Vail Resorts Inc (MTN) 2014 Q4 法說會逐字稿

Good day, and welcome to the Vail Resorts full FY14 results conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Rob Katz, CEO. Please go ahead, sir.

Thank you. Good morning, everyone. Welcome to our FY14 year-end earnings conference call. Joining me on the call this morning 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 subject to a number of risks and uncertainties, as described in our SEC filing, including our Form 10-K filed this morning, and actual future results may vary materially. Forward-looking statements in the press release that we issued this morning along with our remarks today are made as of today, September 24, 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 annual report on Form 10-K filed this morning with the Securities and Exchange Commission. And is also available on the Investor Relations section of our website at www.vailResorts.com.

Let's turn to our FY14 results. We are very pleased with our performance this fiscal year. We reported record resort revenue and resort reported EBITDA that reflects an outstanding season in Colorado with a particularly strong spring break and late season, and significant year-over-year EBITDA growth in our lodging business.

We achieved these results despite near record low snowfall through January in the Tahoe region. Canyons and the urban ski areas delivered strong results, in line with our expectations.

Our results continue to reflect increases in overall visitation, pricing, average guest spend, and season pass sales. Summer revenue increased over the prior fiscal year as we continue to build-out our summer activities, including new zip lines at Vail and Breckenridge as well as challenge ropes courses at Vail and Heavenly.

Total mountain net revenue increased 11.1% for FY14. This was primarily driven by a 10.2% increase in total skier visits and a 14.4% increase in lift revenue. This included a 20.1% increase in season pass revenue, which represented approximately 40% of total lift revenue in FY14.

Our Colorado resorts had a particularly strong year, with 8.4% visitation growth, combined with increases in yields per skier visit in our ski school, food and beverage, and retail rental businesses. The challenging conditions in Tahoe resulted in a 16.2% decline in visits, with modestly lower declines in the ancillary lines of our business.

Overall, we are enthusiastic about the trends we saw last year in guest spending, which supported our strong results. Our lodging business also performed well in FY14 and showed strong growth, with net revenue increasing 14.8% and EBITDA increasing 37.5% compared to the prior fiscal year.

These results were primarily driven by increases in both the average daily rate and occupancy, leading to a 12.7% increase in revenue per available room. Overall report -- resort EBITDA in the fourth quarter of FY14 was impacted by higher employee benefits costs, primarily related to increased medical costs.

Turning to our real estate segment, we are pleased with the Increased level of sales activity we saw at both of our development projects. For FY14 we closed on 11 One Ski Hill Place units and 8 Ritz-Carlton Residence Vail units. And we generated $32.3 million of net real estate cash flow. The resort real estate markets where we operate continue to show signs of modest improvement.

I'm also very 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 cents per share of common stock and will be payable on October 22, 2014 to shareholders of record on October 7, 2014.

Now to our acquisition of Park City Mountain Resort. This is truly a transformative acquisition for Vail Resorts. Park City Mountain Resort is an iconic brand in the ski industry and we are thrilled to welcome the Resort, its guests, and employees to our Company.

We have added access to Park City Mountain Resort to the Epic Pass and Epic Local Pass. And the Epic Pass now provides skiers and riders unlimited and unrestricted access to the best resorts in Colorado, Utah, and Tahoe as well as five days of skiing in each of Switzerland, France, and Japan.

Park City is one of the preeminent ski destinations in the world. We were thrilled to gain a foothold in Park City last year with our Canyons transaction, and believe that adding Park City Mountain Resort to our network will significantly bolster our presence in this important ski destination.

The resort is widely heralded for its outstanding snow, varied terrain, and the great experiences it provides to skiers, riders, and families. Importantly, the Resort's location in the heart of Park City, Utah attracts guests with an authentic mining town experience with an incredible dining, shopping, and entertainment offerings while providing great accessibility from Salt Lake City International Airport.

We anticipate that Park City Mountain Resort will contribute approximately $35 million in incremental EBITDA in FY15, excluding litigation, transaction, and integration expenses, which we estimate will be approximately $5 million in FY15. We expect to generate significant additional EBITDA growth as we implement our plans to combine the ski experience of Park City Mountain Resort and Canyons into the largest mountain resort in the United States, with over 7,000 acres of skiable terrain.

We believe the combined resort with its unparalleled location will attract destination skiers from across the United States and around the world and will drive season pass sales, visitation, and ancillary business. We intend to build a lift and other infrastructure that will connect the two resorts during the summer of 2015, and will be looking to upgrade or add new lifts, restaurants, and snow-making capabilities at both resorts, all subject to regulatory approval.

We intend to provide more detail on our full capital plans in March 2015. We look forward to working with the Park City community, as well as local and county officials, to finalize these plans.

Now let's turn to season pass sales. We are incredibly pleased with our 2014/2015 season pass sales to date. Through September 21, 2014, season pass sales are up 14% in units and 18% in sales dollars compared to the prior year period ended September 22, 2013. It is a very good sign that we have been able to maintain our growth rates from the spring, reflect strong enthusiasm for our pass products which we believe represent the best value in the entire ski industry.

As always, we do expect our season pass growth rates to come down by the end of our selling season, given that some of our increase is driven by our efforts to encourage guests to purchase their passes earlier in the year. Typically at this point in the season, we have sold approximately 55% to 60% of our season passes for the upcoming ski season.

Now I'd like to turn the call over to Michael to further discuss our financial results and our FY15 outlook.

Thanks, Rob, and good morning everyone. Before discussing our results and guidance, I want to remind you that you can find a full discussion of our financial results for our fiscal year ended July 31, 2014 in our annual report on Form 10-K, which we filed today with the Securities and Exchange Commission. Our Form 10-K and our earnings announcement can be found on our website at www.vailResorts.com.

As Rob mentioned, we are very pleased with the results from FY014 and the momentum we created from our strategic growth initiatives. For the full fiscal year, resort net revenue was $1.2 billion, an increase of 11.8% compared to the prior fiscal year.

Resort reported EBITDA increased 11.6% to $268.8 million for FY14 compared to the prior fiscal year. Mountain reported EBITDA for FY14 increased $23.4 million, or 10.2%, to $252.1 million compared to the prior fiscal year. Our FY14 mountain results benefited from increased visitation, higher pricing, increased pass sales, and increased guest spend on ancillary services.

Lodging reported EBITDA increased 37.5% to $16.7 million for FY14 compared to the prior fiscal year. Lodging segment net revenue increased $31.3 million, driven by increased occupancy and a 2.6% increase in average daily rate, driving a revenue per available room increase of 12.7% at our owned hotels and managed condominiums.

Finally, net income attributable to Vail Resorts, Inc. was $28.5 million, or $0.77 per diluted share, for FY14 compared to net income attributable to Vail Resorts Inc. of $37.7 million, or $1.03 per diluted share, in the prior fiscal year. Net income was impacted by a loss on extinguishment of debt of $10.8 million for the early redemption of $175 million of our senior subordinated notes.

Our balance sheet continues to be very strong. We ended the fiscal year with $44.4 million of cash on hand and no borrowings under the revolver of our senior credit facility.

Our net debt was 2.2 times trailing 12 months total reported EBITDA. This net debt calculation includes $311.9 million of capitalized long-term obligations associated with the Canyons transaction. Subsequent to the fiscal year end, we drew $183 million from the revolver of our credit facility to fund the Park City Mountain Resort transaction on September 11, 2014.

Before turning it back to Rob, I'll cover our guidance for FY15. As always, our visibility into the upcoming ski season is limited at this point in time. Our guidance for FY15 anticipates normal weather conditions and a continuation of the current economic environment.

Based on our current estimates, our FY15 guidance range anticipates resort reported EBITDA to be between $340 million and $360 million. Included in our estimates for FY15 resort reported EBITDA is approximately $35 million of incremental resort reported EBITDA from the addition of Park City Mountain Resort.

In addition, our estimates include approximately $5 million of litigation, transaction, and integration expenses. We expect our resort EBITDA margin to be approximately 25.3% in FY15, using the midpoint of our guidance range. This is an estimated 3 percentage point increase over FY14 resort EBITDA margin.

Moving to our real estate segment. Results are impacted in any given year by the timing and mix of real estate sold and closed. For FY15 we are estimating real estate reported EBITDA of negative $13 million to negative $6 million.

We expect net real estate cash flow of $10 million to $20 million. Net income attributable to Vail Resorts Inc. is expected to be in a range of $75.5 million to $100.5 million for FY15.

Now I'd like to turn the call back over to Rob.

Thanks, Michael. We are excited about the upcoming ski season and expect to build upon the positive momentum from FY14 as we continue to elevate the guest experience and drive financial results at our resorts. I want to take this opportunity to thank all of our employees and guests for a wonderful year. The passion and commitment to service that our employees exhibit at all levels and in all areas is truly a hallmark of our business and an integral part of our success.

At this time, Michael and I will be happy to answer your questions. Operator, we are ready for questions.

Thank you.

(Operator Instructions)

We'll take our first question from Shaun Kelley with Bank of America Merrill Lynch.

Hey, guys. I guess we'll start off with a congratulations on the Park City deal. So I guess what I'd love to get a little bit of your sense on, Rob, is if you could just walk us through what some of your longer-term priorities are for Park City. I think that would be really helpful.

I think there's probably both an opportunity on the visitation front, but also an opportunity on the capital front, and if you could just give us maybe some guide posts on both those areas, that would be great.

Great. Well, thanks, Shaun. Our long-term priorities, we really, I think we've been fairly open about this from the beginning. We think that combining the ski experience of Canyons and Park City Mountain Resort into a single resort is a very transformative opportunity.

When you consider that it will be the largest single ski resort in the United States with over 7,000 acres, and then of course add to that the proximity to the town, the City of Park City and obviously Salt Lake International Airport, and I think also Canyons has a tremendous amount of real estate development opportunity. And now that real estate development opportunity, even though that's not something our Company necessarily will be taking on, for new folks who want to consider that resort, they'll have an opportunity to be in the Canyons area and at the same time experience this very large and expansive ski experience.

We think that the combination of the two resorts gives kind of the folks who want to stay in Park City this unbelievable opportunity to now have 7,000 acres of skiing, and it really energizes the Canyons base area as well. One, yes we do see this as an opportunity to continue to drive visitation, because we do think that this will be just one of the iconic locations that people from around the world will want to come and visit.

On the capital front, obviously there will be the capital to actually do the interconnect itself. The biggest piece of that would be a ski lift, a chair lift that would go from the Canyons to Park City, and just given the terrain it will probably be a chair lift, a singular chair lift that you can ride up and then down. So you can ride it both uphill and then download to the other side. And then there will be some other infrastructure that goes along with that.

After that what I'd say is our focus is really like it is at all of our other resorts. We think there is some opportunities at Park City Mountain Resort to upgrade restaurants.

We think there are a number of lifts that could be upgraded. We think there's improvements to snow-making. We think the same thing is available at the Canyons.

Our focus obviously will be in this area of the resort where the two resorts meet and connect. This is a plan that obviously we're going to be talking with the folks in Summit County, Utah and in Park City about, and the community. Some of those dialogues have already started, and we are hopeful that we can certainly get as much of that done as possible in the summer of 2015.

But there will be things that probably take additional planning and additional time that may get pushed to the summer of 2016. We're not putting out exact guidance on what those capital numbers would be, because we really need to finalize the plan and obviously work with the community on that.

So at the moment, we're not putting out kind of guidance for FY16 or our capital plan yet. But I would say over the next three to six months you'll certainly be hearing more about that.

And I guess one for Michael. We've gotten the question from a number of folks about the transaction settlement with PCMR and its application to the kind of earn-out threshold. Michael, could you just clarify that for us and for anyone, just to make sure we're on the same page?

Sure. So I think the important thing here is that the threshold that was established with the original Canyons lease had a number of things, that it started at $35 million and then increased from there. Importantly, included in that increase is a 10% preference, if you will, on the purchase price that we paid.

So as of the day of closing, the threshold increased by 10% of the purchase price, or a little over $18 million. And then the threshold also increases as we spend capital at a 10% rate on all of the capital that we spend, either at Park City or at Canyons. And so that threshold has increased as we work through the capital plan that Rob described. It will continue to increase from there, and obviously we also expect to see the earnings increase along with that.

And maybe I'll just add one thing to that, which is it's important -- one of the benefits that we see here is to the network effect on our season pass sales, where we do believe and have already started to see some momentum on that since we announced the acquisition. Some of those people will obviously be coming to Park City, and that will obviously -- those folks obviously, and the kind of earnings from those visits will obviously be going into that earn-out, so to speak.

But for folks who join our season pass program because Park City is now on the pass but obviously visit any of our other resorts, those people and their earnings do not go into that threshold as well. We do think there's -- we think both the -- our hope obviously is that that earn-out, we're paying the earn-out, but of course we also are very focused on making sure the threshold is at a high level and that it's really just focused on the earnings revenue that we generate at Park City, not at any of our other resorts.

Thanks, appreciate. My last one will just be actually on the core fundamentals and guidance. So I think you guys said, predicated on normal seasonal conditions, but last year obviously Colorado had a very fortunate, I think, snowfall season. It was a good season, particularly late.

So is the -- kind of what does that imply for Colorado? Do you expect any mean reversion in weather, or do you expect another season similar to last year, if I can get too granular?

I would say I don't -- I think we would view Colorado's season last year in large part as in the normal range, and that Tahoe's weather was not in the normal range. And so I'd say for this year, with that said, I would think the -- we do believe that Colorado had a relative benefit from the fact that there were visits in Colorado coming from California, and actually we think Utah had a benefit on that front as well.

So we do think there's going to be some movement the other way. Obviously that's factored into our guidance, and obviously with a pick-up in Tahoe.

So what I would say is, I don't think -- we're not necessarily planning on the exact same weather season that we had in Colorado in our guidance range. I think anything within a normal range would be consistent with the numbers we've put out.

Thank you very much.

We'll take our next question from Felicia Hendrix with Barclays.

Hi. Good morning. While we're sticking on guidance, I had a question as well. Mike, your guidance implied a 300 basis point increase in margins year over year. I was just wondering how much of that was due to the addition of PCMR and how much is due to operating leverage, cost reductions, et cetera?

I think certainly adding Park City is a big piece of that. We certainly view our ability to operate Park City with profitable margins as certainly a driver of what we looked at in terms of doing the deal.

And as we continue to grow our base business, obviously we think that we can create significant operating leverage on it. And so I think it's a combination of the two, and we certainly would have expected to see reasonable operating leverage without the deal but certainly adding the deal increased that and we continue to be very focused on driving out leverage and driving margins up.

Okay. Great. And then just moving to bigger picture. Now you guys have strong footholds in Utah, Tahoe, Colorado. Should we think of you guys as continued potential kind of a roll-up Company? Are there other destination markets that are a high priority for you right now? Are you looking at other things or are you taking some time to absorb?

I would say that we continue to act -- it tends to take a long time to do any transaction in our industry. So I would say that we are always looking and always having conversations and dialogue, some of which sometimes takes years to materialize.

I would say we don't -- I don't know that we ever positioned ourselves per se as a roll-up. I think sometimes people ask me, how many more resorts do you think you're going to add?

What I would say is our focus is how do we make the network of our guests much, much more powerful? That can be done sometimes through a transformative acquisition like we just did, or it could be a smaller acquisition like an urban, where all of a sudden we see the ability to add a resort that we think adds guests, guest data, something new to the pass, increases our marketing efficiency.

And what I would say is I think we will continue to look for those opportunities, whether that's in the United States, in Canada, or even outside. But we're -- it is really a highly guest-focused and network benefit approach.

That's super helpful. Thank you. Just one last housekeeping on your tax rate. I was just wondering if you could help us understand a little bit more about your tax rate for FY15. The guidance implies a tax rate of around 37% if we're doing that calculation right.

So I think you guys had previously said that you could have some tax benefits related to the Canyons lease. Is that showing up on the cash flow statement? And how should we think about GAAP taxes versus cash taxes for 2015 and beyond?

The benefits that we're getting through the Canyons deal on the tax side are hitting the cash flow statement and don't change our GAAP provision.

Okay. And then is there -- okay. That's fine. We can talk about the rest offline. All right. Thank you.

Thanks, Felicia.

We'll go next to Chris Agnew with MKM Partners.

Thanks very much. Good morning. I was wondering if you could expand a little bit upon Note 5 on contingent consideration. What causes the fair value contingent consideration to change?

How material could these adjustments be? And just run through how does it impact income statement and balance sheet. Thank you.

Sure. Thanks, Chris. So the contingent consideration is this question that Shaun raised around the threshold. And from a GAAP perspective we have to project that and then come up with a value for financial statements as to what the discounted present value of that would be. This quarter we did increase that by $1.4 million, and in general every quarter we'll be adjusting that based on what the scenario looks like for future earnings, and whether that contingent ultimately earns into a payout. And so we continue to adjust that model on a quarterly basis. And obviously with the resolution of the acquisition in Q1, we'll be reassessing that at the end of Q1 of this year.

Got you. I guess that implies with the threshold going up, there would be a larger adjustment in the first quarter. Just to clarify, would this be included in EBITDA?

No, this is below EBITDA.

Okay. And moving on to the real estate. At what point, or what do you need to see to consider additional real estate investment? And are there more opportunities to approach real estate from a capital light perspective, working with third parties, et cetera?

I think what I'd say is I think the same dynamics that we would need to invest in real estate, I would say are the dynamics that will be present for third-party developers, and at the moment there's not that many, if any projects being launched or started at any of our mountain resorts. I think we're seeing a strengthening.

We are seeing inventory. So even in our own two projects, our inventory is now really dwindling down. We don't really have as much to sell.

You would imagine that as the market strengthens, there'll be some kind of a rebound effect. With a limited supply of inventory, obviously no new product for what's now probably going to be going on five to six years. But with that said, we have not seen that transition yet.

And as it relates to what we would do even if we see it, I think yes, we would absolutely take a much more capital light approach to our real estate development activities than we did from 2003 to 2008. I think our job -- we see our job less as trying to put these projects on our balance sheet and much more around how do we get them off the ground, make sure they are designed in a way that's consistent with what we want to see for the resort.

Doesn't mean we won't do any project. But it does mean that on a relative basis, the size of cost that we had on our balance sheet back in 2008, we're not going to go back to that in any of our -- and actually, the two new resorts -- two of the new resorts that we brought on in terms of Canyons and North Star, both of them really didn't bring with them any new development opportunities.

Park City Mountain Resort did bring a real estate development opportunity, and that's something obviously we would like to monetize but doesn't mean it's going to be by us doing the project ourselves. We could partner with others as well.

Thanks very much. And final question. How much more or less is Park City seasonal than the rest of your overall business? And is there an -- what opportunity is there to develop summer activities versus what was already going on in Park City? Thanks.

I would say Park City actually has a larger summer business on a relative basis than many of our other resorts. And so I think Park City is on private land, and so we're not subject to the same restrictions that we were with forest service land. They really did get a very good head start and have done an outstanding job of creating a fantastic summer experience, and we intend to continue to push that forward.

We think there are opportunities to potentially include the Epic Discovery concepts that we have for some of our other resort, do that at Park City as well. But I'd say Park City's already got a big step forward.

I'd also say Park City, though, is in total is another location like Vail, like Breckenridge, like Heavenly that has significant summer tourism, and certainly its proximity to Salt Lake City I think makes it's a very attractive destination, both for FIT transient tourists, and I think maybe even more so because of its proximity to the airport, a very strong draw to group and conference business in the summer as well. So we think there's actually a real opportunity.

In total, obviously the seasonality of that business is largely the same as our others. Certainly that in and of itself won't dramatically change the Company's seasonality. We think the summer piece is big.

Thank you.

We'll take our next question from Steve Wieczynski with Stifel.

Good morning, guys. Rob, you talked on this briefly earlier on, but I guess it's only been about two weeks since you made the acquisition. Can you go into a little more detail about -- I know you said you've seen a pick-up in Utah in terms of the number of season passes sold. Can you go into a little more detail about that?

Also maybe how do you think longer term when you add these big properties in, what type of pricing power can you move into that season pass program because program because of that?

Obviously, it's only been a couple of weeks. I'm certainly not going to go into great detail on our daily results. But I would say we saw a very significant pick-up in season pass sales certainly when we announced the deal, although I would say we got -- there was a tremendous amount of media coverage of the transaction, I think in part probably more media coverage for this transaction than anything else we've done.

A lot that was because of resolving the dispute. We did see a big pick-up. I think we feel good about the reaction. I think we would expect for this to be a boost to our program, and we think we're seeing the right signs of that already. Now, that would be, I would say that's a broad -- that's our program in total.

I think we're also seeing a boost in the Utah market as well. And so the Salt Lake market, the local market, so we think that will certainly be a boost as people now give greater consideration to ours passes because you can ski on both Park City and Canyons.

I would say the other piece is -- the long-term opportunity there is really of course on the destination piece, and that's I think what we track I think most closely. And again where we're seeing good signs already.

We don't see this as -- I think our entire effort around our season pass program is about providing this incredible value, and so we don't see adding Park City Mountain Resort as changing our pricing approach on our passes. We think this is about actually expanding the program and improving the reach that we have into destination skiers around the US and around the world to consider our program.

So I don't think we see it that way. And every year we do take a ratable increase in our pass prices, and we certainly would think that adding Park City gives us the confidence to continue to do that as we go forward, but not to change the trajectory.

Okay. Thanks. And then one housekeeping question. Can you give the PCMR annual skier visits?

No, we're not -- you know what I would say is we don't release skier visits by resort. I think there have been some numbers out in the public around Park City and that's been in the press, especially relating to the dispute. But we're not going to be commenting on the specific numbers, and as we go forward we'll be kind of folding them into our traditional reporting approach.

Okay. Thanks, guys. Appreciate it.

(Operator Instructions)

We have no further questions. I would like to turn the conference back over -- looks like we just have a question, Scott Miller from the Vail Daily.

Hi, Rob. How are you?

I'm good, Scott. How are you?

I'm doing fine, thanks. A quick question about passes. How does the price of the Epic Pass compare to the old season past at Park City? And was Park City part of a bigger group of resorts in their season passes?

So Park City Mountain Resort had an adult season pass price of about $850. I don't know if I've got it exactly, but around that spot. And Powder Corp did have some benefits where if you bought a season pass at one place they gave you a couple days at another place, some of their other resorts, but it was not oriented like the Epic Pass where it's unlimited, unrestricted at all of the resorts. The Epic Pass is right now $730, $740, I --

$749.

$749. So it's obviously a lower price, and obviously in addition to Park City you would get all of our resorts across the US and of course five days in our international resorts. And we also do have the Epic Local Pass, which is almost about $200 cheaper and basically provides unlimited, unrestricted skiing at all these resorts other than there are holiday blackouts. We think our acquisition really does provide a whole sea change for skiers and riders that's a tremendous value over where they were before.

All right. Thank you, Rob.

Thanks, Scott.

We have no further questions. I would like to turn the conference back over to Rob Katz for any additional or closing remarks.

Thank you, operator. This concludes our FY14 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 morning. And good-bye.

This concludes today's conference. Thank you for your participation.