operating expense included approximately $2.2 million of start-up and pre-opening expenses related to The Arrabelle at Vail Square hotel. Lodging Reported EBITDA decreased $4.0 million, or 195.9%, to a loss of $2.0 million compared to a profit of $2.0 million for the same quarter last fiscal year.
Resort - Combination of Mountain and Lodging Segments
Resort revenue, the combination of Mountain and Lodging revenue, increased $9.7 million, or 3.2%, in the second quarter of fiscal 2008 to $314.5 million from $304.8 million for the same quarter last fiscal year. Resort operating expense increased $9.3 million, or 4.9% to $200.0 million. Resort equity investment income, net decreased $0.6 million. Resort Reported EBITDA decreased $0.2 million to $115.5 million, a 0.2% decrease from the same quarter last fiscal year. Resort Reported EBITDA excluding stock-based compensation decreased $0.4 million, or 0.3%, to $116.6 million.
Real Estate Segment
Real Estate revenue decreased $10.7 million, or 19.1%, in the second quarter of fiscal 2008 to $45.5 million from $56.2 million for the same quarter last fiscal year. Real Estate operating expense decreased $6.0 million, or 11.9%, to $44.4 million. Gain on sale of real property increased $0.7 million. Real Estate Reported EBITDA decreased $4.1 million, or 69.6%, to $1.8 million compared to $5.8 million for the same quarter last fiscal year.
Total Performance
Total revenue decreased $1.0 million, or 0.3%, in the second quarter of fiscal 2008 to $360.0 million from $361.0 million for the same quarter last fiscal year. Income from operations for the quarter decreased $5.2 million, or 5.3%, to $92.6 million. The Company recorded total pre-tax stock-based compensation expense of $1.9 million and $1.8 million in the three months ended January 31, 2008 and January 31, 2007, respectively.
The Company reported second quarter fiscal 2008 net income of $51.3 million, or $1.31 per diluted share, compared to net income of $53.0 million, or $1.35 per diluted share, for the same quarter last fiscal year. Excluding stock-based compensation expense, the Company's net income for the second quarter of fiscal 2008 would have been $52.5 million, or $1.34 per diluted share, compared to net income of $54.1 million excluding stock-based compensation, or $1.38 per diluted share, for the same quarter last fiscal year.
SIX MONTH PERFORMANCE
Mountain Segment
Mountain revenue increased $4.1 million, or 1.3%, for the six months ended January 31, 2008, to $322.3 million from $318.2 million for the comparable period last fiscal year. Mountain operating expense increased $4.8 million, or 2.0%, to $244.1 million. In the current fiscal year six month period, Mountain operating expense included approximately $2.0 million in legal fees for litigation related to the Company's attempted acquisition of The Canyons ski resort ("The Canyons"). Excluding the impact of The Canyons litigation, Mountain operating expense would have increased approximately $2.8 million, or 1.2%. Mountain equity investment income, net increased $0.6 million. Mountain Reported EBITDA decreased $0.1 million, or 0.2%, to $81.0 million compared to $81.2 million for the comparable period last fiscal year.
Lodging Segment
Lodging revenue increased $4.9 million, or 6.7%, for the six months ended January 31, 2008, to $78.1 million from $73.2 million for the comparable period last fiscal year. The prior year period included the recognition of $2.4 million of revenue associated with the termination of the management agreement at The Lodge at Rancho Mirage (pursuant to the terms of the management agreement) with the closing of the hotel as part of a redevelopment plan by the hotel's owner. Excluding this termination fee, Lodging revenue would have increased $7.3 million, or 10.4%. Lodging operating expense increased $10.9 million, or 16.3%, to $78.0 million. Lodging operating expense included approximately $3.0 million of start-up and pre-opening expenses related to The Arrabelle at Vail Square hotel. Lodging Reported EBITDA decreased $6.0 million, or 97.9%, to $0.1 million compared to $6.1 million for the comparable period last fiscal year.
Resort - Combination of Mountain and Lodging Segments
Resort revenue, the combination of Mountain and Lodging revenue, increased $9.0 million, or 2.3%, for the six months ended January 31, 2008, to $400.4 million from $391.4 million for the comparable period last fiscal year. Excluding the impact of the prior year Rancho Mirage termination fee, Resort revenue would have increased $11.4 million, or 2.9%. Resort operating expense increased $15.7 million, or 5.1%, to $322.2 million. Excluding the current fiscal year legal expense associated with The Canyons litigation, Resort operating expense would have increased approximately $13.7 million, or 4.5%. Resort equity investment income, net increased $0.6 million. Resort Reported EBITDA decreased $6.1 million to $81.1 million, a 7.0% decrease from the comparable period last fiscal year. Resort Reported EBITDA excluding stock- based compensation decreased $6.3 million, or 7.0%, to $83.6 million.
Real Estate Segment
Real Estate revenue decreased $25.6 million, or 30.8%, for the six months ended January 31, 2008, to $57.5 million from $83.1 million for the comparable period last fiscal year. Real Estate operating expense decreased $25.2 million, or 32.9%, to $51.3 million. Gain on sale of real property increased $0.7 million. Real Estate Reported EBITDA increased $0.3 million, or 4.0%, to $6.9 million compared to $6.6 million for the comparable period last fiscal year.
Total Performance
Total revenue decreased $16.6 million, or 3.5%, for the six months ended January 31, 2008, to $457.9 million from $474.5 million for the comparable period last fiscal year. Income from operations for the six months decreased $6.5 million, or 13.9%, to $40.4 million. The Company recorded total pre-tax stock-based compensation expense of $3.9 million and $3.7 million in the six months ended January 31, 2008 and January 31, 2007, respectively.
The Company reported first half fiscal 2008 net income of $26.7 million, or $0.68 per diluted share, compared to net income of $17.2 million, or $0.44 per diluted share, for the comparable period last fiscal year. Included in the first half fiscal 2008 results is the receipt of the final cash settlement from Cheeca Holdings, LLC of which $11.9 million (net of final attorney fees and on a pre-tax basis) was included in contract dispute credit (charges), net. Excluding stock-based compensation expense, the Company's net income for the six months ended January 31, 2008, would have been $29.1 million, or $0.74 per diluted share, compared to net income of $19.5 million excluding stock- based compensation, or $0.50 per diluted share, for the comparable period last fiscal year.
Business Commentary and Outlook
Robert Katz, Chief Executive Officer, commented, "I am pleased with our fiscal 2008 second quarter results. They reflect the commitment of our employees and the strength of our resorts and the experience we provide. With both very difficult early season weather and a challenging economy, our Mountain Reported EBITDA still represented a new all-time record for our second quarter and overall Resort Reported EBITDA was essentially flat with last year's all-time record second quarter. The second quarter basically contains the first half of our 2007/2008 ski season with Mountain segment revenue up 2.8% over the prior year's record quarter with approximately 50% of our revenue growth flowing through to Mountain Reported EBITDA. Lift ticket revenue increased $5.4 million, or 4.2%, over the prior year's quarter, driven in part by an 11.2% increase in season pass revenue (of which we recognized 54% in the second quarter with the remainder to be recognized in the third quarter), as well as effective ticket price, or "ETP", growth of 8.4%, driven by higher season pass pricing and increased ETP excluding season pass products of 7.0%, again caused by higher pricing. Partially offsetting the season pass and ETP increases was a decline in skier visits excluding season pass holders of 5.3% at the Company's five ski resorts, which entirely occurred from the start of the ski season to the pre-Christmas holiday period in December, or the "Early Season." Snowfall for the Early Season in the current year was significantly below the same period in the prior year. Lift revenue was down approximately $4.9 million, or 13.6%, for the Early Season compared to the same period in the prior year. However, for the remainder of the quarter compared to the prior year starting with the Christmas holiday period through January 31, lift revenue was higher by approximately $10.3 million, or 11.1%. Lift revenue was also favorably impacted by an approximate 23% increase in international guest visitation compared to the same period in the prior year."
Katz continued, "Revenue from our ancillary Mountain businesses including ski school, dining and retail/rental businesses followed the same trends as lift tickets described above, with overall revenue up $4.9 million, or 4.1%, for these three areas in the quarter, despite revenue being down in these areas by approximately $4.8 million, or 10.0%, in the Early Season, with revenue for these three areas being up by approximately $9.7 million, or 13.5%, in the remainder of the quarter. Also importantly, our yields for revenue per skier visit relative to these ancillary businesses were all improved with our guests spending more on ski school, dining and retail/rental per visit in the current year. Looking at our lodging operations, our average daily rate increased 9.6% and our revenue per available room increased 6.9% for the quarter on a "same store" basis at our owned hotels and managed condominiums. Our lodging results for the quarter absorbed approximately $2.2 million of one-time start-up and pre-opening expenses related to the new Arrabelle at Vail Square, a RockResort, and therefore the Lodging segment Reported EBITDA was a loss for the quarter. Real Estate Reported EBITDA decreased for the quarter due solely to the timing of closings within the quarter. Overall, we remain on pace to close on all of The Arrabelle condominium units and six of the thirteen Lodge at Vail Chalets in the current fiscal year with the remaining Chalets anticipated to close in the first half of fiscal 2009." Katz added, "While there are challenges with the U.S. economic climate, we believe our business remains solid as we enter our third quarter, historically our strongest quarter of the season, as reflected in the growth of our Mountain revenue results since the pre-holiday period, all achieved within this current economic environment. Additionally our balance sheet continues to strengthen with approximately $275 million of cash and cash equivalents on hand and Net Debt of less than two times trailing twelve months Total Reported EBITDA."
Commenting on One Ski Hill Place in Breckenridge, Katz said, "We had a successful launch of the first of a multi-building project at One Ski Hill Place including 88 ski-in/ski-out residences ranging from studio to four- bedroom homes with approximately 102,000 saleable residential square feet. To date, we have released 66 units in five phases with an average price per square foot of $1,244 (29% in excess of Crystal Peak released just a year ago, which has already sold out). Currently, we have 38 units under contract, representing gross sales proceeds of $54.5 million. We are excited by the development opportunities that exist at Breckenridge with One Ski Hill Place, a RockResort, creating a unique luxury experience at the base of Peak 8."
As an update on the Vail Mountain Club, Katz added, "Vail Mountain Club sales continue to be strong. To date, we have sold 332 memberships, including 161 full memberships, which include parking privileges, and an additional 171 social memberships, which exclude parking privileges, representing total sales commitments of $58.6 million of total proceeds when paid in full. This includes the sale of 41 full memberships and 41 social memberships since our December 10, 2007, earnings release. With the pace of the membership sales, we have recently increased the membership initiation fee deposit on the full memberships to $275,000 from $260,000 and on the social memberships to $150,000 from $105,000 with eight full memberships and seven social memberships sold at these new price points. The strength of the Vail Mountain Club sales in this economic climate is certainly a testament to the unique experience that the club will offer members steps from the Vista Bahn chairlift beginning next ski season."
Commenting on the opening of The Arrabelle at Vail Square, Katz said, "On January 5th, we opened the newest RockResort hotel, The Arrabelle at Vail Square, the crown jewel of our hotel portfolio. This project including its hotel, commercial and real estate components has redefined the look and feel of one of the key base areas at Vail Mountain as guests experience a quintessential European village in the heart of Vail. In addition to world class skiing and snowboarding accessed via the gondola just steps away, lodging guests at The Arrabelle can enjoy the highest level of amenities and services such as a ski concierge, a premium RockResorts spa and fabulous new restaurants including Centre V, a French inspired Brasserie. Since opening, we have had rave reviews for this new luxury, signature property of the RockResorts brand and for the surrounding village we have created, which has fundamentally changed the landscape of one of the main portals to Vail Mountain. In addition, we have closed on 12 of the 67 Arrabelle condominium units in the second quarter with all of the remaining condominium units under contract and expected to close during the remainder of fiscal 2008."
Commenting on our fiscal 2008 guidance, Katz said, "Based on our current estimates, we are reaffirming our net income guidance, which was first issued in September, 2007. As components of the net income guidance, we are also reaffirming our Lodging and Real Estate Reported EBITDA guidance, while we are lowering our Mountain Reported EBITDA guidance by roughly the amount of the lift ticket and the ancillary revenue area declines described earlier which occurred during the Early Season. We currently expect full year Resort Reported EBITDA, the combination of our Mountain and Lodging segments, to range from $230 million to $240 million and Resort Reported EBITDA excluding stock-based compensation expense to range from $235 million to $245 million. The Resort guidance includes a range for Mountain Reported EBITDA of $218 million to $228 million and Mountain Reported EBITDA excluding stock-based compensation expense of $222 million to $232 million, while we expect Lodging Reported EBITDA to range from $8 million to $14 million and Lodging Reported EBITDA excluding stock-based compensation expense expected to range from $9 million to $15 million. Real Estate Reported EBITDA is expected to range from $54 million to $60 million and Real Estate Reported EBITDA excluding stock- based compensation expense is expected to range from $57 million to $63 million. Based on our current estimates, we expect net income to range from $112 million to $122 million and net income excluding stock-based compensation expense to range from $117 million to $127 million."
Katz concluded, "In addition, during the second quarter, we continued our previously announced share repurchase program, resulting in the repurchase of 279,079 shares at an average price of $50.78 for a total amount of $14.2 million. Since inception of this program in fiscal 2006, the Company has repurchased 1,185,083 shares at an average price of $43.64 for a total amount of approximately $51.7 million, with 1,814,917 shares remaining available under the existing repurchase authorization. Our purchases under this program are reviewed with our Board quarterly and are based on a number of factors as we evaluate the appropriate uses of our excess cash, including but not limited to the share repurchase program."
Resort Capital Expenditure Announcement
The Company also announced its calendar 2008 Resort capital expenditure plans, exclusive of resort depreciable assets associated with the Company's various real estate projects. The Company expects to spend approximately $100 million to $110 million of resort capital expenditures in calendar 2008, which includes $40 million to $42 million for capital expenditures that the Company believe 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 these "maintenance" capital expenditures include snow-cat replacements, uniforms for all five mountains, lift maintenance, snowmaking equipment, lodging furniture, fixture & equipment and rental equipment fleet capital. Resort discretionary capital is expected to be in the range of $60 million to $68 million with projects including a new state-of-the-art eight passenger Keystone River Run gondola, including moving the bottom terminal into River Run Village, completion of the second phase of the Beaver Creek children's ski school improvements, including an on-mountain ski school building following the new Buckaroo Express gondola installed in 2007, full renovation of the Inn at Beaver Creek, including substantial upgrades to create a unique ultra-luxury RockResorts branded hotel, new snowmaking equipment at Peak 7 in Breckenridge, re-grading and snowmaking for the main trail connecting California and Nevada at Heavenly, Jackson Lake Lodge room remodel in Grand Teton National Park, and upgrades to the Company's central reservations, marketing database and e-commerce booking systems, among other projects.
Commenting on the capital expenditure announcement, Katz said, "Our calendar 2008 resort capital plan is focused on continuing to improve the quality of our assets across the Mountain and Lodging segments. With these capital investment projects we have planned, we continue to differentiate ourselves from the competition as we lead the way in offering our guests exceptional experiences at all of our extraordinary resorts."
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