Peak Resorts IPO; If, At First, You Don’t Succeed……………

Peak Resorts has filed to do an initial public offering again. Here’s the link to the new S1.   They first filed back in April of 2011. After a serious of amendments to their S1 filing, they withdrew it due to poor market conditions for IPOs. I analyzed their situation and initial filing back in October of 2011. Here’s the link to that original article.

In the newest filing, they describe the company this way:

“We are a leading owner and operator of high-quality, individually branded ski resorts in the U.S. We currently operate 13 ski resorts primarily located in the Northeast and Midwest, 12 of which we own. The majority of our resorts are located within 100 miles of major metropolitan markets, including New York City, Boston, Philadelphia, Cleveland and St. Louis, enabling day and overnight drive accessibility. Our resorts are comprised of nearly 1,650 acres of skiable terrain that appeal to a wide range of ages and abilities. We offer a breadth of activities, services and amenities, including skiing, snowboarding, terrain parks tubing, dining, lodging, equipment rentals and sales, ski and snowboard instruction and mountain biking and other summer activities. We believe that both the day and overnight drive segments of the ski industry are appealing given their stable revenue base, high margins and attractive risk-adjusted returns. We have successfully acquired and integrated ten ski resorts since our incorporation in 1997, and we expect to continue executing this strategy.”

Peak Resorts had about 1.8 million visits in the 2013/14 season. By all accounts, this management team knows how to operate mountain resorts. They’ve been doing it for long enough.

The original filing had financials up to the fiscal year end in April 2011. For the year ended April 30, 2014, reported in the new filing, they had revenue of $105.2 million and a loss of $1.5 million. In the previous year, they had a profit of $2.7 million on revenues of $99.7 million.

Some of you may be relieved to learn that I am not going to my usual deep (and admittedly, sometimes a bit pedantic) dive into the S1 filling. Go back and read the article I wrote in 2011 if you’re that interested. All I want to note is that in the most currently complete year, they had interest expense of $17.3 million, up from $12.7 million the prior year. Long term debt at April 30, 2014 was $175 million.

Compare net income in the last two years with interest expense. I suspect, like me, that you’ll spot an opportunity for improvement.

They are going to try and raise around $100 million. About $76 million of this amount will be used to pay down that debt, with an immediate favorable benefit to their interest expense and bottom line. They will also have to pay a $5 million fee to their lender to get them allow to pay this off. Apparently, no prepayments were allowed.

There a couple of other interesting things. Three of the four largest shareholders in Peak Resorts are Tim Boyd, Steve Mueller, and Richard Deutsch. They own, respectively, 32.0%, 12.3%, and 12.1% of shares outstanding before the IPO. When the deal is done, the lender (EPR Properties) will release them from their personal guarantees. It is good not to have to provide personal guarantees.

I also noted that the shareholders are not selling any of their personal shares as part of the offering. That is, there’s no “taking the money and run” going on.  No way to know if that was a condition of doing the deal or not.

Finally, they note that they are going to start paying a quarterly dividend. They don’t say now much. Like most initial filings, there are bunch of financial holes in this one. Vail pays a dividend (current yield 1.97%) but Intrawest does not. Dividends can be highly problematic in one season businesses due to cash flow considerations. But it occurs to me that we may see larger mountain resorts paying them as they continue to turn themselves into year around operators.

I don’t know if Peak Resorts will succeed this time around, but I can certainly see why they want to get it done. Proven experience as operators, a diversified resort base, an industry that’s ripe for more acquisitions at good prices, the ability to integrate new properties, and growing year around revenue are things they will be able to take advantage of once debt reduction improves their cash flow and net income.