Vail Resorts Inc (MTN) 2014 Q2 法說會逐字稿

Good day,, ladies and gentlemen, and thank you for standing by. Welcome to the Vail Resorts fiscal 2014 second quarter results conference call.

(Operator Instructions)

This conference is being recorded today, Wednesday, March 5, 2014. I would now like to turn the conference over to Mr. Rob Katz, Chief Executive Officer. Please go ahead, sir.

Thank you. Good afternoon, everyone. Welcome to our fiscal second quarter 2014 earnings conference call. Joining me on the call this afternoon is Michael Barkin, our Chief Financial Officer.

Before we start, may we remind you that some information provided during this call may include forward-looking statements that are based on certain assumptions and are subject to a number of risks and uncertainties as described in our SEC filings and actual future results may vary materially. Forward-looking statements in the press release that we issued this afternoon along with our remarks today are made as of today, March 12, 2013 and we undertake no duty to update them as actual events unfold.

Today's remarks also include certain non-GAAP financial measurements. Reconciliation of these measurements is provided in the tables included with our press release, and in our quarterly report on 10-Q filed this afternoon with the Securities and Exchange Commission, and is also available on the investor relations section of our website at www.vailresorts.com. So with that said, let's turn to our second quarter fiscal 2014 results.

Overall, we are very pleased with our performance in the second quarter of fiscal 2014. Despite the very challenging conditions in Tahoe, where total snowfall was down 73% as of January 31 compared to the prior year, we have seen overall growth and visitation of 9.1% and increased guest spending, highlighting the strength of our geographically diverse business model. Total lift revenue was up 11.2% for the quarter, ski school was up 12.5%, and total mountain revenue increased by 8.3% compared to the prior year.

Results in Colorado were particularly encouraging, with total visitation up 11.9%, ski school revenue up 9.7%, and dining revenue up 16% compared to the prior year. Our strong Colorado results were driven by the significant growth in our season pass sales, great conditions throughout the quarter, and several important investments that we made in our resorts in 2013.

Most notably, we opened Peak 6 at Breckenridge. Our new intermediate and expert high alpine bowl experience that added nearly 25% more ski-able acres to the second most visited resort in the United States. We also opened the new Talons Restaurant at Beaver Creek, and began operation of the new six-person Chair 4 at Vail, which increases uphill capacity at a key mid-mountain lift by over 30%.

Unfortunately our results were tempered by the very poor snowfall and warm temperatures in Tahoe, where total visitation was down 27.7% compared to the prior year. Our Tahoe resorts only had 33% of trails open as of January 31, 2014 compared to 95% of trails open at the same point last season, and compared to 65% of trails open even during the very challenging 2011/2012 ski season. Although conditions have been difficult, our Tahoe resorts have done an admirable job in maximizing open terrain and maintaining high levels of guest service to differentiate our resorts in that marketplace.

Finally, in its first year of operation under our management we are pleased to report that Canyons Resort is performing in line with our expectations, despite a slow start for snowfall this season in Utah. We were able to drive a substantial increase in both pass visits and ticket purchases at Canyon which was particularly heartening as it was our first foray into the Utah market, and we transitioned off of the Liftopia service and on to our own online and digital marketing platform.

Our urban ski areas Afton Alps and Mt. Brighton are also demonstrating strong performance in line with our expectations, following our transformative capital investments last summer. In addition to driving increased pass sales in these markets, we are seeing a significant increase in skier visits at both resorts and are making significant progress on data capture, with the vast majority of skiers at both resorts joining our preferred loyalty program.

Moving to our lodging operations; our lodging results were very strong for the quarter. Revenue, excluding payroll costs reimbursement, increased 21.3% compared to the prior year period and revenue per available room, or RevPAR, increased 12.4% compared to the prior year period.

Our results were driven by the strong performance of our core Colorado markets with increased occupancy and favorable rate increases, along with the addition of the Canyons Lodging properties to our portfolio. The Tahoe region does not represent a material component of our lodging business, and therefore did not have a significant negative impact on lodging results.

Regarding real estate, we closed on three One Ski Hill Place units during quarter, and generated net real estate cash flow of $2.1 million. Additionally, we are continuing to see strong a buyer interest at both our Ritz-Carlton residence at Vail and One Ski Hill Place properties and closed on three Ritz-Carlton Residences at Vail units and five One Ski Hill Place units, subsequent to January 31, 2014. Now I would like to turn the call over to Michael to further discuss our financial results and our season-to-date metrics.

Thanks, Rob, and good afternoon, everyone. Before discussing our results and season-to-date metrics, I want to remind you that you can find a full discussion of our financial results for our second quarter of fiscal 2014, ended January 31, 2014, in our quarterly report on form 10-Q which we filed today with the SEC. Our form 10-Q and our earnings announcement can be found on our website at www.vailresorts.com.

As Rob mentioned, we are pleased with our second-quarter results. Resort net revenue was $447.8 million for the second quarter, up 9.7% from the prior year period, and resort reported EBITDA was $151.1 million for the second quarter of fiscal 2014, up 6% from the prior-year period. Mountain reported EBITDA increased $7.3 million, or 5.2%, for the quarter compared to the same period in the prior year. This was driven by both increased lift revenue and increased ancillary spending.

Total lift revenue for the quarter increased $19.7 million, or 11.2% compared to the same period in the prior year. Season pass revenue was the largest component of the increase in our lift revenue, increasing $13.7 million, or 18% over the prior year period. In addition to season pass revenue growth, lift revenue excluding season pass revenue increased 6%, driven by our Colorado resorts and incremental revenue from Canyons, partially offset by lower revenue at our Tahoe resorts, where visitation, excluding season pass holders, declined by 27.9% compared to the same period in the prior year.

Ancillary revenue continued to perform well in the second quarter, with ski school revenue increasing by $5.2 million or 12.5%, and dining revenue increasing by $2.8 million, or 9.3% compared to the same period in the prior year. Retail rental revenue improved by $2 million, driven by strong performance in our Colorado and Utah regions, and incremental revenue generated by Hoigaard's, our Midwest retailer that we acquired last year.

These results were partially offset by the challenging weather conditions in the Tahoe region, negatively impacting our Tahoe and San Francisco Bay area stores and a decrease in online sales, due to the shutdown of our online retail platform as we are transitioning to a different approach to online sales. This will also eliminate operating losses in the online retail business.

Our lodging segment revenue increased $9.6 million, or 20.7% as compared to the same period in the prior year for the three months ended January 31, 2014,and lodging reported EBITDA increased 68.3% to $2.9 million for the second quarter of fiscal 2014. These results were a reflection of strong occupancy and increases in rates in our core Colorado markets.

Real estate reported EBITDA for the second quarter of fiscal 2014 declined by $0.6 million to a loss of $3.1 million. Net real estate cash flows were $2.1 million for the second quarter. As Rob mentioned, subsequent to January 31, we have close on three Ritz-Carlton Residences at Vail units and five One Ski Hill Place units.

Finally, net income attributable to Vail Resorts Inc was $59.3 million for the second quarter of fiscal 2014, or $1.60 per diluted share, as compared to net income of $60.6 million, or $1.65 per diluted share for the same period in the prior year.

Our balance sheet remains very strong. We ended the quarter with $205.3 million of cash on hand and no borrowings under the revolver component of our senior credit facility. And our net debt was 2.6 times trailing 12 months total reported EBITDA.

Turning now to our updated metrics, our ski season to date metrics are measured from the beginning of this ski season through March 9, 2014 compared to the ski-season-to-date metrics for the period ending Sunday, March 10, 2013, adjusted as if Canyons was operated in both periods. The reported ski season metrics do not include the results of Afton Alps or Mt. Brighton in either period.

The following data is interim-period data and subject to fiscal quarter-end review and adjustments. We continue to have great results for our five mountain resorts in Colorado and Utah, with visitation increasing 7.1% and total lift-ticket revenue increasing 11.5% compared to the prior year period.

We are also very pleased with the growth in ancillary revenue in Colorado and Utah, reflecting strong guest spending, with ski school revenue up 10.6%, dining revenue up 11.4%, and resort retail rental revenue up 9.8%, all compared to the prior-year period. These results are consistent with our year-over-year metrics as of January 5, 2014, despite the fact that results in January and February of last season were quite strong in those markets.

The strong results in Colorado and Utah have been dampened by our results in Tahoe, where skier visits are down 20.4% compared to the prior year. However, we are seeing a modest resurgence of demand in visitation in recent weeks, after storms in Tahoe have improved snow conditions and resulted in more open terrain.

In total, across our eight mountain resorts, our season-to-date visitation is up 0.2% compared to the prior-year period, and total lift revenue increased 4.9% compared to the prior-year period. The growth in Colorado and Utah has also resulted in growth overall for the company in our ancillary revenue. I'll now turn it back to Rob to review our updated guidance for fiscal 2014.

Thanks, Michael. When we issued our metrics release in early January we felt that we could still meet our original guidance if Tahoe had normal conditions by the end of January, giving the market enough time to recover in February and March. While Tahoe did finally receive substantial snowfall ahead of the Presidents Day holiday, we experienced very weak results at our Tahoe result resorts through mid-February, and conditions did not meaningfully recover until the end of the month.

The continuation of the historic early-season drought impacted not only February results, but the remainder of the season as well, as we believe many guests in the San Francisco Bay area made alternative plans due to poor snow leading up to that period. The full-season impact from Tahoe's performance has resulted in lower expectations for our overall profitability this year.

Consequently we have revised our guidance for resort-reported EBITDA for the full fiscal year 2014 to $255 million to $265 million, which reflects an approximate 10% reduction in resort-reported EBITDA from our original guidance. Almost all of the reduction reflects the lower-than-anticipated contribution from our Tahoe resorts and San Francisco Bay area retail operations.

Also included in our estimates for fiscal 2014 resort-reported EBITDA is approximately $9.5 million of integration- and litigation-related expenses, including approximately $7.5 million in fees associated with the Park City Mountain Resort litigation. The increase in PCMR litigation expense from our original estimate is related to the addition of new claims and counterclaims in the case. Net income attributable to Vail Resorts is now expected to be in the range of $23 million to $36 million in fiscal 2014.

I'm pleased to announce two important decisions related to our capital-allocation strategy. We remain committed to returning capital to stockholders, and believe that our performance this year, while slightly below our original expectations, has bolstered our confidence in our business and its ability to drive growth and high free cash flow despite the impact of dramatic weather events. As such, our Board of Directors have decided to increase our quarterly dividend by 100%.

We have declared a quarterly cash dividend on Vail Resorts common stock of $0.415 per share payable on April 16, 2014 to stockholders of record on April 1, 2014. Given our strong free cash flow, and a disciplined approach to reinvesting in our business, we will continue to pursue our long-term internal and external growth objectives while returning significant capital to our shareholders.

In keeping with our focus on the efficient use of capital, we are also providing longer-term guidance regarding our capital spending. We intend to maintain our future annual capital expenditures at our calendar year 2014 level of approximately $85 million, adjusted for inflation and the growth in our resorts. This target would include approximately $50 million of annual maintenance spending.

These levels would exclude the investment we plan to make in our Epic Discovery and summer-related projects, which we expect will total approximately $85 million in upcoming years, subject to regulatory approvals. And also it will exclude significant one-time capital improvement associated with acquisitions, including Canyon.

We believe this longer-term capital guidance will provide greater transparency into our future free cash flow, and demonstrate our disciplined of only investing in high-return projects at our most profitable resorts. In addition to the longer-term capital guidance, I also wanted to provide a look ahead at the upcoming calendar year 2014 capital plan.

The plan reflects expected spending of approximately $85 million, including approximately $50 million of maintenance capital expenditures. In addition, we are planning to spend approximately $5 million on summer-related activity. The plan is composed of projects that have a meaningful impact on the perceived value of our guest experience at our resort, including two high-impact lift upgrades.

First, at Beaver Creek, we will replace the Centennial lift with a high-speed, state-of-the-art combination lift that will include both six-person chairs and gondola cabins. This combination lift will increase uphill capacity at our key base-area portal by over 30% and provide our Beaver Creek guests with an enhanced experience, particularly for children and first-time skiers who will now be able to use a gondola to access terrific beginner terrain at the top of the mountain.

In Breckenridge, we will upgrade the Colorado chair to a six-person chair that will increase capacity by nearly 30%, improving the guest experience and dramatically reducing wait times on one of the highest-volume lifts at any of our resorts. This higher-capacity lift at the base of Peak 8 will also provide better access for our guests to the newly opened Peak 6 terrain, which has been an outstanding addition to Breckenridge this season.

Other notable projects include room renovations at our iconic Lodge at Vail property, where we will be updating 56 rooms at the hotel which have significantly lagged the rest of the hotel in terms of guest satisfaction, average daily rate, and occupancy. We will also be investing in our customer data-analytics capability with an overhaul of our customer database to streamline this operation and improve its functionality. We will also be adding the ability for our guest to make same-day lift ticket purchases on the web and with mobile devices to both reduce ticket lines and increase our data capture. Finally, we will be investing in a renovation and expansion of the Cloud Dine Restaurant at Canyon.

While we are disappointed in the historically low snowfall in Tahoe this year we are excited about the momentum we are seeing in our business, including the consistent growth we have seen in Colorado, at Canyons and at our urban ski areas from visitation and guest spending. As we look forward to March and April we are pleased that our guests can experience the outstanding conditions that our resorts in Colorado and Utah can offer and the improved conditions at our Tahoe resorts are now seeing after a very challenging season up to this point. Our attention to service and our commitment to delivering an outstanding guest experience will continue to be the hallmarks of our Company and the focus of our efforts. I would like to thank all of our employees for their passion, hard work, and commitment to our organization which, as always, lies at the center of our success. Operator, we are now ready for questions.

(Operator Instructions)

Shaun Kelley, Bank of American Merrill Lynch.

Hello. Good afternoon.

I just wanted to start with the change in guidance. I think Rob you gave a lot of good clarity on this, but just to dig in a little bit further, obviously there were a little bit more in the litigation charges as it related to PCMR, and then you also called out the change in the online retail strategy. Is there any one-time cost associated with the online change or any other one-time cost in here that might have impacted the flow throughs that we saw in the quarter?

No. So the online, our decision to close down the current effort, that and the operation is actually going to be pretty much on target with our original expectations for the season, losses that are a little bit more than that but not material to the overall guidance, and that decision did not impact at all our reduction in guidance.

Okay. And just when you think about the overall magnitude of the reduction, was it really -- was it something in and around -- I mean you got the snowfall for Presidents Day but was it something in around as you just not get the visitation uplift that you thought you might see when the snow actually came? Is that really what ultimately happened here in terms of the delta to your expectation from early January?

No, no, not really. What I would say is in early January when we gave out our guidance, obviously at that point we really had no idea when snow was going to come. We are looking at weather forecast for the next five to seven days at best.

I think we felt like if we could start to get more traditional snowfall in mid-January that could set us up quite nicely for February, for Presidents Day, for spring break, and obviously all the way through the season. When you push out when we actually got the snowfall to kind of about at least a month, if not six weeks because although we got snowfall before Presidents Day, in terms of having what we would have call normal conditions, that didn't really show up until really almost early March.

And so once you start to push out by 4 to 6 weeks when we get the snow then what is happening is that the impact of that is not only obviously we are doing worse in the second half of January and all of February then we might have hoped in the beginning of January, but then we are also affecting people's decisions. So although we did see a huge visitation increase, we know there are a lot of people that start to make other plans when they start waiting for the snow and don't see it.

So somebody who might have booked a vacation over Presidents Day in late January when they are looking at the conditions and realizing that there is no snow, still, they make other plans. And then even when the snow came right, that person -- can't really get that person back to the resort. That's now -- of course we did see big visitation increases.

No question once the snow comes but nowhere and near where we would've expected with normal conditions throughout the season. So what I'd say is that we gave that commentary in early January it was really around an assumption that if we could get real snowfall in the second half of January we still had a good a very good chance to make our guidance. When that got pushed off 4 to 6 weeks given that this whole season is only 12 weeks, that's a pretty big impact.

Okay. That's helpful color. And then maybe just to switch gears, you mentioned that Canyons was ramping up. Generally in line with expectations despite a slow start.

Could you just remind us of what those targets were? I believe you had gave I think the first full year of contribution you were targeting around $15 million in EBITDA and then that ramping over the next 3 years to something maybe like $25 million, but could you just remind us what those targets are and how you are thinking about it today?

Yes.

What we said was the net increase to EBITDA from the Canyons acquisition was exactly what you outlined, $15 million in the first year ramping up to $25 million over 3 years, and we feel right now we're tracking very much on that. So we feel very good about that and Canyon's actually -- and I would say although Colorado, we obviously focus a lot on Colorado and the snow in Colorado was quite good almost throughout the season. Utah really did not have a great start to the season in terms of snowfall which I think certainly might have put some of that in peril. And actually we feel very good about how strong the resort has performed under our ownership that we are still on target.

Great. And then my last one would be any update on the PCMR litigation, and just really the timing. Because we know you can't really comment too much about it. But any color that you could give for investors it's a question we get a lot. Thanks a lot.

Sure.

So right now there is both sides of the litigation are filing a variety of summary judgment motions and oppositions and replies. The judge has set two different hearings on those motions for the very end of March and the beginning of April. And we would expect rulings from those hearings within the following 30 to 60 days. Obviously, that is merely an expectation and as with any litigation everything is subject to change. But that's pretty much where we stand on the litigation right now.

Thank you very much.

Thank you.

Felicia Hendrix, Barclays.

Hi there. Rob, I apologize if I missed this, but did you give us season pass sales update?

We did not. So we did release a separate press release a couple of days ago that had all the details of our new passes for this year, just given the length of this release we decided not to add it on to this.

Obviously we will be talking about that more in detail at our investor conference next week. It is out there, I would say it is a consistent set of products and promotions with what we've had in the past. There are price increases across most of our product line in the range of 3% to 5%. Depending on the different products.

Obviously, we are incredibly pleased to have added the Niseko Japan to the Epic Pass, particularly as that product -- as that resort in Japan is incredibly popular within Australia, which is also a key market for us as well. So again, we feel pretty good, and actually I'd say you've seen Intrawest and Mountain Collective also come out with their own new products.

We actually think this is good news all around because it brings more attention. Anytime you see articles on any one of our passes, they tend to certainly mention ours. And so we actually feel very good about the excitement and passion going into this selling season.

Okay. I just, I know you had the other one I just didn't know if, -- didn't want to read into much that you didn't mention anything in here again. The other thing on Tahoe, just wondering for next, as you -- it's hard to think about next season, but as you think about next season, do you think there's any risk to your business there articulately since that's mainly a day trip market or drive thru market?

I would think not versus those seasons that you have bad snowfall in Colorado, perhaps that might affect destination guests think about the following, booking for the following year. Is that the right way to think about Tahoe? Each season is kind of more compartmentalized then maybe some of your destinations resorts?

Yes. I think that's actually -- I think that is a good point and I think that is largely how we think about it. I do think we are certainly cognizant of the possibility that it could have an impact on Tahoe past sales as we go into this spring selling season.

On the other hand, of course, our Colorado past sales right, those guests have seen an incredible season, and so I think we'd see potentially a corollary affect there. And Colorado is about a much, much larger market than our Tahoe market.

So while we're looking at that is an evening out as we head into this past selling season. By the time we get to next season I think it will absolutely be about what the conditions are like next season, and I think we'd be surprised to see a very material hangover.

Okay. Great. And then finally on your real estate, just wondering if your pace of sales both at One Ski Hill Place and Ritz were within your expectations and any update to how you are marketing each of those projects?

I would say yes. I think sales are strong, and we would characterize them as relatively strong, so relative to the last few years I think we are seeing more interest more engagement. We're starting to sell units at slightly better pricing.

We are selling units that are in some cases north facing or maybe less desirable units from when we started the project. And we are starting to get down to an inventory level of both projects which is a much, very manageable as you think about it over the next couple of years. So I think we feel like we're making great progress at both properties and we intend to continue to firm up pricing. As we see the market continue to come up.

We are also seeing chatter about new projects that might be launched in our various markets. Nothing that's really out of the ground yet of course, but I think the overall market has been much slower to come back as we've talked about than the vacation market, but we are starting to see some strength in the second home market now.

Okay. Great. Thank you very much.

Thank you.

Joel Simkins, Credit Suisse.

Yes. Hello. Good afternoon. Just to actually follow-up a little bit of Felicia's question earlier on real estate. Rob and Mike as you think about real estate getting a little bit better over the next couple of years, what do you need to see to really start to think a little bit more about Ever Vail and how do you frame up potential opportunities there to either do it on your own or partner with some other folks to take more of the capital risk?

I think we still need to see a greater level of velocity in sales for us to really launch Ever Vail. I think we are making huge strides against where the market was a couple years ago, but still quite a bit of way -- quite a ways away from where we were certainly in the 2003 to 2008 time period and I do think we need to see a return to some of that momentum to launch a project of this size and scale of Ever Vail. I think there's no question that when we do launch Ever Vail, we will look to bring in other capital partners. It's not a project that we would look to put on our balance sheet in totality at all.

So I think just given again size and scope, I do think there are other opportunities though for the Company on the real estate side that could happen even before Ever Vail, or certainly other parcels at Peak 8 next to One Ski Hill Place at Breckenridge, parcels next to the gondola at Keystone, so that are actually kind of more ready to go and without the more significant infrastructure that Ever Vail has connected with it.

Okay. And I know a lot obviously hinges on sort of what happens with PCMR. Obviously, if you are able to come to a favorable resolution there is some capital that could go to that opportunity longer-term. But with that in mind, obviously, you are transitioning a little bit more towards the dividend. How are you thinking broadly about, let's say, tuck in urban resort M&A versus destination opportunities?

I would say that's completely unchanged. I think we still remain aggressive on looking for the right acquisition opportunities and securing them where we think they make sense whether that's an urban resort or destination resort. We felt the decision with the dividend the board did, given the performance and stability that we've been able to show through a whole wide range of weather issues or economic issues gives them a ton of confidence in our free cash flow-generating capability. But that is in addition to continuing to pursue both internal and external growth.

Okay. Thank you.

Thanks.

(Operator Instructions)

Bob LaFleur, GMP securities.

Hello. A question about CapEx. You said $85 million of run rate, not including acquisitions or upgrades you need to make to existing acquisitions, and you specifically mentioned excluding Canyons from that number. What is the state of the current CapEx plans for that mountain, and how much is that dependent on the outcome of the litigation? And how much are you going to be spending there this year? Thanks.

So yes. I would say our capital plan for Canyons is absolutely dependent on the outcome of the PCMR litigation and those discussions and how that opportunity unfolds over time. So we have not announced or disclosed what that package could look like.

This year the one item, obviously every one of our mountains, including Canyons have a maintenance capital budget. But in addition to that, we are renovating and expanding the Cloud Dine Restaurant at Canyons. I would say it's not overly material to the -- we don't disclose specific dollar amounts for each one of our projects, but I would say that, that project in and of itself is not overly material to the $85 million total plan. So that's about as much as I can say on Canyons at this point.

But that project is within the confines of this year's $85 million.

Yes. Sorry. That's a good clarification. Yes. It is.

Okay. Thank you.

Thank you.

I am so no further questions in the queue at this time. I would like to turn the conference back over to Mr. Katz for any closing remarks.

Thank you, operator. This concludes our fiscal second quarter 2014 earnings call. Thanks for everyone who joined us on the conference call today. Please feel free to contact myself or Michael directly should you have any further questions. Thank you for your time this afternoon and goodbye.

Thank you ladies and gentlemen this does conclude our conference for today if you would like to listen to a replay of this call please dial 303-590-3030 or 1-800-406-7325. Access code 4664682. Thank you for your participation. You may now disconnect. [ Event Concluded ]