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:
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weather, including climate change;
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availability of funds for capital expenditures and operations;
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competition with other indoor and outdoor winter leisure activities and ski resorts;
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the leases and permits for property underlying certain of our ski resorts;
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ability to integrate new acquisitions and transition acquired operations, systems and personnel;
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environmental laws and regulations;
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our dependence on key personnel;
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the effect of declining revenues on margins;
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the future development and continued success of our Mount Snow and Hunter Mountain ski resorts;
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our reliance on information technology;
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our current dependence on our primary lender and the lender's option to purchase certain of our ski resorts;
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our dependence on a seasonal workforce;
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·
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our ability to avoid or recover from cyber and other security breaches and other disruptions; and
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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 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 $71.6 million, which consisted of $66.7 million in cash, net of cash acquired of $1.0 million, and 1,183,432 shares of common stock with a value of $6.0 million 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 $6.0 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. We acquired Snow Time in order to expand our portfolio of resorts.
Snow Time’s resort properties 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
We financed part of the cash consideration paid 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 our option, so long as no event of default has occurred. If extended, we have 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 we exercise the one-year Term Loan extension right.
As consideration for the Term Loan and in lieu of fees, we 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
As a condition to the funding of the Term Loan, and for aggregate consideration of $20.0 million, we exercised our 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 our 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 rights and preferences of the Series A Preferred Stock include, among other things, the following:
Seniority
. The Series A Preferred Stock generally rank, with respect to liquidation, dividends and redemption, i) senior to common stock and to any other junior capital stock; ii) on parity with any parity capital stock; iii) junior to any senior capital stock; and iv) junior to all of our existing and future indebtedness (as defined). Until the earlier of the date that no Series A Stock remains outstanding and January 1, 2027, we are prohibited from paying cash dividends on common stock if there are accrued and unpaid dividends with respect to the Series A Preferred Stock.
Dividend Rights
. From and after the date that is nine months from the date of issuance, cumulative dividends accrue on the Series A Preferred Stock on a daily basis in arrears at the rate of 8% per annum on the liquidation value of $1,000 per share. All accrued and accumulated dividends on the Series A Preferred Stock shall be paid prior and in preference to any dividend or distribution on or redemption of any junior securities, provided that the Company may, prior to the payment of all accrued and accumulated dividends on the Series A Preferred Stock, i) declare or pay any dividend or distribution payable on the common stock in shares of common stock; or ii) repurchase common stock held by our employees or consultants upon termination of their employment or services pursuant to agreements providing for such repurchase. We may also redeem or repurchase junior securities at any time when there are no accrued or accumulated unpaid dividends on the Series A Preferred Stock.
Liquidation
. In the event of any liquidation (as defined), dissolution or winding up of our company, the holders of Series A Preferred Stock shall be entitled to be paid out of the assets of our company available for distribution to its stockholders, before any payment shall be made to the holders of junior securities, and subject to the rights of any parity or senior securities, an amount in cash equal to $1,000 per share plus all unpaid accrued and accumulated dividends.
Redemption
. The Series A Preferred Stock is subject to redemption at our option at a price of $1,250 per share, plus all unpaid accrued and accumulated dividends, at any time on or after the third anniversary of the issuance of the Series A Preferred Stock that the average closing price of our common stock on the 30 trading days preceding notice of the exercise of the redemption right is greater than $8.18.
Conversion
. Upon the earlier of a change of control or the nine-month anniversary of the date of issuance, the holders of the Series A Preferred Stock have the right to convert the Series A Preferred Stock into shares of common stock equal to the number of shares to be converted, times the liquidation value, divided by the conversion price and receive in cash all accrued and unpaid dividends. The initial conversion price per share is $6.29, subject to adjustment pursuant to the terms of the Certificate of Designation. Holders of the Series A Preferred Stock also have basic anti-dilution rights.
Voting Rights
. Each holder of Series A Preferred Stock shall be entitled to vote, on an as-converted basis, with holders of outstanding shares of common stock, voting together as a single class, with respect to any and all matters presented to the stockholders of our company.
We 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.
Stockholders’ Agreement
On November 21, 2018, in connection with the closing of the Term Loan and the Snow Time Acquisition, our company, Cap 1 and Timothy D. Boyd, Stephen J. Mueller and Richard K. Deutsch (the “Management Stockholders”) entered into the Amended and Restated Stockholders’ Agreement (the “Stockholders’ Agreement”) which added the new shares of Series A Preferred Stock, Option Warrants, Financing Warrant and Extension Warrant, and the shares of Common Stock underlying such securities, to the scope of Stockholders’ Agreement entered into by the parties in 2016. The Stockholders’ Agreement otherwise remains unchanged and i) provides Cap 1 a right to nominate a director to sit on the Company’s board of directors so long as Cap 1 beneficially owns, on a fully diluted, as-converted basis, at least 20% of the outstanding equity securities of the Company, ii) restricts transfers of the Company’s securities by Cap 1 and the Management Stockholders, iii) provides Cap 1 with a right of first offer to purchase shares of the Company’s common stock from the Management Stockholders, iv) grants Cap 1 preemptive rights with respect to future issuances of securities, and v) requires Cap 1’s approval, so long as it meets certain ownership requirements (as defined), in order for the Company to a) materially change the nature of its business or b) acquire or dispose of any resorts, assets or properties for aggregate consideration equal to or greater than 30% of the enterprise value (as defined) of the Company and its subsidiaries.
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, we operate 17 ski resorts primarily located in the Northeast and Midwest, 16 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 nine months of fiscal 2019 we completed capital improvement projects at our Hunter Mountain and Mount Snow resorts, and continued to move forward with a project at our Hidden Valley resort.
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At Hunter Mountain, we completed 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.
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At Mount Snow, we completed 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 includes 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.
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At Hidden Valley, we completed 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 during the spring of 2019.
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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 January 31, 2019, Compared with the Three Months ended January 31, 2018
The following table presents our condensed unaudited consolidated statements of operations for the three months ended January 31, 2019 and 2018 (dollars in thousands):
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Three months ended
January 31,
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2019
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2018
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$ change
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% change
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Revenues:
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Lift and tubing tickets
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$
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45,252
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$
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31,398
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$
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13,854
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44.1%
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Food and beverage
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13,460
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9,248
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4,212
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45.5%
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Equipment rental
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7,438
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6,264
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1,174
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18.7%
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Ski instruction
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7,512
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4,866
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2,646
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54.4%
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Hotel/lodging
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2,986
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2,782
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204
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7.3%
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Retail
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5,117
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3,566
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1,551
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43.5%
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Other
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2,212
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1,148
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1,064
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92.7%
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83,977
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59,272
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24,705
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41.7%
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Costs and Expenses:
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Resort operating costs:
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Labor and labor related expenses
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24,152
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18,779
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5,373
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28.6%
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Retail and food and beverage cost of sales
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6,812
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5,271
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1,541
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29.2%
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Power and utilities
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5,786
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3,809
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1,977
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51.9%
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Other
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12,299
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8,123
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4,176
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51.4%
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49,049
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35,982
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13,067
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36.3%
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Depreciation and amortization
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6,809
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3,379
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3,430
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101.5%
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General and administrative expenses
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3,322
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1,353
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1,969
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145.5%
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Real estate and other non-income taxes
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888
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579
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309
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53.4%
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Land and building rent
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352
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362
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(10)
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-2.8%
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Impairment loss
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-
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1,586
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(1,586)
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-100.0%
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60,420
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43,241
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17,179
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39.7%
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Income from operations
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23,557
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16,031
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7,526
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46.9%
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Other (expense) income:
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Interest, net of interest capitalized of $18 and $206 in 2019 and 2018, respectively
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(4,458)
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(3,529)
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(929)
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26.3%
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Gain on sale/leaseback
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84
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84
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-
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0.0%
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Other income
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22
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28
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(6)
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-21.4%
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(4,352)
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(3,417)
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(935)
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27.4%
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Income before income taxes
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19,205
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12,614
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6,591
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52.3%
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Income tax expense
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5,574
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3,433
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2,141
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62.4%
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Net income
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$
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13,631
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$
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9,181
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$
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4,450
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48.5%
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Reported EBITDA
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$
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30,661
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$
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20,996
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$
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9,665
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46.0%
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Net Revenue.
Net revenue increased by $24.7 million, or 41.7%, for the three months ended January 31, 2019, compared with the three months ended January 31, 2018. The increase is primarily attributable to i) $19.0 million of revenue associated with the resort properties acquired in the Snow Time Acquisition and ii) a $5.6 million increase in revenues at legacy Peak Resorts properties. The increased revenues at legacy Peak Resorts properties are primarily attributable to an earlier opening of our 2018/2019 ski season at the majority of our resorts and favorable weather conditions which increased skier visits, partially offset by 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 the beginning of fiscal year 2019 (the “Attitash Hotel Closure”).
Resort Operating Costs.
Resort operating costs increased $13.1 million, or 36.3%, for the three months ended January 31, 2019, compared with the same period in the prior year. The increase is primarily attributable to i) $11.2 million of resort operating costs associated with the resort properties acquired in the Snow Time Acquisition and ii) a $1.9 million increase in resort operating costs at legacy Peak Resorts properties. The increased operating costs at legacy Peak Resorts properties are primarily attributable to i) increased power and utility costs a result of a greater number of operating days as well as increased electric transmission charges associated with two of our Pennsylvania resorts, and ii) increased costs of goods sold associated with higher retail and food and beverage sales, partially offset by a decrease in labor costs associated with i) the Attitash Hotel Closure and iii) our ongoing efforts to manage staffing levels at our resorts.
Depreciation and Amortization.
Depreciation and amortization expense increased by approximately $3.4 million, or 101.5%, to $6.8 million, primarily as a result of i) additional depreciable assets added during the third quarter of fiscal 2019, including property and equipment acquired from Snow Time and the Hunter Mountain expansion project and Carinthia Ski Lodge project assets, and ii) additional amortizing intangible assets added during the third quarter of fiscal 2019 as a result of the Snow Time Acquisition.
General and Administrative Costs
. General and administrative expenses of approximately $3.3 million for the three months ended January 31, 2019, increased by approximately $2.0 million, or 145.5%, primarily as a result of i) a $0.7 million increase in performance-based incentive compensation, ii) a $0.4 million loss on the disposal of property and equipment, and iii) $0.3 million of professional fees and other costs associated with the Snow Time Acquisition.
Real Estate and Other Non-Income Taxes.
Real estate and other non-income taxes of $0.9 million for the three months ended January 31, 2019, increased by approximately $0.3 million, or 53.4%, as compared to the $0.6 million of real estate and other non-income taxes for the same period in fiscal 2018. The increase is a result of approximately $0.2 million real estate taxes associated with the resort properties acquired in the Snow Time Acquisition as well as rate increases and higher assessed values at certain legacy Peak Resorts properties.
Restructuring and Impairment Charges
.
During the third quarter of fiscal 2018, we recognized a $1.6 million asset impairment charge upon our decision to cease operations of the hotel facility at our Attitash resort.
Interest, Net.
Net interest expense of $4.5 million for the three months ended January 31, 2019, increased by $0.9 million, or 26.3%, as compared to the $3.5 million of net interest expense for the three months ended January 31, 2018. The increase in net interest expense relates primarily to i) approximately $0.6 million of interest on the $50 million Term Loan due 2020 which began accruing during the quarter, ii) a $0.2 million decrease in the amount of capitalized interest during the third quarter of fiscal 2019, as compared to the same quarter in fiscal 2018, and iii) an increase in interest rates on variable rate debt.
Income Taxes.
Income tax expense increased $2.1 million, or 62.4%, to $5.6 million for the three months ended January 31, 2019 as compared with the three months ended January 31, 2018, as a result of an increase in our effective tax rate applied to a larger earnings before income taxes. Our effective income tax rates were 27.8% and 27.2% for the three months ended January 31, 2019 and 2018, respectively. The November 2018 acquisition of the Snow Time resort properties will result in the inclusion of their operating results only for the ski season, the profitable period of their annual operations. The 2018 tax rate reflects the enactment of the Tax Cuts and Jobs 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 (loss) 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 (loss) 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 (loss), 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 income to EBITDA
for the three months ended January 31, 2019 and 2018, were as follows (dollars in thousands):
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Three months ended
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January 31,
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2019
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2018
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Net income
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$
|
13,631
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$
|
9,181
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Income tax expense
|
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5,574
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3,433
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Interest expense, net
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4,458
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|
|
3,529
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Depreciation and amortization
|
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|
6,809
|
|
|
3,379
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Impairment loss
|
|
|
-
|
|
|
1,586
|
|
|
Acquisition related costs
|
|
|
295
|
|
|
-
|
|
|
Other income
|
|
|
(22)
|
|
|
(28)
|
|
|
Gain on sale/leaseback
|
|
|
(84)
|
|
|
(84)
|
|
|
Reported EBITDA
|
|
$
|
30,661
|
|
$
|
20,996
|
|
Reported EBITDA increased by $9.7 million, or 46.0%, for the three months ended January 31, 2019, as compared with the same period in the prior year, primarily as a result of i) approximately $7.7 million of Reported EBITDA associated with the resort properties acquired in the Snow Time Acquisition, and ii) increased revenue offset by lower relative operating expenses on legacy Peak Resorts.
Nine Months Ended January 31, 2019, Compared with the Nine Months ended January 31, 2018
The following table presents our unaudited condensed consolidated statements of operations for the nine months ended January 31, 2019 and 2018 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
January 31,
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
$ change
|
|
% change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Lift and tubing tickets
|
|
$
|
45,372
|
|
$
|
31,398
|
|
$
|
13,974
|
|
44.5%
|
|
Food and beverage
|
|
|
18,852
|
|
|
14,813
|
|
|
4,039
|
|
27.3%
|
|
Equipment rental
|
|
|
7,442
|
|
|
6,264
|
|
|
1,178
|
|
18.8%
|
|
Ski instruction
|
|
|
7,539
|
|
|
4,866
|
|
|
2,673
|
|
54.9%
|
|
Hotel/lodging
|
|
|
5,874
|
|
|
6,637
|
|
|
(763)
|
|
-11.5%
|
|
Retail
|
|
|
5,855
|
|
|
4,236
|
|
|
1,619
|
|
38.2%
|
|
Summer activities
|
|
|
4,436
|
|
|
4,459
|
|
|
(23)
|
|
-0.5%
|
|
Other
|
|
|
3,598
|
|
|
2,957
|
|
|
641
|
|
21.7%
|
|
|
|
|
98,968
|
|
|
75,630
|
|
|
23,338
|
|
30.9%
|
|
Costs and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Resort operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor and labor related expenses
|
|
|
39,731
|
|
|
36,389
|
|
|
3,342
|
|
9.2%
|
|
Retail and food and beverage cost of sales
|
|
|
8,869
|
|
|
7,141
|
|
|
1,728
|
|
24.2%
|
|
Power and utilities
|
|
|
7,866
|
|
|
5,398
|
|
|
2,468
|
|
45.7%
|
|
Other
|
|
|
20,572
|
|
|
15,714
|
|
|
4,858
|
|
30.9%
|
|
|
|
|
77,038
|
|
|
64,642
|
|
|
12,396
|
|
19.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
13,541
|
|
|
9,678
|
|
|
3,863
|
|
39.9%
|
|
General and administrative expenses
|
|
|
6,481
|
|
|
4,130
|
|
|
2,351
|
|
56.9%
|
|
Real estate and other non-income taxes
|
|
|
2,180
|
|
|
1,734
|
|
|
446
|
|
25.7%
|
|
Land and building rent
|
|
|
1,024
|
|
|
1,054
|
|
|
(30)
|
|
-2.8%
|
|
Restructuring charges
|
|
|
190
|
|
|
1,586
|
|
|
(1,396)
|
|
-88.0%
|
|
|
|
|
100,454
|
|
|
82,824
|
|
|
17,630
|
|
21.3%
|
|
Loss from operations
|
|
|
(1,486)
|
|
|
(7,194)
|
|
|
5,708
|
|
-79.3%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of interest capitalized of $516 and $1,151 in 2019 and 2018, respectively
|
|
|
(11,283)
|
|
|
(9,736)
|
|
|
(1,547)
|
|
15.9%
|
|
Gain on sale/leaseback
|
|
|
250
|
|
|
250
|
|
|
-
|
|
0.0%
|
|
Other income
|
|
|
69
|
|
|
117
|
|
|
(48)
|
|
-41.0%
|
|
|
|
|
(10,964)
|
|
|
(9,369)
|
|
|
(1,595)
|
|
17.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(12,450)
|
|
|
(16,563)
|
|
|
4,113
|
|
-24.8%
|
|
Income tax benefit
|
|
|
(3,283)
|
|
|
(8,235)
|
|
|
4,952
|
|
-60.1%
|
|
Net loss
|
|
$
|
(9,167)
|
|
$
|
(8,328)
|
|
$
|
(839)
|
|
10.1%
|
|
Reported EBITDA
|
|
$
|
12,871
|
|
$
|
4,070
|
|
$
|
8,801
|
|
216.2%
|
Net Revenue.
Net revenue increased $23.3 million, or 30.9%, for the nine months ended January 31, 2019, compared with the nine months ended January 31, 2018. The increase is primarily attributable to i) $19.0 million of revenue associated with the resort properties acquired in the Snow Time Acquisition and ii) a $4.2 million increase in revenues at legacy Peak Resorts properties. The increased revenues at legacy Peak Resorts properties are primarily attributable to an earlier opening of our 2018/2019 ski season at the majority of our resorts and favorable weather conditions which increased skier visits, partially offset by reduced lodging and food and beverage sales resulting from Attitash Hotel Closure.
Resort Operating Costs.
Resort operating costs increased $12.4 million, or 19.2%, for the nine months ended January 31, 2019, compared with the same period in the prior year. The increase is primarily attributable to i) $11.2 million of resort operating costs associated with the resort properties acquired in the Snow Time Acquisition and ii) a $1.9 million increase in resort operating costs at legacy Peak Resorts properties. The increased operating costs at legacy Peak Resorts properties are primarily attributable to i) increased power and utility costs a result of a greater number of operating days as well as increased electric transmission charges associated with two of our Pennsylvania resorts, and ii) increased costs of goods sold associated with higher retail and food and beverage sales, partially offset by a decline in labor costs. The decline in labor costs resulted from i) the Attitash Hotel Closure and ii) reduced workers compensation insurance expense as a result of the final settlement of certain policy years for certain resorts, partially offset by increased labor costs at our resorts in New York, Missouri and Vermont, as a result of increased state minimum wage rates.
General and Administrative Costs
. General and administrative expenses increased $2.4 million, or 56.9%, for the nine months ended January 31, 2019 compared with the nine months ended January 31, 2018, primarily as a result of i) a $0.7 million increase in performance-based incentive compensation, ii) a $0.4 million loss on the disposal of property and equipment, and iii) $0.6 million of professional fees and other costs associated with the Snow Time Acquisition.
Depreciation and Amortization.
Depreciation and amortization expense increased by approximately $3.9 million, or 39.9%, to $13.5 million, primarily as a result of i) additional depreciable assets added during the third quarter of fiscal 2019, including property and equipment acquired from Snow Time and the Hunter Mountain expansion project and Carinthia Ski Lodge project assets, and ii) additional amortizing intangible assets added during the third quarter of fiscal 2019 as a result of the Snow Time Acquisition.
Real Estate and Other Non-Income Taxes.
Real estate and other non-income taxes of $2.2 million for the nine months ended January 31, 2019, increased by $0.4 million, or 25.7%, as compared to the $1.7 million of real estate and other non-income taxes for the same period in fiscal 2018. The increase is a result of i) approximately $0.2 million real estate taxes associated with the resort properties acquired in the Snow Time Acquisition, ii) rate increases and higher assessed values at certain legacy Peak Resorts properties, and iii) 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 ceased as of the beginning of fiscal 2019. For the nine months ended January 31, 2019, 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 disposed of. Total costs through January 31, 2019 associated with the Attitash Hotel Closure include $1.6 million of asset impairment charges and $0.3 million of other costs. As of January 31, 2019, we do not expect to incur any additional related costs.
Interest, Net.
Net interest expense of $11.3 million for the nine months ended January 31, 2019, increased by $1.6 million, or 15.9%, as compared to the $9.7 million of net interest expense for the nine months ended January 31, 2018. The increase in net interest expense relates primarily to i) approximately $0.6 million of interest on the $50 million Term Loan due 2020 which began accruing during the third quarter, ii) a $0.6 million decrease in the amount of capitalized interest during the first three quarters of fiscal 2019, as compared to the same period in fiscal 2018, and iii) an increase in interest rates on variable rate debt.
Income Taxes.
Income tax benefit decreased $5.0 million, or 60.1%, to $3.3 million for the nine months ended January 31, 2019 as compared with the nine months ended January 31, 2018, as result of a decrease in our effective tax rate applied to a smaller loss before income taxes. Our overall effective income tax rates were 26.4% and 49.7% for the nine months ended January 31, 2019 and 2018, respectively. The 2019 rate reflects the effect of post-acquisition date earnings and higher effective tax rate attributable to the acquired Snow Time resort properties. The 2018 tax rate reflects the enactment of the Tax Cuts and Jobs Act of 2017, which permanently reduced the U.S. corporate statutory rate from 35.0% to 21.0% as of January 1, 2018, including the effect of that change relative to the seasonality of our business and the re-measurement of our deferred income tax assets and liabilities at December 31, 2017 to reflect the effect on their future reversal at the lower, newly enacted tax rates.
Reported EBITDA.
Reconciliations of net loss to Reported EBITDA
for the nine months ended January 31, 2019 and 2018, were as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended
|
|
|
|
|
January 31,
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(9,167)
|
|
$
|
(8,328)
|
|
|
Income tax benefit
|
|
|
(3,283)
|
|
|
(8,235)
|
|
|
Interest expense, net
|
|
|
11,283
|
|
|
9,736
|
|
|
Depreciation and amortization
|
|
|
13,541
|
|
|
9,678
|
|
|
Acquisition related costs
|
|
|
626
|
|
|
-
|
|
|
Restructuring and impairment charges
|
|
|
190
|
|
|
1,586
|
|
|
Other income
|
|
|
(69)
|
|
|
(117)
|
|
|
Gain on sale/leaseback
|
|
|
(250)
|
|
|
(250)
|
|
|
Reported EBITDA
|
|
$
|
12,871
|
|
$
|
4,070
|
|
Reported EBITDA increased by $8.8 million, or 216.2%, for the nine months ended January 31, 2019, as compared with the same period in the prior year, primarily a result of i) approximately $7.7 million of Reported EBITDA associated with the resort properties acquired in the Snow Time Acquisition, and ii) increased revenue offset by lower relative 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 $27.2 million of cash and cash equivalents as of January 31, 2019, compared with $23.1 million at April 30, 2018. Cash of $23.1 million was provided by operating activities and $4.8 million was used in operating activities during the nine months ended January 31, 2019 and 2018, 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 January 31, 2019 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, Cap1 and our EB-5 partnerships. We have presented in the table below the composition of our long-term debt as of January 31, 2019 and April 30, 2018 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
April 30,
|
|
|
2019
|
|
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
|
|
Term Loan due 2020
|
|
50,068
|
|
|
-
|
|
Wildcat Mountain Note due 2020
|
|
3,081
|
|
|
3,231
|
|
Capital Leases
|
|
2,394
|
|
|
2,426
|
|
Other borrowings
|
|
964
|
|
|
1,184
|
|
Less: Unamortized debt issuance costs
|
|
(4,491)
|
|
|
(4,552)
|
|
|
|
218,178
|
|
|
168,451
|
|
Less: Current maturities
|
|
(2,145)
|
|
|
(2,614)
|
|
|
$
|
216,033
|
|
$
|
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 January 31, 2019, nothing was outstanding under the working capital line of credit, and $12.4 million was outstanding under the acquisition line of credit, and $10.0 million and $2.6 million was unused and available under the lines of credit, respectively.
As of January 31, 2019, we were in compliance will all debt covenants under our various credit facilities and debt agreements.
Cash Flow
Nine Months Ended January 31, 2019 Compared with the Nine Months Ended January 31, 2018
Cash of $23.1 million was provided by operating activities in the first nine months of fiscal 2019, a $27.9 million increase when compared with the $4.8 million of cash used in the first nine months of fiscal 2018. Positive changes in working capital were partially offset by a lower net loss for the first nine months of fiscal 2019. As compared to the first nine months of fiscal 2018, positive 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 $94.1 million was used by investing activities in the first nine months of fiscal 2019, an increase of $67.4 million when compared with the $26.7 million used in the first nine months of fiscal 2018. Investing cash flows in fiscal 2019 related primarily to i) net cash paid to acquire Snow Time, and ii) additions to property and equipment associated with the construction of the Carinthia Ski Lodge, Hunter North expansion and Hidden Valley Zip Tour projects. Additions to property and equipment during the first nine months of fiscal 2018 related primarily to the construction of the West Lake Water and Carinthia Ski Lodge projects.
Cash of $63.3 million was provided by financing activities in the first nine months of fiscal 2019, an increase of $72.4 million when compared with the $9.1 million used in the first nine months of fiscal 2018. Financing cash flows in the first nine months of fiscal 2019 included i) approximately $70 million of proceeds from the Term
Loan and the issuance of preferred stock and common stock warrants to finance the Snow Time Acquisition, ii) approximately $0.1 million of other borrowings and capital leases, partially offset by, iii) 1.8 million of debt repayments, iv) $0.8 million of financing fees related to the Term Loan, and v) $4.1 million of distributions to stockholders. Financing cash flows in the first nine months of fiscal 2018 included i) the net repayment of approximately $5.3 million of credit facility and long-term debt, ii) $3.7 million of distributions to stockholders and iii) $0.1 of financing fees.
Significant Uses of Cash
As of January 31, 2019, our 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, including capital lease agreements, during the first nine months of fiscal 2019 were $29.8 million and included $11.3 million related to the Hunter Mountain expansion project, $10.5 million on the Carinthia Ski Lodge project, $0.7 million on the Hidden Valley Zip Tour project and $7.3 million to maintain and enhance our resort properties. We currently anticipate that for the full 2019 fiscal year, we will spend between approximately $30.5 million to $33.5 million on capital expenditures. Included in our total capital spending for the fiscal year, we expect to spend approximately $8.5 million to $9.5 million on resort maintenance capital expenditures, which includes projects needed to maintain and improve the level of service and overall experiences we strive to provide our visitors.
Our total expenditures through January 31, 2019 on the Hunter Mountain expansion project have been approximately $11.3 million; however, the ultimate project costs may be between $9.5 million and $10.5 million as we are actively pursuing tax incentives related to the project. Because the three resorts we acquired in November 2018 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 remainder of fiscal 2019.
As of January 31, 2019, 40,000 shares of our Series A Preferred Stock were outstanding, 20,000 of which were issued to Cap 1 in connection with the Snow Time Acquisition which closed in November 2018. 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. Dividends will begin accruing on the 20,000 shares of Series A Preferred Stock issued to Cap 1 in November 2018 in August 2019. 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 common 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 for the next two 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 nine months of fiscal 2019, we paid common stock dividends of $2.9 million ($0.07 per share of common stock on each of May 11, 2018, August 10, 2018 and November 27, 2018), and declared a cash dividend of $1.1 million ($0.07 per share of common stock to common stockholders of record on January 24, 2019), which we paid on February 8, 2019. 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.