ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q (the “Report”)
and with
the audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2017 filed with the Securities and Exchange Commission
. In addition to historical financial information, the following discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Unless the context suggests otherwise, references in this Report to the “Company”, “Peak”, “our”, “us”, or “we” refer to Peak Resorts, Inc. and its consolidated subsidiaries.
Forward-Looking Statements
Except for any historical information contained herein, the matters discussed in this
Report
contain certain “forward-looking statements'' within the meaning of the federal securities laws.
This includes statements regarding our future financial position, economic performance, results of operations, business strategy, budgets, projected costs, plans and objectives of management for future operations, and the information referred to under “Management's Discussion and Analysis of Financial Condition and Results of Operations''.
These forward-looking statements generally can be identified by the use of forward-looking terminology, such as “may,'' “will,'' “expect,'' “intend,'' “estimate,'' “anticipate,'' “believe,'' “continue'' or similar terminology, although not all forward-looking statements contain these words. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, you are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Although we believe that the expectations reflected in such forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements. Unless otherwise required by law, we also disclaim any obligation to update our view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made in this
R
eport. Important factors that could cause actual results to differ materially from our expectations include, among others:
|
·
|
|
weather, including climate change;
|
|
·
|
|
availability of funds for capital expenditures and operations;
|
|
·
|
|
competition with other indoor and outdoor winter leisure activities and ski resorts;
|
|
·
|
|
the leases and permits for property underlying certain of our ski resorts;
|
|
·
|
|
ability to integrate new acquisitions;
|
|
·
|
|
environmental laws and regulations;
|
|
·
|
|
our dependence on key personnel;
|
|
·
|
|
the effect of declining revenues on margins;
|
|
·
|
|
the future development and continued success of our Mount Snow and Hunter Mountain ski resorts;
|
|
·
|
|
our reliance on information technology;
|
|
·
|
|
our current dependence on our primary lender and the lender's option to purchase certain of our ski resorts;
|
|
·
|
|
our dependence on a seasonal workforce;
|
|
·
|
|
our ability to avoid or recover from cyber and other security breaches and other disruptions; and
|
You should also refer to Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for a discussion of factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this
Report
will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may prove to be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time-frame, or at all.
Company Overview
We are a leading owner and operator of high-quality, individually branded ski resorts in the U.S. We currently operate 14 ski resorts primarily located in the Northeast and Midwest, 13 of which we own. The majority of our resorts are located within 100 miles of major metropolitan markets, including New York City, Boston, Philadelphia, Cleveland and St. Louis, enabling day and overnight drive accessibility. Our resorts are comprised of nearly 1,859 acres of skiable terrain that appeal to a wide range of ages and abilities. We offer a breadth of activities, services and amenities, including skiing, snowboarding, terrain parks, tubing, dining, lodging, equipment rentals and sales, ski and snowboard instruction and mountain biking and other summer activities. We believe that both the day and overnight drive segments of the ski industry are appealing given their stable revenue base, high margins and attractive risk-adjusted returns. We have successfully acquired and integrated 11 ski resorts since our incorporation in 1997, and we expect to continue executing this strategy.
We and our subsidiaries operate in a single business segment—resort operations.
Business Overview
Capital Projects
As part of our mission to build value by investing in our current properties through expansions, new products and amenities that will elevate our customers’ skiing and off-season experiences, during the first
nine months
of fiscal 2018 we continued to move forward with capital improvement projects at our Hunter Mountain, Hidden Valley and Mount Snow resorts.
|
·
|
|
At Hunter Mountain, we plan to increase the resort’s skiable acreage by approximately 25-30% and add a new detachable high-speed chair lift and parking area. We expect to complete the project in time for the 2018/2019 ski season.
|
|
·
|
|
At Hidden Valley, we plan to construct a zip tour which we anticipate will generate additional sales and diversify that resort’s revenue base.
W
e hope to complete the project for use beginning in the fall of 2018.
|
|
·
|
|
At Mount Snow, we completed construction on the West Lake Water
p
roject
during
November 2017, and immediately began using this new snowmaking infrastructure
as we opened the resort for the 2017/2018 ski season.
The West Lake Water
p
roject include
d
i) construction of a new water storage reservoir for snowmaking with capacity of up to 120 million gallons
,
ii) three new pump houses
,
iii) installation of snowmaking pipelines
,
and
iv)
other related improvements.
|
|
·
|
|
At Mount Snow, we continued construction on the
Carinthia Ski Lodge
p
roject. The Carinthia Ski Lodge
p
roject includes the construction of
a new ski lodge at
the
ski areas
Carinthia
base
- a three-story, 36,000-square foot skier service building which will include i) a restaurant, cafeteria and bars with seating for over 600 people
,
ii) retail facilities
,
and iii) a sales center for lift tickets and equipment rentals. We expect to complete the Carinthia Ski Lodge project prior to the 2018/2019 ski season.
|
Seasonality of Business
Our resort operations are seasonal in nature and revenue and profits from operations are substantially lower and have historically resulted in losses from late spring to late fall, which occur during our first and second fiscal quarters. Revenue and profits generated by our summer operations have historically not been sufficient to fully offset our operating expenses during the same timeframe. Therefore, our operating results for any interim period are not necessarily indicative of the results that may be achieved for any subsequent quarter or for a full year.
Recent Developments
2017 Tax Act
On December 22, 2017, the United States government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “2017 Tax Act”). The 2017 Tax Act made broad changes to the federal tax code which impacts
us
. The 2017 Tax Act included provisions that, among other things, provides for i) the reduction of the federal corporate tax rate, ii) the elimination of the corporate alternative minimum tax, iii) a new limitation on the deductibility of interest expense, iv)
changes in the treatment of net operating losses after December 31, 2017,
and v) bonus depreciation that allows for full expensing of qualified property.
Subsequent to the passage the 2017 Tax Act, the Securities and Exchange Commission issued Staff Accounting Bulletin
No.
118 (“SAB 118”), which provides guidance on accounting for the impact of the 2017 Tax Act. SAB 118 provides for a measurement period, not to exceed one year from enactment of the 2017 Tax Act, for companies to complete accounting for the impact of the 2017 Ta
x
Act under
the Financial Standards Accounting Board
’
s
Accounting Standards Codification 740, “Income Taxes” (“ASC 740”). In accordance with SAB 118, a company must reflect the income tax effect of those aspects of the 2017 Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for income effects of the 2017 Tax Act is incomplete
,
but the company can determine a reasonable estimate, the company must record a provisional estimate in its financial statement. If a company cannot determine a provisional estimate, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the 2017 Tax Act.
As of January 31, 2018,
we have
recorded, on a provisional basis, an income tax benefit of $8,235 for the nine months ended January 31, 2018, which includes a discrete net tax benefit of $124.
As
we are
a calendar year taxpayer,
we
calculated the discrete tax benefit as of December 31, 2017 by re-measuring deferred tax assets and liabilities based on the rates at which they are expected to reverse. The computed benefit is considered provisional as
we have
not yet completed a cost segregation study related to certain fixed assets which were placed in service at
our
Mount Snow resort in November 2017. In addition, the provisional estimate is based on
our
current interpretation of the 2017 Tax Act and is subject to change as
we
receive additional information, clarifications and implementation guidance.
As of January 1, 2018,
we
estimate
our
expected tax rate through the end of
our
fiscal year ending April 30, 2018, to be 27.4%.
The effective tax rate for the nine months
ended January 31, 2018, differs from the expected tax rate due to the change in the 2017 Tax Act and the timing of the related income (loss) before income taxes.
Chief Financial Officer Succession Plan
On August 16, 2017, the Company announced its succession plan for its
former
Chief Financial Officer, Stephen J. Mueller. Mr. Mueller step
ped
down from his position as the Company’s Chief Financial Officer and Secretary on October 3, 2017 and assume
d
a new role as Executive Vice President. In connection with this transition, Christopher J. Bub
became our
Vice President, Chief Financial Officer and Secretary.
Mr. Bub
previously
serve
d
as the Company’s Vice President and Chief Accounting Officer.
R
oyal Banks of Missouri Credit Facilities
On October 27, 2017, we renewed and increased our existing credit facility with Royal Banks of Missouri (the “2017 Royal Banks Credit Facility”). The 2017 Royal Banks Credit Facility provides for a $10 million working capital line of credit to be used for general business purposes and a $15 million acquisition line of credit to be used i) to pay off $12.4 million of principal and accrued interest outstanding under the previous credit agreement with Royal Banks of Missouri (the “Original Credit Facility”) and ii) for the acquisition of additional ski resort properties. On October 27, 2017, we used $12.4 million of the borrowing capacity available under the acquisition line of credit to pay off all outstanding amounts under the Original Credit Facility, including amounts outstanding under a term loan which bore interest at the prime rate plus 1.00% per annum with an original maturity date of January 26, 2020. As of
January 31, 2018
, approximately $12.4 million was outstanding under the 2017 Royal Banks Credit Facility.
The term of the 2017 Royal Banks Credit Facility is 14 months with loans payable in monthly interest only installments charged at the bank’s prime rate plus 1.00% per annum, with any outstanding principal amounts due at the end of the term. Beginning on January 31, 2018, we are required to fund a debt service account by depositing in three equal monthly installments an amount equal to the estimated annual interest due in connection with outstanding loans under the 2017 Royal Banks Credit Facility. We are required to maintain a minimum debt service coverage ratio (as defined in the credit agreement) of 1.25 to 1.00. In addition, were our fixed charge coverage ratio (as defined in the credit agreement) to fall below 1.50 to 1.00, we would be required to prefund certain other debt service payments, and should the ratio fall below 1.25 to 1.00, we would be prohibited from paying dividends. The 2017 Royal Banks Credit Facility is secured by the assets of our subsidiaries which operate our Hidden Valley, Paoli Peaks, Snow Creek, Crotched Mountain and Attitash resorts.
Impairment Loss
During the three and nine months ended January 31, 2018, we incurred
approximately
$1.6 million of fixed asset impairment losses in connection with
our
decision to cease operation of a restaurant and certain hotel-like amenities at a condominium building adjacent to
our
Attitash ski resort. In connection with our 2007 acquisition of
the
Attitash ski resort, we acquired property and equipment constituting the commercial core of a condominium building located adjacent to the resort. Since this acquisition, we have i) provided management services to the condominium’s owners association under a management services agreement (the “Management Services Agreement”), ii) sponsored a rental management program whereby unoccupied condominium units may be rented as hotel rooms and iii) operated a restaurant and other hotel-type amenities in the areas of the building which we own. In December 2017, we determined we would not be able to renew the Management Services Agreement upon its expiration on April 30, 2018 and, as a result, decided to terminate the rental management program and cease operation of the hotel-type amenities
as of that date.
Results of Operations
Three Months
Ended
January 31, 2018
, Compared with the Three Months ended
January 31, 2017
The following table presents our
unaudited
condensed consolidated statements of operations for the three months ended
January 31, 2018
and 201
7
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
January 31,
|
|
|
|
|
|
|
|
2018
|
|
2017
1
|
|
$ change
|
|
% change
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Lift and tubing tickets
|
|
$
|
31,398
|
|
$
|
30,470
|
|
$
|
928
|
|
3.0%
|
Food and beverage
|
|
|
9,248
|
|
|
8,946
|
|
|
302
|
|
3.4%
|
Equipment rental
|
|
|
6,264
|
|
|
4,886
|
|
|
1,378
|
|
28.2%
|
Ski instruction
|
|
|
4,866
|
|
|
4,683
|
|
|
183
|
|
3.9%
|
Hotel/lodging
|
|
|
2,782
|
|
|
2,883
|
|
|
(101)
|
|
-3.5%
|
Retail
|
|
|
3,566
|
|
|
3,314
|
|
|
252
|
|
7.6%
|
Other
|
|
|
1,148
|
|
|
1,203
|
|
|
(55)
|
|
-4.6%
|
|
|
|
59,272
|
|
|
56,385
|
|
|
2,887
|
|
5.1%
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Resort operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Labor and labor related expenses
|
|
|
18,779
|
|
|
18,202
|
|
|
577
|
|
3.2%
|
Retail and food and beverage cost of sales
|
|
|
5,271
|
|
|
4,876
|
|
|
395
|
|
8.1%
|
Power and utilities
|
|
|
3,809
|
|
|
3,736
|
|
|
73
|
|
2.0%
|
Other
|
|
|
8,123
|
|
|
6,855
|
|
|
1,268
|
|
18.5%
|
|
|
|
35,982
|
|
|
33,669
|
|
|
2,313
|
|
6.9%
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,379
|
|
|
3,209
|
|
|
170
|
|
5.3%
|
General and administrative expenses
|
|
|
1,353
|
|
|
1,793
|
|
|
(440)
|
|
-24.5%
|
Real estate and other non-income taxes
|
|
|
579
|
|
|
654
|
|
|
(75)
|
|
-11.5%
|
Land and building rent
|
|
|
362
|
|
|
345
|
|
|
17
|
|
4.9%
|
Impairment loss
|
|
|
1,586
|
|
|
-
|
|
|
1,586
|
|
100.0%
|
|
|
|
43,241
|
|
|
39,670
|
|
|
3,571
|
|
9.0%
|
Income from operations
|
|
|
16,031
|
|
|
16,715
|
|
|
(684)
|
|
-4.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of interest capitalized of $206 and $411 in 2018 and 2017, respectively
|
|
|
(3,529)
|
|
|
(3,289)
|
|
|
(240)
|
|
7.3%
|
Gain on sale/leaseback
|
|
|
84
|
|
|
84
|
|
|
-
|
|
0.0%
|
Other income
|
|
|
28
|
|
|
1
|
|
|
27
|
|
> 100%
|
|
|
|
(3,417)
|
|
|
(3,204)
|
|
|
(213)
|
|
6.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
12,614
|
|
|
13,511
|
|
|
(897)
|
|
-6.6%
|
Income tax expense
|
|
|
3,433
|
|
|
5,346
|
|
|
(1,913)
|
|
-35.8%
|
Net income
|
|
$
|
9,181
|
|
$
|
8,165
|
|
$
|
1,016
|
|
12.4%
|
Reported EBITDA
|
|
$
|
20,996
|
|
$
|
19,924
|
|
$
|
1,072
|
|
5.4%
|
1
Certain revenue balances in the comparative period contain reclassifications to conform to the presentation used in the current period.
Net Revenue.
Net
revenue increased $
2.9
million, or
5.1
%, for the three months ended
January 31, 2018
,
compared with the three months ended
January 31, 2017
. The increase is primarily attributable
to
increased resort attendance driven, in part, by earlier ski season opening dates which led to higher ticket, rentals, retail and food and beverage sales.
The disproportionately larger increase in equipment rental revenue, as compared to other categories, is due to increased attendance at our some of our Midwest resorts where a larger percentage of our guests do not own their own equipment.
Resort Operating Costs.
Resort operating costs increased $
2.3
million, or
6.9
%, for the three months ended
January 31, 2018
, compared with the same period in the prior year.
Labor costs increased by 0.6 million, or 3.2%, due to increased staffing needs which resulted from earlier ski season opening dates, as well as increases in the minimum wage which impacted certain of our resorts. Cost of goods sold related to food and beverage and retail sales increased $0.4 million, or 8.1%, due to increased food and beverage and retail sales. Other resort operating expenses increased by $1.3 million, or 18.5%, primarily as a result of the timing of advertising campaigns and increased insurance, maintenance and supplies costs.
During fiscal 2017, we experienced low liquidity levels and, as a result, implemented strict spending controls on discretionary costs.
By the
beginning
of fiscal 2018, our liquidity levels had normalized, and, as a result, our resorts incurred
increased
costs preparation for the
2017/2018
ski season.
General and Administrative Costs
. General and administrative expenses
decreased by $0.4 million, or 24.5%,
for the three months ended
January 31, 2018, as
compared with the three months ended
January 31, 2017, primarily
as a result of lower incentive compensation expense in the current period.
Income Taxes.
Income tax expense decreased $1.9 million, or 35.8%, as compared with the three months ended
January 31, 2017
, primarily as result of positive impacts from the enactment of the 2017 Tax Act which, among other effects
, reduced our effective tax rate for the quarter from 39.6% to 27.2%.
Reported EBITDA.
We have specifically chosen to include “Reported EBITDA” (which we define as net income before interest, income taxes, depreciation, amortization, gain on sale/leaseback, other income and expense and other non-recurring items) as a measurement of our results of operations because we consider this measurement to be a significant indication of our financial performance and available capital resources. Because of large depreciation and other charges relating to our ski resorts operations, it is difficult for management to fully and accurately evaluate our financial results and available capital resources using net income alone. In addition, the use of this non-U.S. GAAP measure provides an indication of our ability to service debt, and we consider it an appropriate measure to use because of our highly leveraged position.
We believe that by providing investors with Reported EBITDA, they will have a clearer understanding of our financial performance and cash flow
s
because Reported EBITDA i) is widely used in the ski industry to measure a company’s operating performance without regard to items excluded from the calculation of such measure; ii) helps investors to more meaningfully evaluate and compare the results of our operations from period to period by removing the effect of our capital structure and asset base from our operating results; and iii) is used by our board of directors, management and our lenders for various purposes, including as a measure of our operating performance and as a basis for planning.
The items we exclude from net income to arrive at Reported EBITDA are significant components for understanding and assessing our financial performance and liquidity. Reported EBITDA should not be considered in isolation or as an alternative to, or substitute for, net income, net change in cash and cash equivalents or other financial statement data presented in our condensed consolidated financial statements as indicators of financial performance or liquidity. Because Reported EBITDA is not a measurement determined in accordance with U. S. GAAP and is susceptible to varying calculations, Reported EBITDA
,
as presented
,
may not be comparable to other similarly titled measures of other companies, limiting its usefulness as a comparative measure.
Reconciliations of net loss to
Reported
EBITDA
for the three months ended
January 31, 2018
and 201
7
, were as follows
(dollars in thousands)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
January 31,
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
9,181
|
|
$
|
8,165
|
|
Income tax expense
|
|
|
3,433
|
|
|
5,346
|
|
Interest expense, net
|
|
|
3,529
|
|
|
3,289
|
|
Depreciation and amortization
|
|
|
3,379
|
|
|
3,209
|
|
Impairment loss
|
|
|
1,586
|
|
|
-
|
|
Other income
|
|
|
(28)
|
|
|
(1)
|
|
Gain on sale/leaseback
|
|
|
(84)
|
|
|
(84)
|
|
Reported EBITDA
|
|
$
|
20,996
|
|
$
|
19,924
|
|
Reported EBITDA
in
creased by $
1.1
million, or
5.4
%, for the three months ended
January 31, 2018
, as compared with the same period in the prior year
,
primarily as a result of
higher net revenues,
partially offset by higher
resort operating costs.
Nine
Months
Ended
January 31, 2018
, Compared with the N
i
ne Months ended
January 31, 2017
The following table presents our
unaudited
condensed consolidated statements of operations for the
nine
months ended
January 31, 2018
and 201
7
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
January 31,
|
|
|
|
|
|
|
|
2018
|
|
2017
1
|
|
|
$ change
|
|
% change
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Lift and tubing tickets
|
|
$
|
31,398
|
|
$
|
30,470
|
|
$
|
928
|
|
3.0%
|
Food and beverage
|
|
|
14,813
|
|
|
14,161
|
|
|
652
|
|
4.6%
|
Equipment rental
|
|
|
6,264
|
|
|
4,886
|
|
|
1,378
|
|
28.2%
|
Ski instruction
|
|
|
4,866
|
|
|
4,683
|
|
|
183
|
|
3.9%
|
Hotel/lodging
|
|
|
6,637
|
|
|
6,743
|
|
|
(106)
|
|
-1.6%
|
Retail
|
|
|
4,236
|
|
|
3,935
|
|
|
301
|
|
7.6%
|
Summer activities
|
|
|
4,459
|
|
|
4,549
|
|
|
(90)
|
|
-2.0%
|
Other
|
|
|
2,957
|
|
|
2,559
|
|
|
398
|
|
15.6%
|
|
|
|
75,630
|
|
|
71,986
|
|
|
3,644
|
|
5.1%
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Resort operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Labor and labor related expenses
|
|
|
36,389
|
|
|
33,719
|
|
|
2,670
|
|
7.9%
|
Retail and food and beverage cost of sales
|
|
|
7,141
|
|
|
6,549
|
|
|
592
|
|
9.0%
|
Power and utilities
|
|
|
5,398
|
|
|
5,167
|
|
|
231
|
|
4.5%
|
Other
|
|
|
15,714
|
|
|
13,013
|
|
|
2,701
|
|
20.8%
|
|
|
|
64,642
|
|
|
58,448
|
|
|
6,194
|
|
10.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
9,678
|
|
|
9,642
|
|
|
36
|
|
0.4%
|
General and administrative expenses
|
|
|
4,130
|
|
|
4,682
|
|
|
(552)
|
|
-11.8%
|
Real estate and other non-income taxes
|
|
|
1,734
|
|
|
1,754
|
|
|
(20)
|
|
-1.1%
|
Land and building rent
|
|
|
1,054
|
|
|
998
|
|
|
56
|
|
5.6%
|
Impairment loss
|
|
|
1,586
|
|
|
-
|
|
|
1,586
|
|
100.0%
|
|
|
|
82,824
|
|
|
75,524
|
|
|
7,300
|
|
9.7%
|
Loss from operations
|
|
|
(7,194)
|
|
|
(3,538)
|
|
|
(3,656)
|
|
103.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of interest capitalized of $1,151 and $1,194 in 2018 and 2017, respectively
|
|
|
(9,736)
|
|
|
(9,493)
|
|
|
(243)
|
|
2.6%
|
Gain on sale/leaseback
|
|
|
250
|
|
|
250
|
|
|
-
|
|
0.0%
|
Other income
|
|
|
117
|
|
|
4
|
|
|
113
|
|
> 100%
|
|
|
|
(9,369)
|
|
|
(9,239)
|
|
|
(130)
|
|
1.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(16,563)
|
|
|
(12,777)
|
|
|
(3,786)
|
|
29.6%
|
Income tax benefit
|
|
|
(8,235)
|
|
|
(5,056)
|
|
|
(3,179)
|
|
62.9%
|
Net loss
|
|
$
|
(8,328)
|
|
$
|
(7,721)
|
|
$
|
607
|
|
7.9%
|
Reported EBITDA
|
|
$
|
4,070
|
|
$
|
6,104
|
|
$
|
(2,034)
|
|
-33.3%
|
1
Certain revenue balances in the comparative period contain reclassifications to conform to the presentation used in the current period.
Net Revenue.
Net
revenue increased $
3.6
million, or
5.1
%, for the
nine
months ended
January 31, 2018
,
compared with the
nine
months ended
January 31, 2017
.
The increase is primarily attributable
to
earlier increased resort attendance driven, in part, by earlier ski season opening dates which led to higher ticket, rentals, retail and food and beverage sales. The disproportionately larger increase in equipment rental revenue as compared to other categories is due to increased attendance at our some of our resorts in the Midwest where a larger percentage of guests do not own their own equipment.
Resort Operating Costs.
Resort operating costs increased $
6.2
million, or
10.6
%, for the
nine
months ended
January 31, 2018
, compared with the same period in the prior year.
Labor costs increased by 2.7 million, or 7.9%, due to i) lower preseason staffing levels in fiscal 2017 as compared to fiscal 2018 and ii) increased staffing needs which resulted from earlier ski season opening dates and higher attendance in fiscal 2018, and iii) increases in the minimum wage which impacted certain of our resorts. Other resort operating expenses increased by $2.7 million, or 20.8%, primarily as a result of increased maintenance and supplies costs.
During fiscal 2017, we experienced low liquidity levels and, as a result, implemented
employee furloughs and
strict spending controls on discretionary costs.
By the
end
of fiscal 201
7
, our liquidity levels had normalized
.
A
s a result, our
staffing levels returned to a more normal level, and our
resorts incurred
increased
costs
as they prepared for
the
2017/2018
ski season.
Cost of goods sold related to food and beverage and retail sales increased $0.6 million, or 9.0%, due to increased food and beverage and retail sales.
General and Administrative Costs
. General and administrative expenses decreased $
0.6
million, or
11.8
%,
for the nine months ended
January 31, 2018
compared with the
nine
months ended
January 31, 2017
, primarily due to
lower incentive compensation expense and lower
professional fee expense.
Income Taxes.
The i
ncome tax
benefit for the nine months ended January 31, 2018,
increased
by
$
3.2
million, or
62.9
%, as compared with the
nine
months ended
January 31, 2017
, primarily as result of positive impacts from the enactment of the 2017 Tax Act which, among other effects, i) reduced our deferred tax liabilities and ii) reduced our effective income tax rate for the
month ending January 31, 2018
.
Reported EBITDA.
Reconciliations of net loss to
Reported
EBITDA
for the
nine
months ended
January 31, 2018
and 201
7
, were as follows
(dollars in thousands)
:
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
January 31,
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,328)
|
|
$
|
(7,721)
|
|
Income tax benefit
|
|
|
(8,235)
|
|
|
(5,056)
|
|
Interest expense, net
|
|
|
9,736
|
|
|
9,493
|
|
Depreciation and amortization
|
|
|
9,678
|
|
|
9,642
|
|
Impairment loss
|
|
|
1,586
|
|
|
-
|
|
Other income
|
|
|
(117)
|
|
|
(4)
|
|
Gain on sale/leaseback
|
|
|
(250)
|
|
|
(250)
|
|
Reported EBITDA
|
|
$
|
4,070
|
|
$
|
6,104
|
|
Reported EBITDA decreased by $
2.0
million, or
33.3
%, for the
nine
months ended
January 31, 2018
, as compared with the same period in the prior year
,
primarily as a result of increased resort operating costs, partially offset by higher net revenues.
Liquidity and Capital Resources
Significant Sources of Cash
Our available cash is consistently highest in our fourth quarter primarily due to the seasonality of our resort business. We had $
19.1
million of cash and cash equivalents as of
January 31, 2018
, compared with $33.7 million at April 30, 2017. We generate the majority of our cash from operations during the ski season, which occurs during our third and fourth
fiscal
quarters. We currently anticipate cash flow from operations will continue to provide a significant source of our future cash flows. We expect our liquidity needs for the near term and the next fiscal year will be met by operating cash flows (primarily those generated in our third and fourth fiscal quarters) and additional borrowings under our various credit agreements, as needed.
Long-term debt at
January 31, 2018
and April 30, 2017
,
consisted primarily of borrowings pursuant to the loans and other credit facilities with EPR
Properties
, our primary lender, Royal Banks of Missouri, our primary banking partner, and our EB-5 partnerships. We have presented in the table below the
composition of our long-term debt
as of
January
31, 201
8
and April 30, 2017 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
2018
|
|
April 30,
2017
|
|
|
|
Attitash/Mount Snow Debt; payable in monthly interest only payments at an increasing interest rate (11.26% at January 31, 2018 and April 30, 2017); remaining principal and interest due on December 1, 2034
|
|
$
|
51,050
|
|
$
|
51,050
|
|
|
|
EPR Credit Facility Debt; payable in monthly interest only payments at an increasing interest rate (10.43% and 10.28% at January 31, 2018 and April 30, 2017, respectively); remaining principal and interest due on December 1, 2034
|
|
|
37,562
|
|
|
37,562
|
|
|
|
West Lake Water Project EB-5 Debt; payable in quarterly interest only payments of 1.0%; remaining principal and interest due on December 27, 2021
|
|
|
30,000
|
|
|
30,000
|
|
|
|
Carinthia Ski Lodge EB-5 Debt; payable in quarterly interest only payments of 1.0%; remaining principal and interest due on December 27, 2021
|
|
|
22,000
|
|
|
21,500
|
|
|
|
Hunter Mountain Debt; payable in monthly interest only payments at an increasing interest rate (8.14% at January 31, 2018 and April 30, 2017); remaining principal and interest due on January 5, 2036
|
|
|
21,000
|
|
|
21,000
|
|
|
|
Royal Banks of Missouri Debt; payable in monthly principal payments of $42 and interest payments at prime plus 1.0% (5.0% at April 30, 2017) with an original maturity in January 2020; paid in full on October 27, 2017
|
|
|
-
|
|
|
9,875
|
|
|
|
Sycamore Lake (Alpine Valley) Debt; payable in monthly interest only payments at an increasing interest rate (10.72% at January 31, 2018 and April 30, 2017); remaining principal and interest due on December 1, 2034
|
|
|
4,550
|
|
|
4,550
|
|
|
|
Wildcat Mountain Debt; payable in monthly installments of $27, including interest at a rate of 4.00%; remaining principal and interest due on December 22, 2020
|
|
|
3,280
|
|
|
3,425
|
|
|
|
Other debt
|
|
|
899
|
|
|
2,870
|
|
|
|
Unamortized debt issuance costs
|
|
|
(4,624)
|
|
|
(5,240)
|
|
|
|
|
|
|
165,717
|
|
|
176,592
|
|
|
|
Less: current maturities
|
|
|
673
|
|
|
1,807
|
|
|
|
|
|
$
|
165,044
|
|
$
|
174,785
|
|
|
|
In addition to the credit facilities listed above, we maintain a $10.0 million working capital line of credit with Royal Banks of Missouri which, as of
January 31, 2018
, was undrawn and available; and we maintain a $15.0 million acquisition line of credit with Royal Banks of Missouri of which, as of
January 31, 2018
, approximately $2.6 million was undrawn and available.
As of
January 31, 2018
, we were in compliance with all debt covenants under our various credit facilities and debt agreements.
Cash Flow
Nine
Months
Ended
January 31, 2018
, Compared with the Nine Months Ended
January 31, 2017
Cash of $
4.8
million was used in operating activities in the first
nine
months of fiscal 2018, a
n
increase
of $
6.9
million when compared with the $
2.1
million
of cash provided by operations
in the first
nine
months of fiscal 2017. The
increased use of cash
was primarily a result of
changes in working capital partially offset by
a
lower
net
loss
.
Significant changes in working capital items include assets of $3.3 million of prepaid interest which w
as
not present at April 30, 2017
,
and increases in insurance related deposits at January 31, 2018
.
Cash of $
0.7
million was
used
by investing activities in the first
nine
months of fiscal 2018
.
Capital expenditures of $
26.
7 million during the first nine months of fiscal 2018 were offset by the release of $26.0 million of restricted cash. Compared to the same period in fiscal 2017, capital expenditures increased by $21.5 million
, primarily related to
increased construction activity in connection with
the West Lake Water and Carinthia Ski Lodge projects
at our Mount Snow resort.
Cash of $
9.1
million was used in financing activities in the first
nine
months of fiscal 2018,
which compares with
$
12.7
million
provided by financing activities
in the first
nine
months of fiscal 2017.
During first nine months of fiscal 2018, t
he use of cash primarily related to i) the
net
repayment of approximately
$
5.2
million
outstanding under
various credit facilities;
ii) dividend payments of approximately $
3.7
million
to common and preferred stockholders; and iii) payment of $
0.1
million in debt issuance costs.
Significant Uses of Cash
Our cash uses
are
currently
expected to
include
i)
operating expenditures
; ii)
capital expenditures
;
iii) debt service; and iv) the payment of dividends on our common and preferred stock, as the board of directors may declare subject to applicable law and the provisions of our debt arrangements
.
In addition, the
potential for acquisitions of other businesses in the future may require additional debt or equity financing.
Capital Expenditures
We have historically invested significant cash in capital expenditures for our resort operations and expect to continue to invest in the future. Total capital expenditures
through the first nine months of fiscal 2018 were $26.
7
million and included i) $
18.
5
million for the West Lake Water and Carinthia Ski Lodge projects, ii) $
7.3
million for maintenance capital expenditures
,
and iii) $
0.9
million for the Hunter Mountain expansion and Hidden Valley zipline projects. We currently anticipate we will spend an additional $
5.0
million to $
7.0
million on capital expenditures during the balance of fiscal year 2018.
These expenditures include approximately i) $
1.5
million to $
2.5
million on the Hunter Mountain expansion and Hidden Valley Zipline projects; and ii) $
3.5
million to $
4.5
million on the
Carinthia Ski Lodge project
.
The Carinthia Ski Lodge projects is being funded with proceeds raised through our EB-5 investment program, and as of
January 31, 2018
, our condensed consolidated balance sheet reflected $17.5 million of restricted cash to fund the completion of this project. In addition to these restricted cash balances,
we expect to use cash on hand and cash generated from future operations to provide the cash necessary to execute our capital plans, and believe these sources of cash will be adequate to meet our needs
.
Debt Service Reserves
In accordance with the terms of our agreements with EPR Properties, we are required to maintain a debt service reserve (the “Debt Service Reserve”) related to borrowings from EPR Properties. As of
January 31, 2018
, $3.3 million was recorded in prepaid expenses and deposits on the condensed consolidated balance sheets related to this payment. Previously, the Company had satisfied the requirements of the Debt Service Reserve by maintaining restricted cash deposits with a third party financial institution.
The
provisions of certain of
our
other
debt instruments require that
we
make and maintain deposit
s
, to be held in escrow for the benefit of the lender, in an amount equal to the estimated minimum interest payment for the upcoming fiscal year.
When funded, these amounts are included in restricted cash on the condensed consolidated balance sheets.
Dividend Payments
As of
January 31, 2018
, 20,000 shares of our Series A Cumulative Convertible Preferred Stock, par value $0.01 per share (the “Series A Preferred Stock”)
,
are outstanding. The terms of the Series A Preferred Stock provide that cumulative dividends accrue on a daily basis in arrears at the rate of 8.0% per annum on the liquidation value of $1,000 per share, beginning
in
August 2017. All accrued and accumulated dividends on the Series A Preferred Stock must be paid prior and in preference to any cash dividend on our common stock. In addition, until the earlier of i) such date as no Series
A Preferred Stock remains outstanding or ii) January 1, 2027, we are prohibited from paying any dividend on capital stock when there are accrued or unpaid dividends with respect to the Series A Preferred Stock. We intend to pay the Series A Preferred Stock dividends of approximately $0.4 million per quarter, and made the first two such quarterly payment
s
in November 2017 and January 2018.
During the first nine months of fiscal 2018, we paid common stock
cash
dividends of $
2.9
million ($0.07 per share of common stock on each of May 12, 2017, August 11, 2017 and November 10, 2017), and declared a cash dividend of $1.0 million ($0.07 per share of common stock) on January 9, 2018, which we paid in February 2018. The declaration and payment of future dividends will be at the sole discretion of our board of directors, and will depend on many factors, including our actual results of operations, financial condition, capital requirements
, contractual restrictions, restrictions in our debt agreements,
preference of our Series A Preferred Stock,
economic conditions and other factors that could differ materially from our current expectations.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.