Great Wolf Resorts (WOLF) Reports 2011 First Quarter Results

May 4, 2011 (Business Wire) — Great Wolf Resorts, Inc. (NASDAQ: WOLF), North America’s largest family of indoor waterpark resorts, reported results today for the first quarter ended March 31, 2011.

First Quarter 2011 Highlights

• Adjusted EBITDA increased 19.6 percent to $18.5 million from the prior year quarter.
• Same store revenue per available room (RevPAR) increased 5.2 percent over the prior year, and approximately 10 percent on a four-month basis of January through April (to normalize for the shift between 2011 and 2010 in Easter and school spring breaks in the calendars).
• Same store average daily rate (ADR) increased by 1.7 percent.
• Same store occupancy increased by 210 basis points.
• Completed the sale of the Company’s Blue Harbor Resort in Sheboygan, Wisconsin.

For the first quarter ended March 31, 2011, the Company reported a net loss of $(6.0) million, or $(0.19) per share, compared to a net loss of $(8.1) million, or $(0.26) per share, for the same period a year earlier. The results for the 2011 first quarter include the effects of the Company’s sale of its Blue Harbor Resort in Sheboygan, Wisconsin, including a $6.7 million gain on sale of the property and a $4.8 million charge to income tax expense due to an increase in the valuation allowance on deferred tax assets.

“For Great Wolf Resorts, 2011 has kicked off with strength, even as the economy is still trying to find sustainable stable footing,” said Kim Schaefer, chief executive officer. “By providing our guests with a fun family destination at a great value, we continue to attract both new and repeat guests to our resorts, driving solid RevPAR growth. The growth is even more pronounced, up approximately 10%, when looking at results on a four-month basis (that is, January through April) to normalize the shift in Easter and spring break in the calendars on a year-over-year basis. This RevPAR growth, when combined with the operating leverage in our business model, translates into substantial earnings growth. This momentum seems to be continuing and we are therefore increasing our RevPAR and earnings guidance for full year 2011.”

Operating Results

Total revenues increased 4.4 percent to $71.9 from $68.8 million in the first quarter of 2010, due primarily to increased demand at the Company’s resorts. Adjusted EBITDA in the quarter increased 19.6 percent to $18.5 million from $15.4 million in the first quarter of 2010.

As a percentage of total revenue, Adjusted EBITDA was 25.7 percent, up 326 basis points from 22.4 percent in the first quarter of 2010. As a percentage of total revenues, resort departmental expenses, property operating costs and SG&A costs combined decreased 232 basis points in the 2011 first quarter as compared to the 2010 period.

Brand Results

Same store RevPAR in the first quarter of 2011 was up 5.2 percent (4.6 percent increase using constant dollars, which normalizes the foreign currency translation effect on operating statistics of the Company’s Canadian resort). Same store occupancy was up 210 basis points. Same store ADR increased 1.7 percent (1.1 percent increase using constant dollars) compared to the 2010 quarter. Total same store revenue per occupied room (Total RevPOR), which includes revenue from rooms, food and beverage, and other amenities, increased 1.0 percent (0.4 percent increase using constant dollars).

On a year-over-year basis the Company’s results were impacted by the timing of the Easter holiday and many schools’ spring break periods, both of which are traditionally strong demand generators, which fell in the second quarter of 2011. To normalize for the shift in Easter and spring break in the calendars, the Company believes looking at year-over-year RevPAR results for the four months ended April 30 is meaningful. Over that four-month period, the Company’s same-store 2011 RevPAR increased over the prior year by approximately 10 percent.

Same store RevPAR for Great Wolf’s Generation II resorts, which are generally larger resorts that better represent the Company’s current resort development model and contribute about 80 percent of the Company’s Adjusted EBITDA, increased 4.1 percent (3.3 percent increase using constant dollars) in the 2011 first quarter versus 2010. Same store occupancy increased 120 basis points and same store ADR increased 2.2 percent (1.5 percent using constant dollars), while same store Total RevPOR for Generation II resorts increased 1.5 percent (0.7 percent using constant dollars) compared to the 2010 quarter.

Over the four-month period ended April 30, the Company’s Generation II resorts’ 2011 same-store RevPAR increased over the prior year by approximately 10 percent.

Balance Sheet and Liquidity

The Company has no debt maturities until April 2012 and no significant long-term capital commitments for construction or development of new properties. Over the near term, the Company intends to utilize the substantial portion of its free cash flow to manage its balance sheet leverage. The Company has reduced its ratio of net debt (defined as total debt less unrestricted cash) to trailing twelve-month Adjusted EBITDA to 6.8 times as of March 31, 2011 as compared to 7.8 times as of March 31, 2010.

As of March 31, 2011, the Company had:

Unrestricted cash and cash equivalents: $46.9 million

Total debt: $540.0 million

Total secured debt: $459.5 million

Total unsecured debt: $80.5 million

Weighted average cost of total debt: 8.5 percent

Weighted average debt maturity: 6.7 years

Portfolio Activity

During the first quarter the Company completed the sale of its Blue Harbor Resort in Sheboygan, Wisconsin. The 182-room resort was sold to Claremont New Frontier Resort LLC for $4.2 million.

As part of the sales transaction, the Company also made a payment of $2.5 million to the City of Sheboygan. This payment relieved the Company of all obligations under the terms of its original agreements with the City, consisting of minimum guaranteed amounts of room tax payments to be made through 2028, and real and personal property tax payments to be made through 2018. The carrying value of the liabilities associated with those minimum payment obligations was $11.6 million as of the sale date of the property.

Outlook and Guidance

The Company is introducing the following outlook and earnings guidance for the second quarter and is increasing its outlook for full year 2011. Based on its current operating outlook, the Company is increasing the midpoint of its guidance for full year Adjusted EBITDA from $73.5 million to $76.5 million. The outlook and earnings guidance information is based on the Company’s current assessment of business conditions, including a forecast of consumer demand and discretionary spending trends. The Company may update any portion of its business outlook at any time as conditions dictate:

(amounts in millions, except per share data)		Q2 2011				Full year 2011
		Low		High		Low		High
Net income (loss)		$(8.9)		$(6.9)		$(31.3)		$(26.3)
Net income (loss) per diluted share		$(0.28)		$(0.22)		$(0.99)		$(0.83)
Adjusted EBITDA (a)		$18.0		$20.0		$74.0		$79.0

(a)	For reconciliations of net income (loss) to Adjusted EBITDA, see tables accompanying this press release.

The forecast above projects second quarter 2011 same store RevPAR growth in the range of approximately 13 percent to 15 percent in constant dollars versus second quarter 2010 and full year 2011 same store RevPAR growth in the range of approximately 6 percent to 10 percent.

Adjusted EBITDA is a non-GAAP financial measure. See the discussion below in the “Non-GAAP Financial Measure” section of this press release. A reconciliation of net income (loss) to Adjusted EBITDA is provided in the tables of this press release.

Conference Call

Great Wolf Resorts will hold a 2011 first quarter results conference call today at 9:00 a.m. Eastern Time. The conference call will be hosted by Chief Executive Officer Kim Schaefer and Chief Financial Officer Jim Calder. Stockholders and other interested parties may listen to a simultaneous webcast of the conference call on the Internet by logging onto the Company’s Corporate Web site at, http://corp.greatwolfresorts.com, then going to the “Investor Relations” tab and selecting “Event Calendar.” Interested parties may also call 1-877-407-4018, or for international callers 1-201-689-8471. A recording of the call will be available by telephone until midnight on May 11, 2011 by dialing 1-877-870-5176, or for international callers 1-858-384-5517, and using the conference ID 371371.

Non-GAAP Financial Measure

Included in this press release is Adjusted EBITDA, which is a “non-GAAP financial measure,” which is a measure of the Company’s historical or future performance that is different from measures calculated and presented in accordance with GAAP that Great Wolf Resorts believes is useful to investors. The following discussion defines Adjusted EBITDA and presents the reasons the Company believes it is a useful measure of the Company’s performance. Great Wolf Resorts defines Adjusted EBITDA as net income (loss) plus (a) interest expense, net, (b) income taxes, (c) depreciation and amortization, (d) non-cash employee and director compensation, (e) costs associated with early extinguishment of debt or postponement of capital markets offerings, (f) opening costs of projects under development, (g) equity in earnings (loss) of unconsolidated related parties, (h) gain or loss on disposition of property or investments, (i) separation payments to senior executives, (j) environmental liability costs, (k) asset impairment charges, (l) non-controlling interests, (m) acquisition-related expenses, and (n) other unusual or non-recurring items. Adjusted EBITDA as calculated by the Company is not necessarily comparable to similarly titled measures by other companies. In addition, Adjusted EBITDA (a) does not represent net income or cash flows from operations as defined by GAAP, (b) is not necessarily indicative of cash available to fund the Company’s cash flow needs, and (c) should not be considered as an alternative to net income, operating income, cash flows from operating activities or the Company’s other financial information as determined under GAAP.

Management uses Adjusted EBITDA: (i) as a measurement of operating performance because it assists in comparing the Company’s operating performance on a consistent basis by removing the impact of items directly resulting from the Company’s asset base (primarily depreciation and amortization) from its operating results; (ii) for planning purposes, including the preparation of the Company’s annual operating budget; (iii) as a valuation measure for evaluating the Company’s operating performance and its capacity to incur and service debt, fund capital expenditures and expand its business; and (iv) as one measure in determining the value of other acquisitions and dispositions.

Adjusted EBITDA is an operating performance measure, and not a liquidity measure, that provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles and ages of related assets among otherwise comparable companies. The Company also presents Adjusted EBITDA because it is used by some investors as a way to measure its ability to incur and service debt, make capital expenditures and meet working capital requirements. The Company believes Adjusted EBITDA is useful to an investor in evaluating the Company’s operating performance because: (i) a significant portion of the Company’s assets consists of property and equipment that are depreciated over their remaining useful lives in accordance with GAAP; (ii) it is widely used in the hospitality and entertainment industries to measure operating performance without regard to items such as depreciation and amortization; and (iii) the Company believes it helps investors meaningfully evaluate and compare the results of the Company’s operations from period to period by removing the impact of items directly resulting from its asset base (primarily depreciation and amortization) from the Company’s operating results. Adjusted EBITDA is a measure commonly used in the Company’s industry, and the Company presents EBITDA to enhance investors’ understanding of its operating performance. The Company uses Adjusted EBITDA as one criterion for evaluating its performance relative to that of its peers. The compensation committee of the Company’s board of directors determines the annual variable compensation for certain members of the Company’s management based in part on Adjusted EBITDA.

The Company also believes Adjusted EBITDA is a useful performance measure because it also eliminates a number of non-cash items and other items that do not reflect the Company’s core operating performance on a consolidated basis, which allows investors to more easily compare the Company’s performance over various reporting periods on a consistent basis. Although the Company believes that Adjusted EBITDA can make an evaluation of the Company’s operating performance more consistent because it removes items that do not reflect its core operations, other companies in the hospitality industry may define Adjusted EBITDA differently than the Company does. As a result, it may be difficult to compare the performance of other companies to the Company’s performance by using Adjusted EBITDA or similarly named non-GAAP measures that other companies may use.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by the Private Securities Litigation Act of 1995. All statements, other than statements of historical facts, including, among others, statements regarding the Company’s future financial results or position, business strategy, projected levels of growth, projected costs and projected financing needs, are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of Great Wolf Resorts, Inc. and members of its management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “might,” “will,” “could,” “plan,” “objective,” “predict,” “project,” “potential,” “continue,” “ongoing,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that actual results may differ materially from those contemplated by such forward-looking statements. Many of these factors are beyond the Company’s ability to control or predict. Such factors include, but are not limited to, competition in the Company’s markets, changes in family vacation patterns and consumer spending habits, regional or national economic downturns, the Company’s ability to attract a significant number of guests from its target markets, economic conditions in its target markets, the impact of fuel costs and other operating costs, the Company’s ability to develop new resorts in desirable markets or further develop existing resorts on a timely and cost efficient basis, the Company’s ability to manage growth, including the expansion of the Company’s infrastructure and systems necessary to support growth, the Company’s ability to manage cash and obtain additional cash required for growth, the general tightening in the U.S. lending markets, potential accidents or injuries at its resorts, decreases in travel due to pandemic or other widespread illness, its ability to achieve or sustain profitability, downturns in its industry segment and extreme weather conditions, reductions in the availability of credit to indoor waterpark resorts generally or to the Company and its subsidiaries, increases in operating costs and other expense items and costs, uninsured losses or losses in excess of the Company’s insurance coverage, the Company’s ability to protect its intellectual property, trade secrets and the value of its brands, current and possible future legal restrictions and requirements. A further description of these risks, uncertainties and other matters can be found in the Company’s annual report and other reports filed from time to time with the Securities and Exchange Commission, including but not limited to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. Great Wolf Resorts cautions that the foregoing list of important factors is not complete and assumes no obligation to update any forward-looking statement that it may make.

Management believes these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. All written and oral forward-looking statements attributable to the Company or persons acting on its behalf are qualified in their entirety by these cautionary statements. Further, forward-looking statements speak only as of the date they are made, and the Company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time unless otherwise required by law. Past financial or operating performance is not necessarily a reliable indicator of future performance and investors should not use the Company’s historical performance to anticipate results or future period trends.

About Great Wolf Resorts, Inc.

Great Wolf Resorts, Inc.^® (NASDAQ: WOLF), Madison, Wis., is North America’s largest family of indoor waterpark resorts, and, through its subsidiaries and affiliates, owns, licenses and/or operates its family resorts under the Great Wolf Lodge^® brand. Great Wolf Resorts is a fully integrated resort company with Great Wolf Lodge locations in: Wisconsin Dells, Wis.; Sandusky, Ohio; Traverse City, Mich.; Kansas City, Kan.; Williamsburg, Va.; the Pocono Mountains, Pa.; Niagara Falls, Ontario; Mason, Ohio; Grapevine, Texas; Grand Mound, Wash.; and Concord, N.C.

The Company’s resorts are family-oriented destination facilities that generally feature 300 to 600 rooms and a large indoor entertainment area measuring 40,000 to 100,000 square feet. The all-suite properties offer a variety of room styles, arcade/game rooms, fitness rooms, themed restaurants, spas, supervised children’s activities and other amenities. The Company’s consolidated subsidiary, Creative Kingdoms, LLC, is a developer and operator of technology-based, interactive quest adventure experiences such as MagiQuest^®.

Additional information may be found on the Company’s Web site at www.greatwolf.com.

The company defines its operating statistics as follows:

Occupancy is calculated by dividing total occupied rooms by total available rooms.

Average daily rate (ADR) is the average daily room rate charged and is calculated by dividing total rooms revenue by total occupied rooms.

Revenue per available room (RevPAR) is the product of (a) occupancy and (b) ADR.

Total revenue per occupied room (Total RevPOR) is calculated by dividing total resort revenue (including revenue from rooms, food and beverage, and other amenities) by total occupied rooms.

Total revenue per available room (Total RevPAR) is the product of (a) occupancy and (b) Total RevPOR.

Great Wolf Resorts, Inc. Condensed Consolidated Statements of Operations
(Unaudited; dollars in thousands, except per share amounts)
		Three Months Ended March 31, 2011				Three Months Ended March 31, 2010
Revenues:
Rooms		$	42,187			$	40,771
Food and beverage			11,202				11,267
Other			11,179				9,739
Management and other fees			1,756				1,655
			66,324				63,432
Other revenue from managed properties			5,561				5,411
Total revenues			71,885				68,843
Operating expenses:
Resort departmental expenses			23,924				22,063
Selling, general and administrative			16,398				17,597
Property operating costs			8,424				8,624
Non-cash employee and director compensation			583				545
Environmental liability costs			–				35
Depreciation and amortization			13,248				14,146
Loss on disposition of property			–				10
			62,577				63,020
Other expenses from managed properties			5,561				5,411
Total operating expenses			68,138				68,431
Operating income			3,747				412
Investment income			(242	)			(289	)
Interest income			(55	)			(252	)
Interest expense			12,097				9,107
Loss from continuing operations before income taxes and equity in income of unconsolidated affiliates			(8,053	)			(8,154	)
Income tax expense			5,002				181
Equity in income of unconsolidated affiliates, net of tax			(151	)			(233	)
Net loss from continuing operations			(12,904	)			(8,102	)
Discontinued operations, net of tax			(6,917	)			(37	)
Net loss			(5,987	)			(8,065	)
Net loss attributable to noncontrolling interest, net of tax			(13	)			–
Net loss attributable to Great Wolf Resorts, Inc.		$	(5,974	)		$	(8,065	)
Net loss per share:
Basic		$	(0.19	)		$	(0.26	)
Diluted		$	(0.19	)		$	(0.26	)
Weighted average common shares outstanding:
Basic			31,195				30,838
Diluted			31,195				30,838

Great Wolf Resorts, Inc. Reconciliations of Non-GAAP Financial Measures (Unaudited; dollars in thousands, except per share amounts)
		Three Months Ended March 31, 2011				Three Months Ended March 31, 2010
Net loss attributable to Great Wolf Resorts, Inc.		$	(5,974	)		$	(8,065	)
Adjustments:
Non-cash employee and director compensation			583				545
Depreciation and amortization			13,248				14,146
Interest expense, net			12,042				8,855
Separation payments			385				–
Loss on disposition of property			–				10
Gain on disposition of property included in discontinued operations			(6,667	)			–
Environmental liability costs			–				35
Equity in loss of unconsolidated affiliates, net of tax			(151	)			(233	)
Noncontrolling interest, net of tax			(13	)			–
Income tax expense			5,002				181
Other Adjusted EBITDA adjustments included in discontinued operations			5				(36	)
Adjusted EBITDA (1)		$	18,460			$	15,438

Great Wolf Resorts, Inc. Operating Statistics – Great Wolf Lodge Resorts
				Three Months Ended March 31,
				2011				2010
Great Wolf Lodge Brand Properties – Same Store
Occupancy					62.5	%			60.4	%
ADR				$	265.12			$	260.75
RevPAR				$	165.60			$	157.39
Total RevPOR				$	406.33			$	402.28
Total RevPAR				$	253.80			$	242.82
Great Wolf Lodge Brand Properties – Consolidated (2)
Occupancy					60.6	%			59.4	%
ADR				$	278.67			$	274.74
RevPAR				$	168.92			$	163.25
Total RevPOR				$	417.83			$	416.30
Total RevPAR				$	253.27			$	247.36
Great Wolf Lodge Brand – Generation I Resorts – Same Store (3)
Occupancy					56.8	%			52.3	%
ADR				$	210.78			$	208.14
RevPAR				$	119.76			$	108.84
Total RevPOR				$	322.27			$	319.95
Total RevPAR				$	183.11			$	167.30
Great Wolf Lodge Brand – Generation II Resorts – Same Store (4)
Occupancy					64.6	%			63.4	%
ADR				$	283.28			$	277.21
RevPAR				$	183.02			$	175.81
Total RevPOR				$	434.43			$	428.04
Total RevPAR				$	280.66			$	271.47
Great Wolf Lodge Brand – Properties Securing First Mortgage Notes (5)
Occupancy					56.6	%			55.3	%
ADR				$	280.43			$	272.39
RevPAR				$	158.61			$	150.52
Total RevPOR				$	426.10			$	421.42
Total RevPAR				$	241.00			$	232.87
The company defines its operating statistics as follows:
Occupancy is calculated by dividing total occupied rooms by total available rooms. Average daily rate (ADR) is the average daily room rate charged and is calculated by dividing total rooms revenue by total occupied rooms. Revenue per available room (RevPAR) is the product of (a) occupancy and (b) ADR. Total revenue per occupied room (Total RevPOR) is calculated by dividing total resort revenue (including revenue from rooms, food and beverage, and other amenities) by total occupied rooms. Total revenue per available room (Total RevPAR) is the product of (a) occupancy and (b) Total RevPOR.

Great Wolf Resorts, Inc. Reconciliations of Outlook Financial Information (6) (in thousands, except per share amounts)
		Three Months Ending June 30, 2011				Year Ending December 31, 2011
Net loss		$	(7,900	)		$	(28,800	)
Adjustments:
Non-cash employee and director compensation			800				3,100
Depreciation and amortization			13,500				54,300
Interest expense, net			12,600				49,100
Separation payments			–				400
Gain on disposition of property included in discontinued operations			–				(6,700	)
Equity in loss in unconsolidated affiliates			(200	)			(200	)
Noncontrolling interest			–				(100	)
Income tax expense			200				5,400
Adjusted EBITDA (1)		$	19,000			$	76,500
Net loss per share:
Basic		$	(0.25	)		$	(0.91	)
Diluted		$	(0.25	)		$	(0.91	)
Weighted average shares outstanding:
Basic			31,500				31,500
Diluted			31,500				31,500

(1)	See discussion of Adjusted EBITDA located in the “Non-GAAP Financial Measure” section of this press release.
(2)	Consolidated properties comparison includes Great Wolf Lodge resorts that are consolidated for financial reporting purposes (that is, the company’s Traverse City, Kansas City, Williamsburg, Pocono Mountains, Mason, Grapevine and Concord resorts).
(3)	Generation I properties same store comparison includes only Great Wolf Lodge resorts of approximately 300 rooms or less that were open for the same periods in 2011 and 2010.
(4)	Generation II properties same store comparison includes only Great Wolf Lodge resorts of approximately 400 rooms or more that were open for the same periods with a comparable number of available rooms in 2011 and 2010.
(5)	The properties securing First Mortgage Notes are the company’s Williamsburg, Mason and Grapevine resorts.
(6)	The company’s outlook reconciliations use the mid-points of its estimates of Adjusted EBITDA.

Great Wolf Resorts, Inc.

Investors:

Alex Lombardo or Nikki Sacks, 608-662-4791

or

Media:

Steve Shattuck, 608-662-4731