Vail Resorts Inc (MTN) 2014 Q3 法說會逐字稿

Good day, and welcome to the Vail Resorts Management FY14 third-quarter results conference call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Rob Katz, CEO. Please go ahead.

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

Before we start, let me 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, June 5, 2014, and we undertake no duty to update them as actual events unfold.

Today's remarks also include certain non-GAAP financial measurements. A reconciliation of these measurements is provided in the tables included with our press release, and in our quarterly report on Form 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 third-quarter FY14 results. We are very pleased with our performance in the third quarter of FY14. We finished the quarter with $241.1 million of resort-reported EBITDA. We had continued strong performance in Colorado, and improved results in Tahoe, leading to an 11.2% increase in total visitation this quarter compared to the prior year.

Total lift revenue increased by 17.1%, driven by our strong season pass program and increases in paid guests, along with the benefit of price increases across our lift products. Total mountain revenue increased by 14.6% compared to the prior year, as a result of our ongoing success in driving spending for our ancillary services, including ski school, food and beverage, and retail and rental. Our mountain performance includes the results of Canyons, which were in line with our previously announced expectations.

Our results in Colorado were particularly encouraging. Compared to the prior year, total visitation at our Colorado resorts increased 5.6%, with further growth in revenue and ancillary yields, despite the unfavorable late timing of Easter in the current year.

In Tahoe, results improved modestly over the prior quarter, due to late-season storms that brought back more local California visitors, with total visitation for the third quarter down only 4.4% compared to the prior year. Throughout the ski season, our Tahoe resorts consistently delivered some of the best conditions in their market.

Our lodging business continues to have a great year. We drove 23.1% growth in total lodging net revenue and 14.5% growth in RevPAR compared to the prior year, through both higher rates and higher occupancy. Further, we benefited from the addition of Canyons lodging properties to our portfolio this year. The Tahoe region does not represent a material component of our lodging business, and therefore, the challenging conditions in the region did not have a significant impact on lodging results.

Regarding real estate, we closed on three Ritz-Carlton Residence Vail units and five One Ski Hill Place units during the quarter, generating net real estate cash flow of $11.3 million. Additionally, we are continuing to see strong buyer interest at both our properties, and closed on three Ritz-Carlton residence units and one One Ski Hill Place unit subsequent to April 30, 2014.

Turning now to spring season pass sales, we are extremely pleased that our spring season pass sales through May 27, 2014, for the upcoming 2014-2015 ski season increased approximately 14% in units and approximately 20% in sales dollars, as compared to the prior year period through May 28, 2013. These strong season pass results followed record sales last spring, and are driven by our successful marketing efforts, the compelling value of our products, and our ability to drive the purchase decision earlier in the year.

The results include very good momentum in Colorado, which was partially offset by softer results in Tahoe. Most importantly, we saw very strong growth from our destination markets, which represented more than half of our total growth for the spring selling period, and remains the largest area of untapped potential for our season pass program.

We saw continued success increasing our passholder base around our urban ski areas in Minneapolis and Detroit. These two metropolitan areas represent our fastest-growing destination passholder markets.

Our effort to drive spring pass sales continues to accelerate the timing of when our guests purchase their passes for skiing and riding. As always, it is important to note that we do not believe that the growth rates from this spring will be maintained through the fall, as our spring growth includes passholders who purchased last fall. However, we believe the earlier we can move our guest purchase decision in the year, the more opportunity it provides us for stable and consistent growth. It is also important to remember that nearly all of the 2014 spring pass sales will be recorded as revenue in FY15 over the course of the 2014-2015 ski season.

Regarding the litigation in Park City: On May 21, the third judicial district court in Summit County, Utah, ruled in Talisker's favor on all matters relating to the expiration of the Park City Mountain Resort lease. Most important, the judge ruled as a matter of law that the Park City Mountain Resort lease with Talisker expired as of April 30, 2011. The court also rejected Park City Mountain Resort's claim that Talisker violated prohibition on sale and right of first refusal terms. A single claim will proceed to trial with respect to non-disclosure, which is solely a damage claim, which we expect, in the worst case, would not result in a material impact to the Company. Talisker will also be pursuing back rent. As a result of the ruling, and subject to appeal, the ski terrain of Park City Mountain Resort, previously subject to the expired lease, can now become part of Vail Resorts' master lease with Talisker.

I'm pleased to announce another important decision related to our capital allocation strategy. Today, we provided a notice of redemption for $175 million of our $390 million 6.5% senior subordinated notes using available cash on hand. This will reduce our annual cash borrowing costs by approximately $11.4 million before tax, without an impact to our net debt.

Additionally, I'm also pleased to announce that our Board of Directors has declared a quarterly cash dividend on Vail Resorts common stock. The quarterly dividend will be $0.415 per share of common stock, and will be payable on July 8, 2014, to shareholders of record on June 23, 2014. Given our strong free cash flow and 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 stockholders.

Now, I would like to turn the call over to Michael to further discuss our financial results and our outlook for FY14.

Thanks, Rob, and good afternoon, everyone. Before discussing our updated guidance, I want to remind you that you can find a full discussion of our financial results for our third quarter of FY14 ended April 30, 2014, in our quarterly report on Form 10-Q, which we filed today with the Securities and Exchange Commission. 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 third-quarter results. Resort net revenue was $526.9 million for the third quarter, up 15.6% from the prior year. Mountain-reported EBITDA for the quarter of $228 million increased $33.6 million, or 17.3%, 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 $36.8 million, or 17.1%, compared to the same period in the prior year. Lift revenue, excluding season pass revenue, was the largest component of the increase in lift revenue, increasing $20.9 million, or 14.5%, over the prior-year period. This was driven by our Colorado resorts and incremental revenue from Canyons, partially offset by lower revenues at our Tahoe resorts. In addition, season pass revenue increased 22.3% for the quarter compared to the same period in the prior year.

Ancillary revenue continued to perform well in the third quarter, with ski school revenue increasing by $9 million, or 16.8%, and dining revenue increasing by $4.4 million, or 11%, compared to the same period in the prior year. Retail rental revenue improved by $7.5 million, or 11.2%, driven by strong performance in our Colorado and Utah regions, and incremental revenue generated by Hoigaard's, the Midwest retailer that we acquired last year.

Third-quarter lodging net revenue, excluding payroll cost reimbursements, increased $12.5 million, or 24.6%, and lodging-reported EBITDA increased $4.7 million, or 56.3%, compared to the same period in the prior year. These results were a reflection of strong occupancy and increases in rates in our core Colorado markets, and the addition of Canyons to our lodging portfolio. Overall, resort-reported EBITDA was $241.1 million for the quarter, an increase of 18.9% over the prior year. Included in our third-quarter results was $2.4 million of litigation and integration expenses related to Canyons.

Real estate-reported EBITDA for the third quarter of FY14 improved by $0.9 million to a loss of $2.3 million. Net real estate cash flows were $11.3 million for the third quarter of FY14. As Rob mentioned, subsequent to April 30, we have closed on three Ritz-Carlton Residences Vail units and one One Ski Hill Place unit. Finally, net income attributable to Vail Resorts Inc., increased 20.8% to $117.9 million, and we reported earnings per share of $3.18 per diluted share in the third quarter of FY14.

Our balance sheet remains very strong. We ended the quarter with $307.4 million of cash on hand and no borrowings under the revolver component of our senior credit facility. And our net debt was 1.8 times trailing-12-months total reported EBITDA.

Now, let's turn to our updated guidance for FY14. We now estimate resort-reported EBITDA for the full FY14 to be between $267 million and $273 million, which includes approximately $10 million of litigation and integration expenses related to Canyons. The increase in our guidance range is primarily due to the outstanding results we saw in Colorado in March and April that exceeded our expectations on both visitation and guest spending.

As a result of our strong real estate sales performance, we are revising our FY14 real estate-reported EBITDA guidance to negative $9 million to negative $7 million, including approximately $2 million of non-cash, stock-based compensation expense. We now estimate that net real estate cash flow for FY14 will be between $27 million and $32 million.

In addition to the items discussed above, we also expect to record a loss on extinguishment of debt in the fourth quarter of FY14 of approximately $10.8 million, including a write-off of unamortized debt issuance costs related to the debt redemption that Rob mentioned earlier in the call. We are now estimating net income of $26 million to $33.5 million.

I will now turn the call back to Rob.

Thanks, Michael. I want to take this time to thank all of our employees and guests for making the 2013-2014 ski season such a success. The passion and commitment to service of our employees at all levels and in all areas is truly a hallmark of our Business and the integral part of our performance this past season.

At this time, we are happy to answer questions. Operator, we are now ready for questions.

(Operator Instructions)

Felicia Hendrix, Barclays.

Hi, thank you. First of all, I wanted to congratulate you on the Park City litigation. I was wondering if you could update us to the status of the land dispute, and if there's any sense that PCMR will appeal?

Thanks, Felicia. I guess what I would say is yes, they have indicated that in public statements in the past that they would like to appeal. And, I think if they do, there is a legal process that flows from that. Obviously, that will be a public process with updates along the way. I don't want to comment on that one way or the other in terms of how it will play out or the different steps that will have to be taken just because I think it's important that that play out through the court process just like the rest of the litigation has.

But, can you tell us what happens -- if they do, what happens to the land under the Talisker lease? While it's in appeal? Just to be clear?

I guess what I would say is this -- that if they appeal the decision, they may look to seek a stay of the ruling preventing anything from happening from that ruling while the appeal is being heard. That is something that the courts will have to assess in terms of whether to grant PCMR a stay, and if they do under what terms it would be. That would likely play out over the next few months.

Okay. Thanks. And then, just getting to the business and what you reported in the quarter was very strong -- better than what we were looking for. Your mountain EBITDA margins were higher than we've seen in a long time. So, I was just wondering if you could talk about what drove that, and if you think you can push margin further in future years?

Yes, I think, Felicia, obviously we're very focused on margin, and I think that in this quarter in particular obviously the outperformance in Colorado -- the ability to leverage that cost structure when we do see significant growth in visitation really helps us on that front.

Okay. So, it was just that. There wasn't any mix issues or anything else that we should be aware of there?

No. I think just generally the business model working.

Okay. Fantastic. Thank you.

Shaun Kelley, Bank of America.

Hey, good afternoon, and I'll echo my sentiments on the PCMR litigation.

So, Rob, just to be very clear on the timing here. Do you have any idea or could you give us a little bit more color on exactly when you might hear on at least whether or not the court is going to grant a stay here?

No, I really can't. That's something that the court will set the timetable for. I'm guessing over the next couple of months, but just as before, that's not something that's within our control. And, the process itself and what needs to be done by them and all those things will just have to work their way through the legal system.

Okay. Understood. And then, secondarily with the favorable outcome, any change or thoughts about your capital budget? Or, forward plans for Canyons as it sits right now given that you start to probably feel a little bit better about the opportunity to make some improvements there?

We put out a capital plan for Canyons for next year. The two highlights of that plan being an increase in the snowmaking for Canyons, and we are expanding the cloud dine facility. I would say that I think two of the key things that we had identified before the acquisition as important things to upgrade were both snowmaking at Canyons and food service and dining so I think that's being done.

I think in terms of upgrading lifts which would certainly be a priority as well. I think that's something we're studying as we speak, and no question will be impacted I think by the ultimate resolution of the PCMR litigation and the situation in general.

For next year though, we're at a point in the cycle where we wouldn't be adding any significant capital item for this summer anyway. So, at this point I think we will obviously monitor very closely how things play out, and then it will really be decisions for next summer if we have any to make.

Great. And then, you mentioned in your prepared remarks -- just to switch gears -- that the urban ski resorts that you had acquired outperformed your expectation. Could you just give a little bit more color on what specifically? Was it pass sales that helped there? Was it performance metrics at the core? Or, how exactly did you measure that performance, and what was it that was better than you expected?

Visitation, primarily, was I think very, very strong, and we attribute that to two pieces. One was there was cold weather in the Midwest, and so we were able to make snow. Although we also got hurt by cold weather in the Midwest because we had a number of days where the temperatures were so cold that obviously we couldn't even run the resorts.

So, it balanced itself out, but there's no question that we had a good snowmaking year. But, I would say that's one piece, and the other piece is the capital investments that we made in the resorts we think drove much higher awareness. We've gotten good PR, and so I think our pass sales at the resorts were very strong as we talked about last year and obviously this spring.

But, when we talk about the resorts themselves outperforming that's really daily visitation. I'd also say our F&B business was quite strong as well in both urban markets.

Great. I guess my last question would just be, you mentioned that -- sorry, I totally lost my train of thought. You did mention that you were looking at other opportunities. Or, you had mentioned previously that you're looking at other potential acquisition opportunities.

If you could just give us your thoughts on what other markets might make sense on the urban strategy? And specifically, do you think that the ski conditions this year might have given you a better chance to possibly pick up something that would be additive to the portfolio?

Yes, I would say nothing has changed on that front. If anything, I think we feel that the performance of those properties both in terms of the pass sales and in terms of the kind of daily performance at the ski areas themselves bolster our confidence in doing more. With that said as we've always talked about, there's really only a handful of potential locations.

I'm not going to necessarily identify anything other than to say we need cold weather. We need to be near major urban centers, and obviously, we do factor in when we assess these whether there are major destination resorts in close proximity.

So, we triangulate all of that and are also looking for what we consider the top locations. And, even once we pick a market, the top locations in that market. I think it's like every other part of our acquisition effort which is patience so it takes time, and it's hard to really handicap it.

Very good. Thank you very much.

Smedes Rose, Evercore.

Hi, thank you. I was just wondering historically when you look back and you've had areas where there's been a bad or low snow season, do you typically see a fall off in pass sales the following year for the season? Or, do they maybe come back later, or how does that usually come to play out?

I would say that in Colorado we haven't necessarily seen the same kind of drop that we saw in Tahoe this year in the spring. Having said that, Tahoe has obviously had a couple of bad seasons. I think this season was particularly challenging.

With that said, I think yes, we do see the pass sales typically pick up over time. Some of that may ultimately come down to how people are feeling about the upcoming ski season when you hit November in particular and through the beginning of December when our pass sales conclude. So, Tahoe may ultimately be about that.

I think skiers understand that there is some randomness I think to the weather and that good seasons -- or even good parts of the seasons are hard to predict and forecast. I think those people who want to have skiing as part of their recreation know that our passes are the absolute best deal that they could possibly get. Are a huge value compared to the daily lift ticket, and we think that absolutely helps to drive people even when they feel that the pass season wasn't as strong as they had hoped.

I would say in Tahoe that we did see, as we noted here in our remarks, that visitation picked up quite a bit relatively speaking toward the end of the season this year. And, that helped quite a bit because I think it allows passholders from this season to feel like they got more value than they might have expected out of the pass given where things stood in January, let's say.

So, I would actually say although we don't like to see any offsets to our growth, we actually feel pretty good about where we wound up for Tahoe this year given the season.

Okay. And then, I just was wondering on your partial paydown of the 6.5% debt, was there a reason for that particular amount? Or, is that something you would intend to continue to pay down? I'm not sure what the stipulations are around that, if any?

Obviously, I don't think there's not a magic formula to that. I think it was an assessment that we made looking at our cash balances, looking at the upcoming year identifying how much we could pay down, and obviously the savings. And, I think we looked at all of that and decided this was a good time to do this.

And, it still preserves, we believe, all of our flexibility whether that's in terms of investments or if need be certainly to raise new debt which seems certainly pretty available right now. I think we're looking I'd say a little bit, Smedes, at we don't want to carry a lot of cash on our balance sheet. Earning very, very low interest rates right now, and I think that's probably the predominant driver of this.

Okay. Thank you.

(Operator Instructions)

Joel Simkins, Credit Suisse

Good afternoon. You answered a lot of questions so far here, but it looks like you're getting some traction here obviously on the residential side. You continue to kind of tick away at the inventory. I was at the NYU hotel conference earlier this week. We heard a couple words like fractional and condo hotel that we haven't heard in a while.

I know we are probably quite a few years off from that, but clearly the second home market is getting a bit better. And, just wondering what you're thinking is as it relates to some of the potential projects we've talked about in the past?

I think we're getting better, and I think we feel like the market is definitely strengthening. And, exactly what you're saying, Joel -- I think people are starting to talk about those things again. I think what's more critical for us though is the velocity of sales.

Generally speaking to start new residential real estate projects, we believe you still need to see a greater uptick in the velocity of sales. But, the nibbling, so to speak, from third-party folks who might be interested in opportunities as you just noted I think is definitely increasing and makes us comfortable that we're heading in the right direction. And, yes, we're not there yet.

One final question. In terms of your forward commentary on the season pass, just curious what you're seeing from the Minneapolis and Detroit feeder markets now that those urban properties have been fully integrated, and you didn't really capture that demand from those regions?

No, I would say just like all of our destination markets, I think we feel like our penetration in those markets is still very low, and we have plenty of upside. So, I would say -- I think what we're seeing with our pass program is that there is no -- it's not like you do one thing and all of a sudden, the dam breaks and everybody buys a season pass. It just takes year after year building awareness, building your consideration set, and getting people to just decide that this pass is for them.

We think -- there's no question that the awareness of our pass has, we believe, gone up because of our own efforts, because of the introduction of other products like the Mountain Collective and Intrawest passport program. Which again, regardless of how many people buy their's or ours, there is just more stories, more media about it.

And we think even our entry into Utah has created a lot of stories and discussion about our Epic Pass being behind the strategy. We think all of that helped. We're very pleased both with the urban markets but also just watching our destination markets really lead the way right now because much more so than, for instance in Colorado, we have a long runway on penetration there.

Thanks a lot.

Lou Taylor, Paulson.

Thanks. Rob, again congrats on another good season. Just going back to Park City for a minute. Can you give us a sense for what has to happen for you to actually take over operations of that mountain? Could you just give us a rough road map of what needs to unfold?

Well, I guess what I would say is that the transaction that we did with Talisker allows us to include the vast majority of the ski terrain at PCMR powder at Park City Mountain Resort in our lease with them once the judge rules that PCMR's lease has ended which has happened. But, then obviously enforces that ruling.

So obviously if there are stays and things like that obviously that would be a delay. And obviously all of that is subject to any appeals that they have. You know that is the -- that allows us to then operate that terrain along with any and all of the fixtures that come with it. But, there's no question we've been very public that to operate the resort the right way, we need to use the existing access point, and the land at that base area is still owned by PCMR no matter what happens with the outcome of this litigation.

For the best ski experience and for the overall health and vitality of the Park City community, we need to be cooperative and we need to work together. And, obviously, we've put out a number of ideas and proposals about how that could be. We're very flexible and open to that.

We think there can be a real win-win for everyone involved here. Guests, the community, PCMR -- everybody. There's no question that ultimately it would require both parties to come up with a solution that they can agree to.

I think in the absence of that solution, our Company will certainly look to create the best possible ski experience, but we've acknowledged and we've re-emphasized that we're really solely focused right now on maintaining the existing access point and working through cooperatively to come up with a positive solution for everybody.

Okay. And then, just as a follow-up, are there any court dates coming up that we should be aware of?

So, the next court date that has been scheduled is on June 19, and that is a hearing on our motion -- Talisker's motion for summary judgment on their unlawful detainer action which is about essentially enforcing the judge's ruling. There has been -- again, that will be a hearing whether the court takes any action at that hearing or how long after that hearing there would be any action, obviously, that's up to the court. We don't know.

All right. Thank you.

It appears there are no further questions at this time. I'd like to turn the call back to our presenters for any additional or closing remarks.

Thank you, Operator. This concludes our fiscal third-quarter 2014 earnings call. Thanks to 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.

This does conclude today's conference. We thank you for your participation.