Vail Resorts Inc (MTN) 2007 Q1 法說會逐字稿

Good morning, ladies and gentlemen, welcome to the Vail Resorts fiscal 2007 first-quarter earnings conference call. At this time all participants are in a listen-only mode. Following today's presentation instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded Monday, December 11, 2007. I would now like to turn the conference over to Rob Katz, Chief Executive Officer of Vail Resorts. Please go ahead, sir.

Thank you, operator. Good morning, everybody. Welcome to Vail Resorts' fiscal 2007 first-quarter conference call and simultaneous webcast, both open to the public and press at-large. I'm Rob Katz, CEO of Vail Resorts. Joining me on the call this morning is Jeff Jones, our Chief financial Officer.

Earlier this morning we released our earnings for the first quarter ended October 31, 2006. Before we review those results I want to remind you that we are using the terms reported EBITDA and reported EBITDA excluding stock based compensation to report earnings for each of our operating segments namely mountain, lodging and resort which is a combination of the mountain and lodging segments and real estate.

Complete reconciliations of reported EBITDA, reported EBITDA excluding stock-based compensation and other non-GAAP financial measures can be found in this morning's earnings release on the VailResorts.com website in the Investor Relations section under the Regulation G compliance tab.

I also need to mention that comments made during this conference, other than statements of historical fact, are forward-looking statements that are made pursuant to the Safe Harbor provisions in the Private Securities Litigation Reform Act of 1995. Certain risks and uncertainties could cause actual results to differ materially from those contained in the forward-looking statements. Investors are directed to the risks and uncertainties described in the documents filed by the Company with the Securities and Exchange Commission including the Company's Form 10-Q for the first quarter 2007.

This morning we released our earnings for the first quarter of fiscal 2007 which comprised the months of August through October. The first-quarter is a seasonably low quarter and historically a lost quarter as none of our mountain resorts are open for winter business. This year's first quarter was no exception with our financial performance essentially meeting our expectations. Jeff will review the first-quarter numbers with you shortly.

More important than the actual results in the first quarter is the fact that it is a ramp up to the coming ski season as we focus on completing numerous capital projects and ensuring that our operations including our seasonal workforce are set up for the busy months ahead of us. It is also a quarter where some of our key indicators start to take form.

We are very excited about the 2006, 2007 ski season. Our Colorado mountains have already enjoyed several our late-season snowfalls and we already have the same amount of terrain open as we did at the same time last year. For example, Vail currently has over 4,000 acres open including most of the Back Bowls and Blue Sky Basin.

I'm pleased to note that it's currently snowing in Colorado in the mountains and Heavenly received 8 to 10 inches of snow there yesterday and it is still snowing up there today. If you are interested in seeing a more exciting demonstration of the current conditions go to snow.com and click on big snow video where you can check out our latest marketing efforts for the mountains.

Just as important, our early season metrics are very favorable. Season past sales to date have increased 12% in units and 21% in sales dollars over the record levels of the same period last year. As a reminder, these sales will be booked into revenue during the 2006/2007 ski season. Season pass revenues constituted almost 25% of our total lift revenues in fiscal 2006 providing added stability to one of our most profitable operations.

In addition, our marketing efforts for the 2006/2007 ski season continue to attract a higher level of bookings through our central reservations at our five mountain resorts. At this point in the season bookings are up 15% in room nights and 24% in sales dollars.

While at this point the season pass sales clearly reflect strong growth over the (technical difficulty) sales, we will not know until much further into the ski season whether the increase in bookings represent earlier bookings or an absolute level of increased bookings. However, either way, one message to take away is that it is important for people to book early to ensure that their top lodging choices are available when they vacation with us this year.

Also in the first quarter Ski magazine announced their rankings of North America's top mountain resorts. We are very proud that Vail Mountain was once again named the number one resort in North America, the 14th time in the last 19 years it has received that honor. Furthermore, all five of our resorts were ranked in the top 20 including Vail at number one, Breckenridge at number six, Beaver creek at number 8, Keystone at number 14 and Heavenly at number 17. Heavenly was also the top-ranked resort in California.

When combined with the fact that all five of our resorts are among the top 10 most visited resorts in North America, we are in the unique position of being both a market share leader and a quality leader. In fact, this is a unique position for any consumer products company.

We also have three of our resorts among the top 10 ranked resorts in the most recent Transworld snowboarding rankings including Breckenridge with an overall number three ranking also receiving the top spot in the half pipe category. This is a strong testament to our reputation in the snowboarding in terrain park arena. Many of you have noticed that on the cover of our recently issued fiscal 2006 annual report is a picture of a snowboarder at a terrain park in heavenly. The cover of the annual report was chosen because it is representative of a whole no level of excitement for our industry.

After many years with relatively little change the industry was revolutionized by the advent of snowboarding in the 1980s however Wells snowboarding brought no enthusiasm to the industry, the industry continues to build on this initial excitement by offering new equipment such as twin tip skies, broader media coverage such as the Winter X Games and the expanded number of events at the winter Olympics, and new personalities such as Olympic medal winners Shaun White and Toby Dawson.

In addition, the development of terrain parks began to change the vacation experience for our guests, a real draw for the echo bloomers terrain parks offer an enclosed environment for kids to recreate which by its nature is generally off-limits to their parents. We think it is incumbent upon the industry to continue to keep the cache and edge we have created by constantly reinventing the best experience. Vail Resorts will continue our leadership position in this effort.

I would now like to turn the call over to Jeff Jones who will provide you a detailed overview of our results for the first quarter. I will then review the status of some of our real estate projects as well as some other exciting new initiatives that are underway at Vail Resorts. Jeff and I will then both be available for questions. Let's now turn to Jeff for our first-quarter fiscal 2007 results.

Thanks, Rob, and good morning, everyone. As Rob previously mentioned, we released our earnings for our first quarter ending October 31, 2006 earlier this morning. We also filed our Form 10-Q for this first quarter of fiscal 2007. I would now like to take you through some of the highlights of our first-quarter results.

As you know, the first quarter is typically a loss quarter for the Company's since the mountain resorts are open for a portion of the first quarter only the summer site seers with no ski operations during this quarter and this year was no exception. For the quarter ending October 31, 2006 we achieved mountain segment revenue growth of 14.6% to $46.2 million from $40.3 million in the first quarter fiscal of fiscal 2006. This increase is due in part to revenue growth from our retail operations which benefited from improved pre ski season events as well as from increased commercial leasing revenue and other mountain-related activities including marketing initiatives.

Turning now to the cost side of the business, mountain operating expenses grew by $7.2 million or 10% in the quarter. The increase in mountain expenses is primarily due to higher variable costs associated with the higher revenues including the higher retail revenues mentioned above as well as an increase in health benefits cost, repairs and maintenance, labor and supply expenses. Since the first quarter is derived primarily from fixed expenses plus summer business, reported EBITDA loss for the mountain segment increased 4.2% to $32.5 million from $31.2 million in the prior fiscal year's first quarter. Even though revenue growth outpaced the expense growth by 4.6 percentage points.

Turning to our lodging segment, those lodging properties which are approximate to our ski resorts also have seasonally low results in the first quarter which is offset by operations at Grand Teton Lodge Company, a summer resort, as well as operations at our six golf courses, revenue from our managed properties and group business. Lodging revenue for the quarter fell by 3.2% to $40.4 million from $41.8 million in the prior year's quarter. However, since we sold our Snake River Lodge & Spa resort in January 2006 simultaneously acquiring a long-term management agreement for the property, the gross sales of Snack River Lodge & Spa were included in the first quarter of last fiscal year with only management fees included in this year's first quarter.

Therefore excluding the impact of the Snake Rover Lodge & Spa, lodging revenue increased $2.0 million or 5.3% for the quarter ending October 31, 2006 primarily due to the recognition of a $2.4 million termination payment from the Lodge at Rancho Mirage in conjunction with the closing of the hotel as part of a redevelopment plan by the current hotel owner. Reported EBITDA for the lodging segment was essentially flat at $4.1 million in the current prior fiscal year first-quarter.

Let me provide you with some first-quarter year-over-year operating statistics for our owned hotels. On a Same-store basis our owned hotels has a 0.9% growth in REVPar, that's revenue per available room, to $55.25 incorporating a 1.1% increase in ADR to 149.94 and a 0.3% decrease in occupancy to a seasonally impacted 36.8%.

Turning to total resort reported EBITDA, the combination of our mountain and lodging segments, resort reported EBITDA for Vail Resorts declined slightly to a loss of $28.4 million, a 5.1% decrease over last fiscal year's first quarter. Resort reported EBITDA, excluding stock-based compensation expense, for the first quarter of fiscal 2007 decreased to a loss of $27.1 million from a loss of $25.7 million in the prior fiscal year's first quarter.

Looking now at our real estate segment, revenues increased $23.5 million to $26.9 million, a 693.5% increase over the prior fiscal year's first quarter. The Company's real estate operating revenues are primarily driven by the timing of closings and the mix of real estate sold in any given area. In the current fiscal year first quarter sales included the closings of 16 Mountain Thunder condos in Breckenridge and two Gore Creek Place town homes in Lionshead. Real estate expenses increased $20.0 million or 330.4% to $26.1 million in the quarter.

In addition, the Company incurred $1.4 million in unanticipated incremental cost of sales relating to design and construction issues at Jackson Hole Golf & Tennis Club residential development. Real estate reported EBITDA increased $3.4 million or 130.8% to $0.8 million as compared to a loss of $2.6 million in the first quarter of fiscal 2006. The Company is currently in the development stage for several major real estate projects whose revenues and cost of sales will not be recorded until those units are sold. Rob will speak in more detail about the development projects later in the call.

In addition to the segment operating results that I have just reviewed, I would briefly like to discuss a few other material items that contributed to the Company's overall financial results. For the quarter depreciation and amortization expense increased to $21.6 million from $18.9 million in the prior year's quarter, primarily resulting from the increase in the fixed asset base due to normal capital expenditures as well as accelerated depreciation of $0.7 million for certain assets retired in advance of their previously estimated useful lives.

The Company's investment income increased to $2.1 million for the quarter from $1.2 million due to a significant increase in average invested cash balances. The Company recorded $0.7 million of relocation charges in the first quarter of fiscal 2007 and we expect to incur $0.6 million to $1 million in additional relocation charges in the remainder of fiscal year 2007. Additionally, the Company incurred $3.6 million in legal-related costs for the first quarter of fiscal 2007 related to the Cheeca Lodge & Spa contract dispute.

Finally, the Company recorded total pretax stock-based compensation expense of $2.0 million included in the total reported EBITDA in the three months ended October 31, 2006 compared to $1.7 million for the three months ended October 31, 2005. As expected the Company reported a first-quarter net loss of $35.8 million or $0.93 per diluted share compared to a loss of $34.3 million or $0.93 per diluted share for the same period last year. Excluding stock-based compensation expense the Company's first-quarter net loss would have been $34.6 million or $89 per diluted share for the first quarter of fiscal 2007 compared to a net loss of $33.2 million or $0.90 per diluted share in the first quarter of fiscal 2006.

Now let me turn our attention briefly to our outlook for the remainder of fiscal 2007. While some indicators continue to look favorable compared to last fiscal year, we're still very early into fiscal 2007 with the entire ski season ahead of us. Therefore we would like to reiterate our full year guidance for fiscal 2007 provided in our fiscal 2006 earnings release and earnings call held on October 5, 2006.

Turning to our balance sheet and the capitalization events for the first-quarter 2007; we have approximately $117.3 million of cash and cash equivalents on hand excluding restricted cash, no revolver borrowings under our senior credit facility and net debt as defined as long-term debt plus long-term debt due within one year less cash and cash equivalents of 426.1 million as compared to 471.6 million one year ago. Our ratio of net debt to total reported EBITDA improved from 2.7 times at the end of the first quarter last year to 2.1 times at the end of the first quarter of fiscal 2007.

I should note that what makes these statistics even more compelling is that both the cash balance that net debt statistics are at a seasonal low point as they are at the end our two non ski season quarters -- the fourth quarter of last fiscal year and the first quarter of this fiscal year.

Finally, during the first quarter of fiscal 2007 the Company repurchased 190,700 shares of the Company's stock under the previously announced share repurchase program at an average share price of $39.33 for a total amount of $7.5 million. Since inception of this program in fiscal 2006 the Company has repurchased a total of 505,800 shares at an average price of 36.25 totaling $18.3 million. The Company currently has authorization to repurchase an additional 2,494,200 shares under the program which is limited by, among other things, restrictions on our indenture and senior credit facility. The Company continues to evaluate appropriate uses of it's excess cash including but not limited to the share repurchase program. At this time I'd like to turn the call back over to rob.

Thanks, Jeff. Before I get into our real estate activity I'd like to highlight a new addition to our executive team. I'd like to congratulate Patricia Campbell on her appointment as the new Vice President and Chief Operating Officer of Keystone Resort. Pat has been the director of skier services at Breckenridge since 2000 and brings a total of 21 years of ski industry experience and leadership to her new role at Keystone including time at Grand Targhee and Jackson Hole Mountain Resort. Pat joins a very strong leadership team at Keystone and we believe that together they will take Keystone to the next level.

We also recently that Martha Rehm, our General Counsel, will be leaving the Company on March 31, 2007. I want to thank Martha for her many contributions in a wide range of areas during her time with the Company and the high level of professionalism she brought. I also appreciate her willingness to transition the position and all of its responsibilities to a new General Counsel.

Now turning to our real estate efforts, we continue to be enormously excited by our ongoing real estate projects as well as by those we have just recently begun. While these projects will be highly profitable on their own, they are also key to our core strategy by providing significant upgrades to our resorts and offering guests new services and amenities. The majority of revenue from our major vertical real estate developments is still slated to occur in fiscal 2008 and beyond.

The most recent activity includes the launch of our marketing efforts for the Vail Mountain Club, an exclusive slope side clubhouse steps from the Vista Bahn Express lift as part of the Vail's front door project. The club is expected to open early in calendar 2008. We are currently selling 150 full memberships, which include parking privileges, at a membership deposit of $250,000 per membership; and 300 social memberships, which do not include parking, at a membership deposit of $100,000 per membership. Although we just began accepting deposits for this premier private club on December 6th, we already have sales commitments representing $15.2 million of total proceeds.

With the Vail Mountain Club we are entering a new phase of our development plans for Vail Mountain by offering our guests the opportunity to become members in Vail's most exclusive club to date offering a luxurious slope side clubhouse with amenities including private locker rooms, member lounges, preferential spot services at the news spa at the lodge at Vail as well as concierge and ski valet services for the club members. Our full marketing efforts will now begin in earnest over the holidays.

The Arrabelle at Vail Square also continues on schedule for closing in late calendar year 2007, falling into our fiscal 2008. This project will redefine the look and feel of one of our major portals onto Vail Mountain. In addition, as of today we have closed on eight of the 16 Gore Creek place town home units and we'll close on the remaining eight units during the remainder of fiscal year 2007. As a reminder, Gore Creek represents the first major development project in our revitalization efforts in Vail.

We are under contract for the sale of 10 of the 13 Lodge at Vail chalets at an average price of nearly $2,400 per square foot which we expect to close on in fiscal 2009. We are also anticipating that we will begin our marketing efforts on our first project in West Lionshead this season and we hope to shortly finalize our plans for this opportunity.

The new Breckenridge gondola is nearing completion and will be ready for the few fast majority of the 2006/2007 ski season. This gondola will transform an already exciting town and continue to add momentum to Breckenridge, already the second most visited resort in the United States. Additionally Crystal Peak Lodge, the first phase of our new development activities in Breckenridge representing a 46 unit project at the base of Peak 7 will be brought to market this winter.

Moving to our lodging business on March 9, 2006 we announced that our RockResort subsidiary will no longer manage the Cheeca Lodge & Spa as part of its luxury hotel brand. The hotel's ownership, Cheeca Holdings LLC, terminated the management agreement without advance notice effective March 6, 2006 and I can assure you we continue to vigorously pursue our legal rights in regard to that termination. As a result we recognized $3.6 million in expenses reported as contract dispute charges in the first quarter of fiscal 2007.

While our company is not a fan of litigation, we consider the protection of our legal rights in the hotel management business to be a critical part of our strategy. Under the arbitration hearing that ended in early October we expect the arbitrator to render a decision in the early part of calendar 2007. Due to the ongoing nature of this dispute I cannot comment any further on this matter.

We announced this quarter that RockResorts was selected to manage the resort operations on the new $700 million 870 acre multiuse luxury resort residential and marina development on Rum Cay Island in the Bahamas. In addition to managing the luxury hotel and spa facilities (technical difficulty) will manage the Marina Village, golf facility, certain residential rental programs and one or more private membership clubs. RockResorts will provide technical consulting and marketing services during the development and preopening phases of the Rum Cay project.

The addition of Rum Cay to the RockResorts portfolio reflects our commitment to grow our luxury hotel brand in select locations with unique and exceptionally resorts. It is also an indication of the implementation of our strategy to leverage the RockResorts brand to extend our reach to premium customers around the United States and now internationally by targeting luxury and ultra luxury communities. It also combines our strong expertise in real estate development and resort management, leveraging our strong brands and customer basis.

Wrapping up, I would like to thank all of our employees for their continued strong efforts in making Vail Resorts the premier mountain resort company and a major player in the travel and leisure sector. We remain committed to making the 2006/2007 skis season a tremendous experience for our guests. We hope to see you all on the slopes. This concludes our prepared remarks. At this time Jeff and I will be happy to answer any of your questions. Operator, we're ready for questions.

(OPERATOR INSTRUCTIONS). Will Marks, JMP Securities.

Just a few questions. First on your Gore Creek, can you tell me how much in after-tax profits you expect the project to generate or how much it has already?

I think we'll be putting out those numbers when we're done closing all of big units, will. And then we'll wrap up that project and give everyone an update on where that came out. We have given guidance for the combination of Gore Creek and the Arrabelle and we'll separate that out once the closings are finished.

Okay. And then somewhat related, in the first quarter it looked like the real estate margin wasn't so high. Can you comment on that at all?

This was the real estate margin?

Yes, just in terms of an EBITDA margin. And I don't know what target it is; I know it's just a quarter and you don't look at things that way necessarily, but I doubt it implied the margins you're getting a Gore Creek but I'm curious how we should be looking at that.

This is Jeff. Since only two Gore Creek town homes were in the first quarter the real estate revenues cost and then margin was heavily skewed towards the Mountain Thunder town homes in Breckenridge. And that was a second phase of a project we had first started a couple years ago and I'd just say those margins were a lot thinner than we would normally -- and certainly what we're seeing in the Vail area for the vertical development projects and what we would expect to see out of future Breckenridge projects that we're to about to launch.

So it's safe to say then Crystal Peak should do a lot better from a margin perspective?

Yes.

And can you give us any idea of comps in Breckenridge at all on a per square foot basis?

It really ranges everywhere. I think we're certainly expecting that Crystal Peak will be one of the most sought-after properties in Breckenridge, a key ski in/ski out locations. And as we said, we'll be taking that to market shortly and I think we're expecting terrific results from it. Obviously we'll update everybody after we do that.

Great, okay. A couple other things. Can you give us any idea of construction costs for the mountain club and the chalets there? I don't think we've ever been given any kind of information on that.

So far today what we've announced is our guidance for the project in total and we've announced real estate EBITDA, a range for real estate EBITDA and we've also announced numbers for the investment we'll make in resort depreciable assets and in proceeds that we were going to take in from the club. We have not broken out construction costs. It's very difficult with these complex projects and we really hesitate to give out construction costs because it moves all over the place depending upon all of the different facets that are included in the real estate efforts themselves.

So I'm going to decline to give any more guidance (technical difficulty) other than what we've already said on that project. And I think -- but as you know, you can do some of your own mats to try and back in to some of those numbers.

Yes, we've tried. Let me ask you one final question, just related to a spa. When is that expected to open and is that going to be part of the lodging or the mountain revenue?

The spa will be part of the lodging revenue, it's going to be part of the lodge at Vail and the spa will be shared by both the guests at the Lodge at Vail and by members of the Vail Mountain Club. And that spa will open in early calendar 2008.

Okay, perfect. Thanks.

(OPERATOR INSTRUCTIONS). Mimi Sokolowski, Bank of America Securities.

Just one question about Rum Cay -- I guess it's got a couple of parts to it though. What opportunity do you see there? What are your responsibility is going to be in what kind of profit margins might we be able to read in two if you can look out that far?

Really what we start doing right now -- in fact our folks are down there today working on some of the technical services portion of what that agreement calls for, which is us helping them out on the design and construction phase of the project, so we get a fixed monthly fee on the technical services side of things. The bigger opportunity is a marketing fee that we get for our assistance including the use of our brands and some of our databases in selling out their condos. And then once the project is closed and things go live we will be managing a good part of that whole resort.

And I think the Rum Cay is really a good proxy for what we really are looking to do for RockResorts and that is to not just have RockResorts be a completely separate brands and segment of our business, but yet utilize and leverage our expertise in real estate development, private clubs, commercial leasing, retail, the whole gamut that we can bring with Vail Resorts has well as our premium customer bases that we bring not only through RockResorts but through the ski customer basis and take that out beyond the mountains. I think this is just the first of hopefully many announcements we'll be making in that regard.

So this would align with your targeting a very high end clientele?

Absolutely.

Maybe Rob gave it, but an approximate timeline for when the projects would be complete, sold and you would be a property manager?

Yes, they actually have commenced with the Fort Lauderdale Roadshow, starting to market and sell the first phase of condos. The marina is being dredged as we speak. It will be the biggest marina in the Bahamas, able to accept yachts over and 200 feet in length which I think includes just about everything privately owned out there in the world today that we know about. And it will be opening in several phases -- the Marine I think should be open in a little over a year and then the residential and the hotel and the restaurants for a few years after that. So at the end of the day you're talking probably a three-, four-year, five-year timeline until it's all done from today.

Okay, that's helpful. That is all I have. Thank you very much.

(OPERATOR INSTRUCTIONS). [Grant Jordan], Wachovia Securities.

Thanks for taking the question. Just if you could give us a quick update on maybe what you're seeing in the M&A market and if you think we'll see any projects or mountains come up for bid this year? Thanks.

We certainly don't comment on any of our own activity, as you know. I think the one comment I would make is it's been publicly disclosed that SteamBoat is up for sale. And so that -- in terms of what we're aware of that assert with one mountain that has been put up for sale and I would assume would have a transaction at some point. But we don't comment on our own activity, although I'd say certainly as a strategy it is part of our core strategy to look to strategically grow through acquisitions where they make sense for the Company, where the resort makes sense, the guest profile the destination business that they do and other factors which we think allow us to bring a variety of our skill sets to an acquired resort. So it's certainly top of mind but not something that we comment on.

Okay. And then on the SteamBoat, just theoretically speaking, would there be any issue there in terms of marketshare the via the FTC?

Again, that's not something that we're going to comment on either way. But I appreciate the question.

Okay.

Anything else?

(OPERATOR INSTRUCTIONS). Mimi Sokolowski.

Jeff, one more for you. A somewhat tedious -- just in case you don't have it handy. This time last year do you have the figures for the ticket sales and the bookings?

On an absolute basis I think what we have is what our growth was over last year same time. Because the stats that we talked about both Rob talked about today on the call and we have in the earnings release our stat of where we are today versus the same time last year.

Do you have the stats where you were this time last year versus the two-year prior period?

I don't have them right at my hands, Mimi, we can get those you. They were not at the same levels of grow that we are showing today.

Meaning that they were slower?

They represented less growth over the prior year than what we're talking about today as growth over the last year.

All right, that's all I'm trying to determine so that's perfect. Thank you.

Sure.

At this time I'm showing no additional questions. Mr. Katz, please continue with your closing remarks.

Thank you, operator. Thank you all for participating on our conference call today. We're excited by the Vail Resorts story and the financial performance that we continually have been able to deliver. Please feel free to contact me or Jeff directly should you have any further questions. Thank you for your time this morning and goodbye.

Ladies and gentlemen, this does conclude the Vail Resorts fiscal 2007 first-quarter earnings conference call. You may now disconnect and thank you for using AT&T teleconferencing.