Item 1. Financial Statements
Peak Resorts Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(dollars in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
April 30,
|
|
Assets
|
|
|
2018
|
|
|
2018
|
|
|
|
|
(Unaudited)
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
6,362
|
|
$
|
23,091
|
|
Restricted cash
|
|
|
1,245
|
|
|
1,163
|
|
Income tax receivable
|
|
|
8,857
|
|
|
-
|
|
Accounts receivable
|
|
|
764
|
|
|
8,560
|
|
Inventory
|
|
|
3,356
|
|
|
1,971
|
|
Prepaid expenses and deposits
|
|
|
7,839
|
|
|
12,731
|
|
Total current assets
|
|
|
28,423
|
|
|
47,516
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
217,266
|
|
|
204,095
|
|
Land held for development
|
|
|
37,646
|
|
|
37,634
|
|
Restricted cash, construction
|
|
|
3,006
|
|
|
12,175
|
|
Goodwill
|
|
|
4,382
|
|
|
4,382
|
|
Intangible assets, net
|
|
|
702
|
|
|
731
|
|
Other assets
|
|
|
2,206
|
|
|
1,797
|
|
Total assets
|
|
$
|
293,631
|
|
$
|
308,330
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Revolving lines of credit
|
|
$
|
12,415
|
|
$
|
12,415
|
|
Current maturities of long-term debt
|
|
|
2,151
|
|
|
2,614
|
|
Accounts payable and accrued expenses
|
|
|
17,508
|
|
|
12,079
|
|
Accrued salaries, wages and related taxes and benefits
|
|
|
947
|
|
|
922
|
|
Unearned revenue
|
|
|
22,108
|
|
|
16,084
|
|
Current portion of deferred gain on sale/leaseback
|
|
|
333
|
|
|
333
|
|
Total current liabilities
|
|
|
55,462
|
|
|
44,447
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current maturities
|
|
|
165,777
|
|
|
165,837
|
|
Deferred gain on sale/leaseback
|
|
|
2,346
|
|
|
2,512
|
|
Deferred income taxes
|
|
|
7,809
|
|
|
7,809
|
|
Other liabilities
|
|
|
486
|
|
|
504
|
|
Total liabilities
|
|
|
231,880
|
|
|
221,109
|
|
|
|
|
|
|
|
|
|
Series A preferred stock,
$0.01
par value per share,
$1,000
liquidation
|
|
|
|
|
|
|
|
preference per share,
40,000
shares authorized,
20,000
shares
|
|
|
|
|
|
|
|
issued and
outstanding
|
|
|
17,401
|
|
|
17,401
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|
Common stock,
$0.01
par value per share,
40,000,000
shares
|
|
|
|
|
|
|
|
authorized,
13,982,400
shares issued and
outstanding
|
|
|
140
|
|
|
140
|
|
Additional paid-in capital
|
|
|
86,738
|
|
|
86,631
|
|
Accumulated deficit
|
|
|
(42,528)
|
|
|
(16,951)
|
|
Total stockholders' equity
|
|
|
44,350
|
|
|
69,820
|
|
Total liabilities and stockholders' equity
|
|
$
|
293,631
|
|
$
|
308,330
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
Peak Resorts, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(dollars in thousands, except per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
October 31,
|
|
|
Six months ended
October 31,
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
7,984
|
|
$
|
8,838
|
|
$
|
14,991
|
|
$
|
16,358
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Resort operating costs
|
|
13,718
|
|
|
15,121
|
|
|
27,989
|
|
|
28,660
|
Depreciation and amortization
|
|
3,434
|
|
|
3,154
|
|
|
6,732
|
|
|
6,299
|
General and administrative
|
|
1,903
|
|
|
1,529
|
|
|
3,159
|
|
|
2,777
|
Real estate and other non-income taxes
|
|
605
|
|
|
471
|
|
|
1,292
|
|
|
1,155
|
Land and building rent
|
|
336
|
|
|
339
|
|
|
672
|
|
|
692
|
Restructuring charges
|
|
13
|
|
|
-
|
|
|
190
|
|
|
-
|
Loss from operations
|
|
(12,025)
|
|
|
(11,776)
|
|
|
(25,043)
|
|
|
(23,225)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of amounts capitalized of
|
|
|
|
|
|
|
|
|
|
|
|
$325
and
$498
in 2018 and
$514
|
|
|
|
|
|
|
|
|
|
|
|
and
$945
in 2017, respectively
|
|
(3,346)
|
|
|
(3,196)
|
|
|
(6,825)
|
|
|
(6,207)
|
Gain on sale/leaseback
|
|
83
|
|
|
83
|
|
|
166
|
|
|
166
|
Other income
|
|
15
|
|
|
34
|
|
|
47
|
|
|
89
|
|
|
(3,248)
|
|
|
(3,079)
|
|
|
(6,612)
|
|
|
(5,952)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
(15,273)
|
|
|
(14,855)
|
|
|
(31,655)
|
|
|
(29,177)
|
Income tax benefit
|
|
(4,270)
|
|
|
(5,941)
|
|
|
(8,857)
|
|
|
(11,668)
|
Net loss
|
$
|
(11,003)
|
|
$
|
(8,914)
|
|
$
|
(22,798)
|
|
$
|
(17,509)
|
|
|
|
|
|
|
|
|
|
|
|
|
Less declaration and accretion of Series A preferred
|
|
|
|
|
|
|
|
|
|
|
|
stock dividends
|
|
(400)
|
|
|
(400)
|
|
|
(800)
|
|
|
(800)
|
Net loss attributable to common shareholders
|
$
|
(11,403)
|
|
$
|
(9,314)
|
|
$
|
(23,598)
|
|
$
|
(18,309)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share
|
$
|
(0.81)
|
|
$
|
(0.66)
|
|
$
|
(1.67)
|
|
$
|
(1.30)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
$
|
0.07
|
|
$
|
0.07
|
|
$
|
0.14
|
|
$
|
0.14
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per preferred share
|
$
|
20.00
|
|
$
|
20.00
|
|
$
|
40.00
|
|
$
|
20.00
|
See accompanying notes to unaudited condensed consolidated financial statements.
Peak Resorts, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Six months ended
October 31,
|
|
|
2018
|
|
2017
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(22,798)
|
|
$
|
(17,509)
|
|
Adjustments to reconcile net loss to net cash
|
|
|
|
|
|
|
|
used in operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization of property and equipment
|
|
|
|
|
|
|
|
and intangibles
|
|
|
6,732
|
|
|
6,299
|
|
Amortization of deferred financing costs
|
|
|
543
|
|
|
521
|
|
Stock based compensation
|
|
|
107
|
|
|
157
|
|
Amortization of other liabilities
|
|
|
(18)
|
|
|
(18)
|
|
Gain on sale/leaseback
|
|
|
(166)
|
|
|
(166)
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Income tax receivable
|
|
|
(8,857)
|
|
|
(11,668)
|
|
Accounts receivable
|
|
|
7,796
|
|
|
4,371
|
|
Inventory
|
|
|
(1,385)
|
|
|
(415)
|
|
Prepaid expenses and deposits
|
|
|
4,892
|
|
|
(4,743)
|
|
Other assets
|
|
|
(229)
|
|
|
(28)
|
|
Accounts payable and accrued expenses
|
|
|
4,238
|
|
|
(1,173)
|
|
Accrued salaries, wages and related taxes and benefits
|
|
|
25
|
|
|
10
|
|
Unearned revenue
|
|
|
6,024
|
|
|
4,661
|
|
Net cash used in operating activities
|
|
|
(3,096)
|
|
|
(19,701)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
Additions to property and equipment
|
|
|
(18,704)
|
|
|
(18,597)
|
|
Additions to land held for development
|
|
|
(12)
|
|
|
(18)
|
|
Net cash used in investing activities
|
|
|
(18,716)
|
|
|
(18,615)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
Payments on long-term debt and capital lease obligations
|
|
|
(1,066)
|
|
|
(12,101)
|
|
Distributions to stockholders
|
|
|
(2,758)
|
|
|
(1,958)
|
|
Payment of deferred financing costs
|
|
|
(180)
|
|
|
(138)
|
|
Payments on lines of credit
|
|
|
-
|
|
|
(4,500)
|
|
Borrowings on lines of credit
|
|
|
-
|
|
|
12,375
|
|
Net cash used in financing activities
|
|
|
(4,004)
|
|
|
(6,322)
|
|
|
|
|
|
|
|
|
|
Net decrease in cash, cash equivalents
|
|
|
|
|
|
|
|
and restricted cash
|
|
|
(25,816)
|
|
|
(44,638)
|
|
Cash, cash equivalents, and restricted cash, beginning of period
|
|
|
36,429
|
|
|
78,478
|
|
Cash, cash equivalents, and restricted cash, end of period
|
|
$
|
10,613
|
|
$
|
33,840
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
Cash paid income taxes
|
|
$
|
-
|
|
$
|
-
|
|
Cash paid interest, including amounts prepaid
|
|
|
|
|
|
|
|
of
$0
and
$2,201
, respectively.
|
|
$
|
110
|
|
$
|
9,112
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash investing
|
|
|
|
|
|
|
|
and financing activities:
|
|
|
|
|
|
|
|
Assets under construction included in accounts payable
|
|
$
|
1,405
|
|
$
|
38
|
|
Reclassification of EB-5 funds from escrow to long term debt
|
|
$
|
-
|
|
$
|
500
|
|
Accretive dividends - Series A preferred stock
|
|
$
|
-
|
|
$
|
400
|
|
Accrued dividends, common and preferred
|
|
$
|
1,379
|
|
$
|
1,379
|
|
See accompanying notes to unaudited condensed consolidated financial statements.
PEAK RESORTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share amounts)
(Unaudited)
1. Basis of Presentation
Unaudited Interim Condensed Consolidated Financial Statements
The unaudited interim condensed consolidated financial statements of Peak Resorts, Inc. and its subsidiaries (the “Company”) reflect all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation of its financial position, results of operations and cash flows. The results for the three
and
six
months ended
October
31, 201
8
are not necessarily indicative of the results expected for a full fiscal year. Due to the seasonality of the ski industry, the Company typically incurs significant operating losses during its first and second fiscal quarters.
These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the fiscal year ended April 30, 201
8
, filed with the Securities and Exchange Commission.
Nature of business
The Company is a leading owner and operator of high-quality, individually branded ski resorts in the U.S. and
, as of October 31, 2018,
operate
d
14
ski resorts primarily located in the Northeast and Midwest,
13
of which are owned. The majority of the 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. The Company’s resorts are comprised of nearly
1,859
acres of skiable terrain appropriate to a wide range of ages and abilities. The activities, services and amenities available at the Company’s resorts include skiing, snowboarding, terrain parks, tubing, dining, lodging, equipment rentals and sales, ski and snowboard instruction, zip lines, mountain coasters, mountain biking, hiking and other summer activities. The Company operates in a single business segment—ski resort operations.
On November
21
, 2018, the Company acquired
Snow Time, Inc
. (“Snow Time”)
. Snow Time’
s
businesses includ
e
Liberty Mountain Resort, Roundtop Mountain Resort and Whitetail Resort, which are day and overnight drive ski resorts located in southern Pennsylvania serving the Baltimore and Washington, D.C. metropolitan areas.
The acquired
resorts
also
include two 18-hole golf courses, a 115-room hotel and conference center and more than 20 food and beverage locations across the three resorts, among other amenities.
See Note 11.
Principles
of
Consolidation
The accompanying condensed consolidated financial statements include the accounts of Peak Resorts, Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Cash and
Restricted
Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the condensed consolidated balance sheet to the total of the same such amounts shown in the consolidated statements of cash flow:
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
2018
|
|
2017
|
Cash and cash equivalents
|
|
$
|
6,362
|
|
$
|
12,962
|
Restricted cash
|
|
|
1,245
|
|
|
1,339
|
Restricted cash, construction
|
|
|
3,006
|
|
|
19,539
|
Total cash, cash equivalents, and restricted
|
|
|
|
|
|
|
cash, end of period
|
|
$
|
10,613
|
|
$
|
33,840
|
Note 2. Recently Issued Accounting Standards
The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, which provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards. As an emerging growth company, the Company may delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
In February 2016, the
Financial Accounting Standards Board (“
FASB
”)
issued
Accounting Standards Update (“
ASU
”)
2016-02, “Leases (Topic 842),” which requires lessees to recognize most leases on the balance sheet. This ASU requires modified retrospective adoption and will be applicable for the Company as of April 30, 2020, with early adoption permitted. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements. While the Company expects the pattern of expense for leases it currently classifie
s
as operating will be similar
u
n
der
the old and new guidance, it expects adoption of the new standard will result in a significant increase in assets and liabilities for right of use assets and lease obligations, respectively, for leases it currently classifies as operating.
As of
October
31, 2018
, future minimum lease payments under operating leases was approximately
$
13,538
.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which was subsequently modified by other ASUs from 2015 through 2017. This ASU, as amended, provides new guidance for the recognition of revenue and provides for a five-step analysis of transactions to determine when and how revenue is recognized. This ASU establishes a core principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. This ASU may be adopted using either a full or modified retrospective approach and will be applicable for the Company as of April 30, 2020, with early adoption permitted. The Company expects to adopt this ASU using the full retrospective approach and does not expect the adoption of this ASU will have a material impact on its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which provides new guidance related to accounting for share-based payments. This ASU requires entities to record the income tax effect of share-based payments when the awards vest or are settled and clarifies the cash flow statement presentation of excess tax benefits and withholding tax payments. In addition, the ASU allows for a policy election to account for forfeitures either upon occurrence or by estimating forfeitures. This ASU requires prospective adoption and will be applicable for the Company as of April 30, 2019, with early adoption permitted. The Company is currently evaluating the impact the adoption of this ASU will have on its consolidated financial statements.
Note 3. Income Taxes
The Company’s
effective income tax rates were
28.0%
and
40.0%
for the
six
months ended
October
31, 2018 and 2017, respectively. The 2018 tax rate reflects the enactment of the Tax Cuts and Job Act of 2017, which permanently reduced the U.S. corporate statutory rate from
35
.0
%
to
21.0%
as of January 1, 2018.
Deferred income tax assets and liabilities are measured at enacted tax rates in the respective jurisdictions where the Company operates. In assessing the ability to realize deferred tax assets, the Company considers whether it is more likely than not that some portion or all deferred tax assets will not be realized, and a valuation allowance would be provided if necessary.
Income tax receivable
of
$
8,857
as of
O
ct
ober
31, 201
8
, is a result of the expected tax rate for the Company’s fiscal year ending April 30, 201
9
, applied to its loss before income tax for the
s
i
x
months ended
O
ct
ober
31, 201
8
. Due to the seasonality of the ski industry, the Company typically incurs significant operating losses during its first and second fiscal quarters.
The Company does not have any material uncertain tax positions.
Note 4. Fixed Assets
The composition of property and equipment is as follows:
|
|
|
|
|
|
|
|
|
October 31,
|
|
April 30,
|
|
|
2018
|
|
2018
|
Land and improvements
|
|
$
|
54,819
|
|
$
|
54,785
|
Buildings and improvements
|
|
|
75,368
|
|
|
75,321
|
Equipment, furniture and fixtures
|
|
|
176,256
|
|
|
175,532
|
Construction in progress
|
|
|
35,834
|
|
|
16,787
|
|
|
|
342,277
|
|
|
322,425
|
Less: accumulated depreciation and amortization
|
|
|
125,011
|
|
|
118,330
|
|
|
$
|
217,266
|
|
$
|
204,095
|
Note 5. Credit Facilities and Long
‑term Debt
The composition of long-term debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
April 30,
|
|
2018
|
|
2018
|
EPR Secured Notes due 2034
|
$
|
93,162
|
|
$
|
93,162
|
EPR Secured Notes due 2036
|
|
21,000
|
|
|
21,000
|
EB-5 Development Notes due 2021
|
|
52,000
|
|
|
52,000
|
Wildcat Mountain Note due 2020
|
|
3,131
|
|
|
3,231
|
Capital Leases
|
|
1,733
|
|
|
2,426
|
Other borrowings
|
|
911
|
|
|
1,184
|
Less: Unamortized debt issuance costs
|
|
(4,009)
|
|
|
(4,552)
|
|
|
167,928
|
|
|
168,451
|
Less: Current maturities
|
|
(2,151)
|
|
|
(2,614)
|
|
$
|
165,777
|
|
$
|
165,837
|
In addition to the credit facilities listed above, the Company maintains a
$10,000
working capital line of credit and a
$15,000
a
cquisition line of credit with Royal Banks of Missouri
. As of
O
ct
ober
31, 2018,
$
12,415
was
outstanding under the acquisition line of credit and nothing was
outstanding
under the working capital line of credit
, and
$10,000
and
$2,585
was unused and available under the line
s
of credit, respectively.
As
of
October
31, 201
8
, the Company was in compliance will all debt covenants under its various credit facility and debt agreements.
Note 6.
Concentrations of Credit Risk and Fair Value Measures
Concentrations of Credit Risk
The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash. The Company’s cash, cash equivalents and restricted cash are on deposit with financial institutions where such balances will, at times, be in excess of federally insured limits. The Company has not experienced any losses associated with such deposits.
Fair Value of Measurements
The Company measures the fair value of assets and liabilities using a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows: Level 1 - observable inputs such as quoted prices in active markets; Level 2 - inputs, other than quoted market prices in active markets, which are observable, either directly or indirectly; and Level 3 - valuations derived from valuation techniques in which one or more significant inputs are unobservable. In addition, the Company may use various valuation techniques, including the market approach, using comparable market prices; the income approach, using present value of future income or cash flow; and the cost approach, using the replacement cost of assets.
The Company’s financial instruments consist of cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities, long-term debt and preferred stock. For cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities, the carrying amounts approximate fair market value due to their short-term nature.
The estimated fair values of the Company’s debt instruments and preferred stock as of
O
c
tober
31
, 2018, is as follows:
|
|
|
|
|
|
|
|
|
October 31, 2018
|
|
|
|
Fair Value
|
|
Carrying Amount
|
|
Balance Sheet Classification
|
EPR Secured Notes due 2034
|
$
|
98,309
|
|
$
|
93,162
|
|
Long-term debt, less current maturities
|
EPR Secured Notes due 2036
|
|
16,917
|
|
|
21,000
|
|
Long-term debt, less current maturities
|
EB-5 Development Notes due 2021
|
|
43,136
|
|
|
52,000
|
|
Long-term debt, less current maturities
|
Wildcat Mountain Note due 2020
|
|
2,961
|
|
|
3,131
|
|
Long-term debt, including current maturities
|
Capital leases and other borrowings
|
|
2,644
|
|
|
2,644
|
|
Long-term debt, less current maturities
|
Series A Preferred Stock
|
|
17,994
|
|
|
17,401
|
|
Series A preferred stock
|
The Company estimated the fair value of the EPR Secured Notes, EB-5 Development Notes and Wildcat Mountain Note using a discounted cash flow approach and Level 2 inputs, including market borrowing yields for instruments of similar maturities
and Level 3 inputs, including the Company’s credit rating
. The Company estimated the fair value of the Series A
Cumulative Convertible
Preferred Stock
(the
“
Series A Preferred Stock
”
)
using Level 2 inputs, including market yields for similar instruments. The Company estimated the fair value of capital leases and other borrowings to approximate their carrying value.
Note 7. Commitments and Contingencies
Loss contingencies
The Company is periodically involved in various claims and legal proceedings, many of which occur in the normal course of business. Management routinely assesses the likelihood of adverse judgments or outcomes, including consideration of its insurance coverage and, i
n the opinion of the Company’s management, the ultimate liabilities resulting from such claims and proceedings will not have a material adverse effect on its business, financial condition, results of operations or cash flows.
Leases
The Company leases certain land, land improvements, buildings and equipment under noncancelable operating leases. Certain of the leases contain escalation provisions based generally on changes in the consumer price index with maximum annual percentage increases capped at rates between
1.5%
to
4.5%
. Additionally, certain leases contain contingent rental provisions which are based on revenue. The Company paid no contingent rentals in the periods presented.
Note 8. Stock-Based Compensation
Stock-based compensation expense was recognized in general and administrative expense in the accompanying consolidated condensed statements of operations for the three
and six
months ended
October
31, 2018
in the amounts
of
$
51
and
$
107
, respectively
; and for the three and six months ended
October 31, 2017
in the amounts of
$94
and
$157
, respectively
.
Restricted Stock Units
Under the Company’s 2014 Equity Incentive Plan
(the “2014 Plan”)
, the Company granted
4
3
,600
restricted stock units (“RSUs”) during the
six
months ended
October
31, 2018, with a weighted-average grant date fair value per unit of
$
5.18
; and granted
45,938
RSUs during the
six
months ended
O
ct
ober
31, 2017, with a weighted-average grant date fair value per unit of
$
4.
30
.
The 2014 Plan requires that whenever the Company pays a cash dividend on its common shares it a
lso
pay an equivalent dividend in the form of RSUs on any RSUs outstanding as of the dividend date. D
uring the six months ended October 31, 2018 and 2017, the Company issued
4
,
119
RSUs
and
2,664
RSUs
, respectively, as payment of dividends on outstanding RSUs.
As of
O
ct
ober
31, 2018,
187,094
RSUs were outstanding, of which
150,899
were vested.
Note 9. Loss Per share
The computation of basic and diluted loss per share for the three
and six
months ended
October
31, 2018 and 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended October 31,
|
|
Six Months Ended October 31,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Net loss attributable to common shareholders
|
$
|
(11,403)
|
|
$
|
(9,314)
|
|
$
|
(23,598)
|
|
$
|
(18,309)
|
Weighted number of shares:
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
13,982,400
|
|
|
13,982,400
|
|
|
13,982,400
|
|
|
13,982,400
|
Outstanding vested Restricted Stock Units
|
|
120,369
|
|
|
60,297
|
|
|
112,700
|
|
|
55,020
|
|
|
14,102,769
|
|
|
14,042,697
|
|
|
14,095,100
|
|
|
14,037,420
|
Basic and diluted loss per share
|
$
|
(0.81)
|
|
$
|
(0.66)
|
|
$
|
(1.67)
|
|
$
|
(1.30)
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s
36,195
and
52,690
outstanding
unvested RSUs as of
O
ct
ober
31, 2018 and 2017, respectively, have been excluded from the calculations of diluted earnings per share because their impact would be anti-dilutive. In addition, warrants to purchase
2,719,018
shares of common stock and the effect of the Company’s Series A
P
referred
S
tock have been excluded from the calculation of diluted earnings per share for the three
and
six
months ended
O
ct
ober
31, 2018
and 2017
, because the impact would be anti
-
dilutive.
Note 10. Restructuring and Impairment
As of April 30, 2018, the Company closed a restaurant and certain hotel-like amenities at a condominium building adjacent to its Attitash ski resort and terminated a related rental management agreement (the “Attitash Hotel Closure”). For the three
and six
months ended
October
31, 2018, the Company incurred restructuring charges of
$
13
and
$
190
, respectively,
in connection with the Attitash Hotel Closure, which included professional service fees and costs to maintain the facility
until the date of its
disposal
in
August
2018.
Total costs through
O
c
tober
31, 2018, associated with the Attitash Hotel Closure include
$1,586
of asset impairment charges,
$36
of severance expense and
$2
60
of other costs. As of
O
ct
ober
31, 2018
, the Company expects it
will not i
ncur future additional charges
related to the Attitash Hotel Closure.
Note 11. The Snow Time Acquisition and Related Financing
The Snow Time Acquisition
On November 21, 2018, the Company completed its acquisition of all of the issued and outstanding shares of common stock of Snow Time pursuant to the Stock Purchase Agreement (the “Purchase Agreement”) entered into with the stockholders of Snow Time (the “Sellers”), dated as of
September 24, 2018
(the “
Snow Time Acquisition
”). Consideration for the Snow Time Acquisition totaled
$73,119
, which consisted of
$67,142
in cash and
1,183,432
shares of common stock with a value of
$5,977
based on the Company’s closing stock price on the day the transaction closed.
The number of shares issued to the Sellers was determined pursuant to the Purchase Agreement, which provided that the Sellers had the right to receive $6,000 of common stock as determined using the average closing price of the common stock for the 20 trading days immediately preceding the closing, which was $5.07.
The purchase price is subject to customary post-closing adjustments related to prepaid services, working capital and transaction expenses as provided by the Purchase Agreement. The Company acquired Snow Time in order to expand its portfolio of resorts.
Snow Time’s businesses include Liberty Mountain Resort, Roundtop Mountain Resort and Whitetail Resort, which are day and overnight drive ski resorts located in southern Pennsylvania serving the Baltimore and Washington, D.C. metropolitan areas. The acquired resorts also include
two
18-hole golf courses, a
115
-room hotel and conference center and more than
20
food and beverage locations across the
three
resorts, among other amenities.
During the three and six months ended October 31, 2018, the Company incurred
$331
of acquisition related costs which have been included in general and administrative costs in the condensed consolidated statements of operations.
Because the Snow Time Acquisition closed on November 21, 2018, the Company has not yet completed its initial accounting and is still in process of gathering information necessary to determine i) the fair value of acquired tangible and intangible assets and ii) the working capital adjustment to the purchase price. As a result, the Company has determined it is impracticable to provide certain disclosures required under the Accounting Standards Codification 805, “Business Combinations” (“ASC 805”), including an allocation of the purchase price to the assets acquired and liabilities assumed and required pro forma information. The Company intends to present the disclosures required by ASC 805 in its Quarterly Report on Form 10-Q for the fiscal quarter ending January 31, 2019.
Term Loan Financing
The Company financed part of the cash consideration paid to the Sellers in the Snow Time Acquisition with a
$50,000
senior secured term loan (the “Term Loan”) from Cap 1 LLC (“Cap 1”) pursuant to the terms of the Credit Agreement entered into with Cap 1 on November 21, 2018 (the “Credit Agreement”). The Term Loan has an initial term of
two
years and bears interest at
6.95%
, payable quarterly, subject to a
2.0%
increase upon an event of default. The Term Loan is secured by all real property on which the Snow Time resorts are located and improvements thereon. Amounts due under the Term Loan may be prepaid without penalty.
The Term Loan matures on
November 30, 2020
and may be extended for an additional
one
-year period at the Company’s option, so long as no event of default has occurred. If extended, the Company has agreed to issue Cap 1 a warrant to purchase
666,667
shares of common stock, exercisable immediately from the issuance date and for up to
ten
years from the date of issuance, at
$7.50
per share
(the “Extension Warrant”). The Extension Warrant was not issued upon closing the Term Loan and will only be issued if the Company exercises the one-year Term Loan extension right.
As consideration for the Term Loan and in lieu of fees, the Company also issued Cap 1 a warrant to purchase
1,750,000
shares of common stock at
$10.00
per share, which is exercisable immediately and expires
ten
years from the date of issuance (the “Financing Warrant”).
Issuance of Preferred Stock and Warrants
As a condition to the funding of the Term Loan, and for aggregate consideration of
$20,000
, the Company exercised its existing option (the “Cap 1 Option”) to issue to Cap 1 an additional
20,000
shares of Series A Preferred Stock, along with additional warrants (the “Option Warrants”) to purchase shares of common stock that expire
12
years from the date of issuance, as follows: i)
1,538,462
shares of common stock at
$6.50
per share; ii)
625,000
shares of common stock at
$8.00
per share; and iii)
555,556
shares of common stock at
$9.00
per share. The Cap 1 Option is provided for in the terms of the Securities Purchase Agreement between the Company and Cap 1, dated as of August 22, 2016, entered into in connection with the issuance of the initial 20,000 shares of Series A Preferred Stock and accompanying warrants to Cap 1 in November 2016. The Company used the Cap 1 Option proceeds to fund the remainder of the cash portion of the Snow Time Acquisition purchase price.
The exercise prices of the Option Warrants must be paid in cash. At the Company’s option, the exercise price of the Financing Warrant may be paid in whole or in part in cash or
settled through a cashless exercise
. The Company entered into a Registration Rights Agreement with Cap 1, dated November 21, 2018, granting certain registration rights with respect to the shares of common stock underlying the Series A Preferred Stock, Option Warrants and Financing Warrant.
The terms and registration rights applicable to the Extension Warrant, if issued, are expected to be substantially the same as those applicable to the Financing Warrant.
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, 2018 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 Report. 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
and transition acquired operations, systems and personnel
;
|
|
·
|
|
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
, and Part II, Item 1A, “Risk Factors” of this Report,
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.
Recent Events
- The Snow Time Acquisition and Related Financing
The Snow Time Acquisition
On November 21, 2018, we completed our acquisition of all of the issued and outstanding shares of common stock of Snow Time
, Inc. (“Snow Time”)
pursuant to the Stock Purchase Agreement (the “Purchase Agreement”) entered into with the stockholders of Snow Time (the “Sellers”), dated as of September 24, 2018 (the “Snow Time Acquisition”). Consideration for the Snow Time Acquisition
totaled $
73.1
million, which consisted of $
67.1
million
in
cash and 1,183,432 shares of common stock with a value of $6.0 million.
The number of shares issued to the Sellers was determined pursuant to the Purchase Agreement, which provided that the Sellers had the right to receive $6.0 million of common stock as determined using the average closing price of the common stock for the 20 trading days immediately preceding the closing, which was $5.07.
The purchase price is subject to customary post-closing adjustments related to prepaid services, working capital and transaction expenses as provided by the Purchase Agreement. The Company acquired Snow Time in order to expand
our
portfolio of resorts.
Snow Time’s businesses include Liberty Mountain Resort, Roundtop Mountain Resort and Whitetail Resort, which are day and overnight drive ski resorts located in southern Pennsylvania serving the Baltimore and Washington, D.C. metropolitan areas. The acquired resorts also include two 18-hole golf courses, a 115-room hotel and conference center and more than 20 food and beverage locations across the three resorts, among other amenities.
Term Loan Financing
The Company financed part of the cash consideration paid to the Sellers in the Snow Time Acquisition with a $50.0 million senior secured term loan (the “Term Loan”) from Cap 1 LLC (“Cap 1”) pursuant to the terms of the Credit Agreement entered into with Cap 1 on November 21, 2018 (the “Credit Agreement”). The Term Loan has an initial term of two years and bears interest at 6.95%, payable quarterly, subject to a 2.0% increase upon an event of default. The Term Loan is secured by all real property on which the Snow Time resorts are located and improvements thereon. Amounts due under the Term Loan may be prepaid without penalty.
The Term Loan matures on November 30, 2020 and may be extended for an additional one-year period at the Company’s option, so long as no event of default has occurred. If extended, the Company has agreed to issue Cap 1 a warrant to purchase 666,667 shares of common stock, exercisable immediately from the issuance date and for up to ten years from the date of issuance, at $7.50 per share
(the “Extension Warrant”)
.
The Extension Warrant was not issued upon closing the Term Loan and will only be issued if the Company exercises the one-year Term Loan extension right.
As consideration for the Term Loan and in lieu of fees, the Company also issued Cap 1 a warrant to purchase 1,750,000 shares of common stock at $10.00 per share, which is exercisable immediately and expires ten years from the date of issuance (the “Financing Warrant”).
Issuance of Preferred Stock and Warrants
As a condition to the funding of the Term Loan, and for aggregate consideration of $20.0 million, the Company exercised its existing option (the “Cap 1 Option”) to issue to Cap 1 an additional 20,000 shares of Series A
Cumulative Convertible
Preferred Stock
(the “Series A Preferred Stock
”
)
, along with additional warrants (the “Option Warrants”) to purchase shares of common stock that expire 12 years from the date of issuance, as follows: i) 1,538,462 shares of common stock at $6.50 per share; ii) 625,000 shares of common stock at $8.00 per share; and iii) 555,556 shares of common stock at $9.00 per share. The Cap 1 Option is provided for in the terms of the Securities Purchase Agreement between the Company and Cap 1, dated as of August 22, 2016, entered into
in connection with the issuance of the initial 20,000 shares of Series A Preferred Stock and accompanying warrants to Cap 1 in November 2016
.
The Company used the Cap 1 Option proceeds to fund the remainder of the cash portion of the Snow Time Acquisition purchase price.
The exercise prices of the Option Warrants must be paid in cash. At the Company’s option, the exercise price of the Financing Warrant may be paid in whole or in part in cash or settled through a cashless exercise.
The Company
entered into a Registration Rights Agreement with Cap 1, dated November 21, 2018, granting certain registration rights
with respect to the shares of common stock underlying the Series A Preferred Stock, Option Warrants and Financing Warrant.
The terms and registration rights applicable to the Extension Warrant, if issued, are expected to be substantially the same as those applicable to the Financing Warrant.
Company Overview
We are a leading owner and operator of high-quality, individually branded ski resorts in the U.S.
With the acquisition of Snow Time,
w
e operate 1
7
ski resorts primarily located in the Northeast and Midwest, 1
6
of which we own. The majority of our resorts are located within 100 miles of major metropolitan markets, including New York City, Boston, Philadelphia,
Baltimore, Washington D
.
C
.
,
Cleveland
, Kansas City
and St. Louis, enabling day and overnight drive accessibility. Our resorts are comprised of
nearly
2,200
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
zip lines,
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
14
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
half
of
fiscal 201
9
we continued to move forward with capital improvement projects at our Hunter Mountain,
Mount Snow and
Hidden Valley resorts.
|
·
|
|
At Hunter Mountain, we
continued
the Hunter North expansion project to increase the resort’s skiable acreage by approximately 25% and add automated snowmaking, a six-passenger detachable high-speed chair lift and parking area. We expect to complete the project
by the end of calendar
2018
.
|
|
·
|
|
At Mount Snow, we continued construction on the Carinthia Ski Lodge project. The Carinthia Ski Lodge project includes the construction of a new ski lodge at the resort’s Carinthia base, comprised of 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.
Portions of
the Carinthia Ski Lodge
were opened to the public in November 2018 and we expect it will be fully operational
by the end of calendar 2018
.
|
|
·
|
|
At Hidden Valley, we
co
mpleted
the permitting process and
began to
source materials and
make site improvements
for the construction of
a zip line tour which we anticipate will generate additional sales and diversify that resort’s revenue base. We anticipate completing the project duri
ng the spring of
2019.
|
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.
Results of Operations
Three Months Ended
October
31, 2018, Compared with the Three Months ended
October
31, 2017
The following table presents our condensed unaudited consolidated statements of operations for the three months ended
October
31, 2018 and 2017 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
October 31,
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
$ change
|
|
% change
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Lift and tubing tickets
|
|
$
|
120
|
|
$
|
-
|
|
$
|
120
|
|
100.0%
|
Food and beverage
|
|
|
2,647
|
|
|
2,735
|
|
|
(88)
|
|
-3.2%
|
Equipment rental
|
|
|
4
|
|
|
-
|
|
|
4
|
|
100.0%
|
Ski instruction
|
|
|
27
|
|
|
-
|
|
|
27
|
|
100.0%
|
Hotel/lodging
|
|
|
1,444
|
|
|
2,014
|
|
|
(570)
|
|
-28.3%
|
Retail
|
|
|
526
|
|
|
429
|
|
|
97
|
|
22.6%
|
Summer activities
|
|
|
2,527
|
|
|
2,578
|
|
|
(51)
|
|
-2.0%
|
Other
|
|
|
689
|
|
|
1,082
|
|
|
(393)
|
|
-36.3%
|
|
|
|
7,984
|
|
|
8,838
|
|
|
(854)
|
|
-9.7%
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Resort operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Labor and labor related expenses
|
|
|
7,191
|
|
|
8,999
|
|
|
(1,808)
|
|
-20.1%
|
Retail and food and beverage cost of sales
|
|
|
1,163
|
|
|
1,118
|
|
|
45
|
|
4.0%
|
Power and utilities
|
|
|
1,113
|
|
|
800
|
|
|
313
|
|
39.1%
|
Other
|
|
|
4,251
|
|
|
4,204
|
|
|
47
|
|
1.1%
|
|
|
|
13,718
|
|
|
15,121
|
|
|
(1,403)
|
|
-9.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,434
|
|
|
3,154
|
|
|
280
|
|
8.9%
|
General and administrative expenses
|
|
|
1,903
|
|
|
1,529
|
|
|
374
|
|
24.5%
|
Real estate and other non-income taxes
|
|
|
605
|
|
|
471
|
|
|
134
|
|
28.5%
|
Land and building rent
|
|
|
336
|
|
|
339
|
|
|
(3)
|
|
-0.9%
|
Restructuring charges
|
|
|
13
|
|
|
-
|
|
|
13
|
|
100.0%
|
|
|
|
20,009
|
|
|
20,614
|
|
|
(605)
|
|
-2.9%
|
Loss from operations
|
|
|
(12,025)
|
|
|
(11,776)
|
|
|
(249)
|
|
2.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of interest capitalized of $325 and $498 in 2018 and 2017, respectively
|
|
|
(3,346)
|
|
|
(3,196)
|
|
|
(150)
|
|
4.7%
|
Gain on sale/leaseback
|
|
|
83
|
|
|
83
|
|
|
-
|
|
0.0%
|
Other income
|
|
|
15
|
|
|
34
|
|
|
(19)
|
|
-55.9%
|
|
|
|
(3,248)
|
|
|
(3,079)
|
|
|
(169)
|
|
5.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(15,273)
|
|
|
(14,855)
|
|
|
(418)
|
|
2.8%
|
Income tax benefit
|
|
|
(4,270)
|
|
|
(5,941)
|
|
|
1,671
|
|
-28.1%
|
Net loss
|
|
$
|
(11,003)
|
|
$
|
(8,914)
|
|
$
|
(2,089)
|
|
23.4%
|
Reported EBITDA
|
|
$
|
(8,247)
|
|
$
|
(8,622)
|
|
$
|
375
|
|
-4.3%
|
Net Revenue.
Net revenue decreased $
0.9
million, or
9.7
%, for the three months ended
October
31, 2018, compared with the three months ended
October
31, 2017. The decrease is primarily attributable to reduced lodging and food and beverage sales at our Attitash resort
as a result of our decision to cease operations of a hotel/restaurant facility as of May 1, 2018
(the “Attitash Hotel Closure”), partially offset by
revenue during the quarter from lift and tubing tickets, equipment rentals and ski instruction. Two of our resorts opened for the 2018/2019 ski season on the last weekend of our second quarter, whereas all of
our
resorts began winter sports operations for the 2017/2018 ski season during the third quarter of our 2018 fiscal year.
Resort Operating Costs.
Resort operating costs
de
creased $
1.4
million, or
9.3
%, for the three months ended
October
31, 2018, compared with the same period in the prior year. A $
1.8
million decline in labor costs was
partially
offset by a $
0.3
million increase in power and utility costs and a $
0.1
million increase in other operating costs.
A decline in labor costs associated with
i)
the Attitash Hotel Closure
,
ii)
reduced workers compensation insurance expense as a result of the return of premiums following the final settlement of certain policy years and iii) management of staffing levels by more closely tying seasonal hiring to visitation levels
, was partially offset by increased labor costs at our
resorts
in New York and Vermont, as a result of increased state minimum wage rates. Power and
u
tility costs were up
as we ramped up operations to open two of our resorts for the last weekend of
the second quarter and
due to increased electric transmission charges associated with
two of
our Pennsylvania resorts. Other operating expenses increased due to i) increased information technology costs associated with a new customer marketing project
and
ii) costs associated with new snow groomer equipment leased prior to the 2017/2018 ski season
, partially of
f
set by i
ii)
a reduction in s
upplies and repairs and maintenance
costs which were pulled forward into the first quarter
.
General and Administrative Costs
. General and administrative expenses of approximately $
1.9
million for the three months ended
October
31, 2018,
increased by approximately $0.4 million, or 24.5%, primarily as a result of $0.3 million of professional fees and travel expenses associated with the Snow Time Acquisition.
Real estate and other non-income taxes.
Real estate and other non-income taxes
of $0.6 million
for the three months ended October 31, 2018,
increased by $0.1 million
,
or
28.5%, as compared to the $0.5 million of r
eal estate and other non-income taxes
for the same period in fiscal 2018. The increase is a result of real estate tax refunds we received in fiscal 2018 as a result of an appeal of certain prior year taxes.
Restructuring charges
.
In September 2018
,
we disposed of the long-term assets related to our Attitash Hotel operations which c
e
ased as of the beginning of fiscal 2019.
During the second quarter of fiscal 2019
,
we incurred minimal related costs
,
and tot
al costs through
October
31, 2018 associated with the Attitash Hotel Closure include
$1
.6 million of asset impairment charges and
$
0.3
million of other costs. As of
October
31, 2018, we
do not expect to incur any additional related costs
.
Interest, net.
Net interest expense of $
3.3
million for the three months ended
October
31, 2018, increased by $
0.1
million, or
4.7
%, as compare
d
to the $
3.2
million of net interest expense for the three months ended
October
31, 2017. The increase in net interest expense relates primarily to i) a $
0.2
million decrease in the amount of capitalized interest during the
second
quarter of fiscal 2019, as compared to the same quarter in fiscal 2018, as a result of the completion of the West Lake Water project in November 2017
, partially offset by
ii) an increase in interest rates on variable rate debt.
Income Taxes.
Income tax benefit decreased $
1.7
million, or
28.1
%, to $
4.3
million for the three months ended
October
31, 2018 as compared with the three months ended
October
31, 2017, as
a
result of a decrease in our effective tax rate applied to a larger loss before income taxes. Our effective income tax
rates were 28.0% and 40.0% for the three months ended
October
31, 2018 and 2017, respectively. The 2018 tax rate reflects the enactment of the Tax Cuts and Job
s
Act of 2017, which permanently reduced the U.S. corporate
statutory rate from 35.0% to 21.0% as of January 1, 2018.
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 flows 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 EBITDA
for the three months ended
October
31, 2018 and 2017, were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
October 31,
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(11,003)
|
|
$
|
(8,914)
|
|
Income tax benefit
|
|
|
(4,270)
|
|
|
(5,941)
|
|
Interest expense, net
|
|
|
3,346
|
|
|
3,196
|
|
Depreciation and amortization
|
|
|
3,434
|
|
|
3,154
|
|
Acquisition related costs
|
|
|
331
|
|
|
-
|
|
Restructuring charges
|
|
|
13
|
|
|
-
|
|
Other income
|
|
|
(15)
|
|
|
(34)
|
|
Gain on sale/leaseback
|
|
|
(83)
|
|
|
(83)
|
|
Reported EBITDA
|
|
$
|
(8,247)
|
|
$
|
(8,622)
|
|
Reported EBITDA
loss
decreased by $
0.4
million, or
4.3
%, for the three months ended
October
31, 2018, as compared with the same period in the prior year, primarily as a result of
lower resort operating costs partially offset by lower revenues and increased property tax expense
.
Six Months Ended October 31, 201
8
, Compared with the Six Months ended October 31, 201
7
The following table presents our unaudited condensed consolidated statements of operations for the six months ended October 31, 201
8
and 201
7
(dollars in thousands):
|
|
Six months ended
October 31,
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
|
$ change
|
|
% change
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Lift and tubing tickets
|
|
$
|
120
|
|
$
|
-
|
|
$
|
120
|
|
100.0%
|
Food and beverage
|
|
|
5,392
|
|
|
5,565
|
|
|
(173)
|
|
-3.1%
|
Equipment rental
|
|
|
4
|
|
|
-
|
|
|
4
|
|
100.0%
|
Ski instruction
|
|
|
27
|
|
|
-
|
|
|
27
|
|
100.0%
|
Hotel/lodging
|
|
|
2,888
|
|
|
3,855
|
|
|
(967)
|
|
-25.1%
|
Retail
|
|
|
738
|
|
|
670
|
|
|
68
|
|
10.1%
|
Summer activities
|
|
|
4,436
|
|
|
4,459
|
|
|
(23)
|
|
-0.5%
|
Other
|
|
|
1,386
|
|
|
1,809
|
|
|
(423)
|
|
-23.4%
|
|
|
|
14,991
|
|
|
16,358
|
|
|
(1,367)
|
|
-8.4%
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Resort operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Labor and labor related expenses
|
|
|
15,579
|
|
|
17,610
|
|
|
(2,031)
|
|
-11.5%
|
Retail and food and beverage cost of sales
|
|
|
2,057
|
|
|
1,870
|
|
|
187
|
|
10.0%
|
Power and utilities
|
|
|
2,080
|
|
|
1,589
|
|
|
491
|
|
30.9%
|
Other
|
|
|
8,273
|
|
|
7,591
|
|
|
682
|
|
9.0%
|
|
|
|
27,989
|
|
|
28,660
|
|
|
(671)
|
|
-2.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
6,732
|
|
|
6,299
|
|
|
433
|
|
6.9%
|
General and administrative expenses
|
|
|
3,159
|
|
|
2,777
|
|
|
382
|
|
13.8%
|
Real estate and other non-income taxes
|
|
|
1,292
|
|
|
1,155
|
|
|
137
|
|
11.9%
|
Land and building rent
|
|
|
672
|
|
|
692
|
|
|
(20)
|
|
-2.9%
|
Restructuring charges
|
|
|
190
|
|
|
-
|
|
|
190
|
|
100.0%
|
|
|
|
40,034
|
|
|
39,583
|
|
|
451
|
|
1.1%
|
Loss from operations
|
|
|
(25,043)
|
|
|
(23,225)
|
|
|
(1,818)
|
|
7.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of interest capitalized of $514 and $945 in 2018 and 2017, respectively
|
|
|
(6,825)
|
|
|
(6,207)
|
|
|
(618)
|
|
10.0%
|
Gain on sale/leaseback
|
|
|
166
|
|
|
166
|
|
|
-
|
|
0.0%
|
Other income
|
|
|
47
|
|
|
89
|
|
|
(42)
|
|
-47.2%
|
|
|
|
(6,612)
|
|
|
(5,952)
|
|
|
(660)
|
|
11.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(31,655)
|
|
|
(29,177)
|
|
|
(2,478)
|
|
8.5%
|
Income tax benefit
|
|
|
(8,857)
|
|
|
(11,668)
|
|
|
2,811
|
|
-24.1%
|
Net loss
|
|
$
|
(22,798)
|
|
$
|
(17,509)
|
|
$
|
(5,289)
|
|
30.2%
|
Reported EBITDA
|
|
$
|
(17,790)
|
|
$
|
(16,926)
|
|
$
|
(864)
|
|
5.1%
|
Net Revenue.
Net revenue
de
creased $
1.4
million, or
8.4
%, for the six months ended October 31, 201
8
, compared with the six months ended October 31, 201
7
.
The decrease is primarily attributable to reduced lodging and food and beverage sales at our Attitash resort as a result of the Attitash Hotel Closure, partially offset by revenue during the
period
from lift and tubing tickets, equipment rentals and ski instruction. Two of our resorts opened for the 2018/2019 ski season on the last weekend of our second quarter, whereas all of our resorts began winter sports operations for the 2017/2018 ski season during the third quarter of our 2018 fiscal year.
Resort Operating Costs.
Resort operating costs
de
creased $
0.7
million, or
2.3
%, for the six months ended October 31, 201
8
, compared with the same period in the prior year.
A $
2.0
million decline in labor costs was
partially offset by a $0.
5
million increase in power and utility costs and a $0
.
7
million increase in other operating costs.
A decline in labor costs associated with i) the Attitash Hotel Closure
and ii)
reduced workers compensation insurance expense as a result of the return of premiums following the final settlement of certain policy years
, was partially offset by increased labor costs at our resorts in New York and Vermont, as a result of increased state minimum wage rates. Power and
u
tility costs were up as we ramped up operations to open two of our resorts for the last weekend of the second quarter and due to increased electric transmission charges associated with two of our Pennsylvania resorts. Other operating expenses increased due to i) increased information technology costs associated with a new customer marketing project and ii) costs associated with new snow groomer equipment leased prior to the 2017/2018 ski season
.
General and Administrative Costs
. General and administrative expenses
in
creased $
0.4
million, or
13.8
%, for the six months ended October 31, 201
8
compared with the six months ended October 31, 201
7
, primarily
as a result of $0.3 million of professional fees and travel expenses associated with the Snow Time Acquisition.
Real estate and other non-income taxes.
Real estate and other non-income taxes
of $1.3 million for the six months ended October 31, 2018, increased by $0.1 million, or 11.9%, as compared to the $1.2 million of r
eal estate and other non-income taxes
for the same period in fiscal 2018. The increase is a result of real estate tax refunds we received in fiscal 2018 as a result of an appeal of certain prior year taxes.
Restructuring charges
.
In September of 2018
,
we disposed of the long-term assets related to our Attitash Hotel operations which c
e
ased as of the beginning of fiscal 2019.
For the six months ended October 31, 2018, we incurred restructuring charges of
$
0.2
million in connection with the Attitash Hotel Closure, which included professional service fees and costs to maintain the facility until it
was
dispos
ed of
.
Total costs through October 31, 2018 associated with the Attitash Hotel Closure
include
$1
.6 million of asset impairment charges and
$
0.3 million of other costs. As of October 31, 2018, we do not expect to incur any additional related costs.
Interest, net.
Net interest expense of $
6.8
million for the six months ended October 31, 2018, increased by $
0.6
million, or
10.
0
%, as compared to the $
6.2
million of net interest expense for the six months ended October 31, 2017. The increase in net interest expense relates primarily to i) a $
0.4
million decrease in the amount of capitalized interest during the first
half
of fiscal 2019, as compared to the same
period
in fiscal 2018, as a result of the completion of the West Lake Water project in November 2017 and ii) an increase in interest rates on variable rate debt.
Income Taxes.
Income tax benefit decreased $
2.8
million, or
24.1
%, to $
8.9
million for the six months ended October 31, 2018 as compared with the
six
months ended October 31, 2017, as result of a decrease in our effective tax rate applied to a larger loss before income taxes. Our effective income tax
rates were 28.0% and 40.0% for the six months ended October 31, 2018 and 2017, respectively. The 2018 tax rate
reflects the enactment of the Tax Cuts and Job
s
Act of 2017, which permanently reduced the U.S. corporate statutory rate from 35.0% to 21.0% as of January 1, 2018.
Reported EBITDA.
Reconciliations of net loss to Reported EBITDA
for the six months ended October 31, 201
8
and 201
7
, were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
Six months ended
|
|
|
|
October 31,
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(22,798)
|
|
$
|
(17,509)
|
|
Income tax expense (benefit)
|
|
|
(8,857)
|
|
|
(11,668)
|
|
Interest expense, net
|
|
|
6,825
|
|
|
6,207
|
|
Depreciation and amortization
|
|
|
6,732
|
|
|
6,299
|
|
Acquisition related costs
|
|
|
331
|
|
|
-
|
|
Restructuring charges
|
|
|
190
|
|
|
-
|
|
Other income
|
|
|
(47)
|
|
|
(89)
|
|
Gain on sale/leaseback
|
|
|
(166)
|
|
|
(166)
|
|
Reported EBITDA
|
|
$
|
(17,790)
|
|
$
|
(16,926)
|
|
Reported EBITDA
loss in
creased by $
0.9
million, or
5.1
%, for the six months ended October 31, 201
8
, as compared with the same period in the prior year, primarily as a result of
lower net revenues, partially offset by lower resort operating expenses.
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 $
6.4
million of cash and cash equivalents as of
October
31, 2018, compared with $
23.1
million at April 30, 2018. Cash of $
3.1
million and $
19.7
million was used by operating activities during the
six
months ended
October
31, 2018 and 2017, respectively. We generate the majority of our cash from operations during the ski season, which occurs during our third and fourth 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
October
31, 2018 and April 30, 2018 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
October
31, 2018 and April 30, 2018 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
April 30,
|
|
2018
|
|
2018
|
EPR Secured Notes due 2034
|
$
|
93,162
|
|
$
|
93,162
|
EPR Secured Notes due 2036
|
|
21,000
|
|
|
21,000
|
EB-5 Development Notes due 2021
|
|
52,000
|
|
|
52,000
|
Wildcat Mountain Note due 2020
|
|
3,131
|
|
|
3,231
|
Capital Leases
|
|
1,733
|
|
|
2,426
|
Other borrowings
|
|
911
|
|
|
1,184
|
Less: Unamortized debt issuance costs
|
|
(4,009)
|
|
|
(4,552)
|
|
|
167,928
|
|
|
168,451
|
Less: Current maturities
|
|
(2,151)
|
|
|
(2,614)
|
|
$
|
165,777
|
|
$
|
165,837
|
In addition to the credit facilities listed above, the Company maintains a $10
.0 million
working capital line of credit and a $15
.0 million
acquisition line of credit with Royal Banks of Missouri. As of
October
31, 2018, $12
.4 million
was outstanding under the acquisition line of credit and nothing was outstanding under the working capital line of credit
, and
$10
.0 million
and $2
.6 million
was unused and available under the line
s
of credit, respectively.
As of
October
31, 2018, we were in compliance will all debt covenants under our various credit facilities and debt agreements.
Cash Flow
Six
Months Ended
October
31, 2018 Compared with the
Six
Months Ended
October
31, 2017
Cash of $
3.1
million was used in operating activities in the first
six
months
of fiscal
2019, a $
16.6
million
de
crease when compared with the $
19.7
million of cash used in the first
six
months of fiscal 2018
.
P
ositive changes in working capital
w
ere
partially offset by
a
higher net loss for the first half of fiscal 2019
.
As compared to the first half of fiscal 2018,
p
ositive changes in working capital balances
during the first half of fiscal 2019 included i) the impact of prepaying interest during fiscal 2018 and ii) the impact of a larger volume of advanced season pass installment sales at the end of fiscal 2018 and a larger volume of advanced season pass sales during the first half of fiscal 2019.
Cash of $
1
8
.7
million was used by investing activities in the first
six
months of fiscal 2019, a
n
in
crease of $
0
.1
million when compared with the $
18.6
million used in the first
six
months of fiscal 2018.
Investing cash flows in fiscal 2019 related primarily to the construction of the Carinthia Ski Lodge
,
Hunter
North
expansion
and Hidden Valley Zip Tour
projects, and investing cash flows in
first half of
fiscal 2018 related primarily to the construction of the West Lake Water and Carinthia Ski Lodge projects.
Cash of $
4.0
million was used in financing activities in the first
six
months of fiscal 2019, a decrease of $
2.
3
million when compared with the $
6.3
million used in the first
six
months of fiscal 2018. Financing cash flows in
the
first six months of
fiscal 2019 included approximately $
2.8
million of distributions to shareholders
,
approximately $
1.1
million
of debt payments
and $0.2 million of financing fees related to the Term Loan.
Financing cash flows in the
first half of
fiscal 2018 period included i) the
net
repayment of approximately $
4.2
million of credit facility and long-term debt
,
ii) $
2.0
million of distributions to shareholders
and
iii)
$0.1 of financing fees
.
Significant Uses of Cash
In addition to the $67.1 million
of cash consideration paid in the Snow Time Acquisition during November 2018, as of October 31, 2018, o
ur cash uses are currently expected to include i) operating expenditures, ii) capital expenditures, and iii) debt service. We have historically invested significant cash in capital expenditures for our resort operations and expect to continue to invest in the future.
Capital expenditures during the first
six
months of fiscal 2019 were
$
18.7
million and
included $
6.7
million related to the Hunter Mountain expansion project, $
7.8
million on the Carinthia Ski Lodge project
, $0.
4
million on the Hidden Valley Zip Tour project
and $
3.
8
million to maintain and enhance our resort properties.
We currently anticipate
that for the full 2019 fiscal year,
we will spend between approximately $
28.0
to $
32.0
million on capital expenditures, which includes approximately $
11.5
million to $
12.5
million to complete the Carinthia Ski Lodge
p
roject, approximately $
1.5
million to $
2.5
million to finish construction of the zip tour at Hidden Valley, and approximately $
8.5
million to $
9.5
million on the expansion of Hunter North terrain. We also expect to spend approximately $
6.0
million to $
8.0
million on resort maintenance capital expenditures, which is consistent with our historical maintenance capital expenditures that are needed to maintain and improve the level of service and overall experiences we strive to provide our visitors.
Because the
three
resorts we acquired in November 201
8
in the Snow Time Acquisition were largely prepared for the 2018/2019 ski season, we do not expect to make significant capital expenditures at these resorts during the remain
d
e
r
of fiscal 2019.
The Carinthia Ski Lodge project
is
being funded with proceeds raised pursuant to the Company’s EB
‑
5 program, which are reflected in Restricted cash, construction on our condensed consolidated balance sheet.
We currently plan to use cash on hand, borrowings and cash generated from future operations to provide the cash necessary to execute our capital plans and believe that these sources of cash will be adequate to meet our needs.
As of October 31, 2018
, 20,000 shares of our Series A Preferred Stock
were
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
nine months from the date of issuance, or August 2017 with respect to the Series A Preferred Stock outstanding as of October 31, 2018.
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 and 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.
In connection with the Snow Time Acquisition we issued an additional 20,000 shares of Series A Preferred Stock.
In accordance with the terms of
issuance of the additional shares,
quarterly
dividends
accrue as described herein beginning August 2019
.
We intend to pay the Series A Preferred Stock dividends of approximately $0.4 million
per quarter for the next three quarters and $0.8 million per quarter, thereafter
, when dividends on the additional
shares of
Series A Preferred Stock begin to accrue
.
During the first half
of fiscal 2019, we paid common stock dividends of $2.0 million (
$0.07
per share of common stock on
each
of May 11, 2018 and August 10, 2018), and declared a cash dividend of $1.0 million ($0.07 per share of common stock to common
stockholders of record on
November 15
, 2018
), which we paid on
November 27, 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.