Vail Resorts Inc (MTN) 2016 Q2 法說會逐字稿

Good day and welcome to the Vail Resorts second-quarter and fiscal 2016 earnings results conference call. Today's conference is being recorded.

At this time I would like to turn the conference over to Mr. Robert Katz, Chief Executive Officer. Please go ahead, sir.

Thank you. Good morning, everyone. Welcome to our fiscal second-quarter 2016 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 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 our press release issued this morning along with our remarks on this call are made as of today, March 10, 2016, and we undertake no duty to update them as actual events unfold.

Today's remarks also include certain non-GAAP financial measures. A reconciliation of these measures is provided in the tables included with our press release and in our quarterly report on Form 10-Q filed this morning with the Securities and Exchange Commission and is also available on the investor relations website -- section of our website at www.vailresorts.com.

Let's turn to our results. We had outstanding results in the second quarter of fiscal 2016 across each of our Western geographies with great conditions and strong demand. Total lift revenue increased 20.2% driven by 12.5% growth in visitation and a 6.8% increase in effective ticket price compared to the prior year. We continue to see robust spending trends that drove an 8.3% increase in ski school revenue and a 15.8% increase in food and beverage revenue compared to the prior year.

The Tahoe market has seen a significant rebound in visitation this year with great (technical difficulty). We are very pleased with the double-digit visitation and revenue growth in the second fiscal quarter at Park City compared to the prior year, this following our transformational $50 million capital plan that connected Park City (technical difficulty), the single largest ski resort in the United States.

Our Colorado Resorts continue to deliver very strong results with solid growth above our record prior year.

Our US destination visitation has remained strong throughout the year at all of our Mountain resorts as we benefited from the appeal of our resorts to high-end leisure travelers who we are reaching through our more sophisticated marketing efforts and the strong US economy.

While we have continued to see a decline in international visitation, it has moderated since the Christmas holiday in large part due to the strength of Australian visitation which is up considerably over last year due to the success we have had in driving visitation to the US among our Epic Australian passholders.

Visits from Mexico have been stable relative to prior year which we view as a strong success given the currency headwinds and as expected, we are seeing declines from our UK, Canadian and Brazilian markets.

We are also excited to provide more detail on our recent acquisition of our third urban ski area, Wilmot Mountain, located approximately 65 miles north of Chicago. The Chicago area is one of Vail Resorts most important destination geographies with approximately 800,000 skiers. This compares to approximately 470,000 skiers combined between Minneapolis and Detroit where our other urban ski areas are located.

Due to Chicago's location and direct flights to Denver, Eagle, Salt Lake City and Reno, destination skiers from the area could easily travel to our results in Colorado, Utah and Tahoe making Chicago one of the most important geographies for destination skiers anywhere in the world. The acquisition was completed for total cash consideration of approximately $20 million and we expect to invest approximately $13 million in one-time capital during calendar year 2016 to completely overhaul and transform the ski area.

The investment will focus on modernizing and expanding dining and entertainment offerings at the base area, the installation of three new lifts and other lift upgrades that will increase the area's uphill capacity by 45%. We will also include a new children's ski school facility, redesigned and updated terrain parks and upgrades to the snowmaking infrastructure that will nearly double snowmaking capacity to provide a more consistent experience throughout the ski season.

The acquisition and our planned capital investment creates an opportunity to meaningfully enhance the guest experience at Wilmot offering an incredible introduction to the sport for kids and adults and building a stronger connection to our Western resorts for skiers and riders in the Chicago area. We have achieved incredible success with our urban strategy thus far and the Wilmot acquisition provides an opportunity for us to build on that success in one of our most important destination areas.

We currently expect the acquisition of Wilmot to contribute at least $4 million of incremental resort reported EBITDA in fiscal 2017. As we announced earlier this week, the Epic Local Pass will now provide access to Wilmot in addition to our Western resorts providing an incredible value to all skiers and riders in Chicago.

Now I would like to turn the call over to Michael to further discuss our financial results, our season to date metrics and updated guidance.

Thanks, Rob, and good morning, everyone. Before discussing our results, I want to remind you that you can find a full discussion of our financial results for our second quarter of fiscal 2016 ended January 31, 2016 in our quarterly report on Form 10-Q which we filed this morning with the Securities and Exchange commission.

As Rob mentioned, our second-quarter results were very strong. Resort net revenue was $595.7 million for the second quarter, an increase of 14% compared to the prior year. Resort reported EBITDA was $242.1 million, an increase of 21.2% compared to the prior year.

Importantly we continue to drive profitable growth and our resort EBITDA margin for the fiscal quarter improved 240 basis points over the prior year as we continue to drive strong flow through from our revenue growth.

Mountain revenue was $532.9 million for the second quarter, up 15.1% from the prior year while Mountain reported EBITDA was $236.6 million for the second quarter, up 21.8% from the prior year.

Our second fiscal quarter Lodging results were also strong with 9.8% RevPAR growth compared to the prior year. Revenue excluding payroll cost reimbursements increased 5.1% compared to the prior year and we are experiencing robust demand at our Lodging properties across each of our geographies.

Regarding Real Estate, we continue to see momentum in our resort markets including interest by third-party developers in our land parcels. Net Real Estate cash flow for the second quarter of fiscal 2016 was $2.2 million and during the fiscal quarter, we closed on one unit at the Ritz-Carlton Residences Vail.

Net income attributable to Vail Resorts Inc. was $117 million for the second quarter of fiscal 2016 or $3.14 per diluted share as compared to net income of $115.8 million or $3.10 per diluted share for the same period in the prior year. Excluding the tax benefit recorded in the prior year resulting from an IRS settlement, net income for the second quarter of fiscal 2016 increased 27.2% compared to the prior year.

Our balance sheet and cash flow remain very strong. We ended the quarter with $45.4 million of cash on hand and our net debt including our capitalized Canyons lease obligation was 1.6 times trailing 12 months total reported EBITDA.

Turning now to our season to date metrics for the period from the beginning of this ski season through March 6, 2016 compared to the prior year period through March 8, 2015. The reported ski season metrics do not incorporate Perisher or the urban ski areas of Afton Alps, Mt. Brighton and Wilmot Mountain. Additionally, this data is interim period data and is subject to fiscal quarter-end review and adjustments.

Results continue to be strong as we enter the final peak period of our ski season which extends through spring break and Easter. Season to date total lift revenue at the Company's US Mountain resorts including an allocated portion of season pass revenue for each applicable period was up 19.6% compared to the prior year season to date period.

Customer spending continues to be robust in our ancillary businesses as well. Our ski school revenue increased by 9.4%, dining revenue increased by 13.3%, and resort retail rental revenue increased by 8.7% all compared to the prior year season to date period.

Total visitation benefited from growth in each of our markets and is up 9.9% compared to the prior year season to date period. Given our performance to date and assuming that conditions remain consistent through the remainder of the season, we now expect resort reported EBITDA for fiscal 2016 to be between $430 million and $445 million. Our updated guidance highlights the success of our efforts to drive destination visitation, grow season pass sales, enhance our network of resorts through strategic acquisitions and be disciplined in our investments to drive strong financial results.

I will now turn the call back over to Rob.

Thanks, Michael. We continue to be very focused on our capital allocation strategy. I'm happy to announce that our Board of Directors has decided to increase our quarterly dividend by 30% to $0.81 per share payable on April 13, 2016 to stockholders of record as of March 29, 2016. This increase highlights the strong and growing cash flow that we are generating which allows us to pursue disciplined reinvestment in the business including pursuing strategic acquisitions, to drive growth while also increasing our return of capital to shareholders.

We did not complete any share repurchases in the past quarter but intend to continue to take an opportunistic yet methodical approach to future buybacks.

Moving to our calendar year 2016 capital plan, consistent with prior estimates and our long-term capital guidance, we expect to invest approximately $100 million in capital during calendar year 2016 excluding capital expenditures for summer-related activities and they one-time transformational investment at the recently acquired Wilmot Mountain. The plan includes approximately $60 million of maintenance capital expenditures and a number of high impact, high ROI discretionary investments.

We plan to build a new 500 feet restaurant at the top of the Peak 7 chairlift at Breckenridge. This will improve the dining experience at the most visited ski resort in the United States with a modern restaurant located adjacent to the new Peak 6 terrain which is not currently served by a major food and beverage venue.

We are also upgrading the Sun Up chairlift at Vail Mountain, Chair 17, from a fixed grip triple to a high-speed four passenger chairlift. This upgrade will increase capacity of the lift by approximately 40% and reduce the ride time to four minutes in a critical area for accessing Vail Mountain's back bowls. This will be Vail Mountain's ninth new chairlift in the last 10 years and with this new addition, every major chairlift on Vail Mountain will be a high-speed chairlift.

Our capital plan also includes the beginning of a two-year process to revamp our primary websites to a single responsive desktop and mobile user experience which will be integrated with our database and personalized marketing technology. We will also be further upgrading our customer database and our call center technology and remodeling the Pines Lodge at Beaver Creek.

Additionally, we are pleased to announce that we expect to spend approximately $14 million in calendar 2016 for Epic Discovery summer activities which remains consistent with our prior guidance on our long-term capital investment in this area. This capital will be focused on additional canopy tours, zip lines, climbing walls, hiking trails and nature education programming primarily at Breckenridge with more modest spending at Vail and Heavenly.

To date we have invested approximately $27 million of capital in Epic Discovery largely at Vail and Heavenly which will debut their operations this summer followed by Breckenridge in 2017.

This week we launched season pass sales for the 2016/2017 ski season. We continue to market our season pass products to both our destination and local guests providing an excellent value in exchange for our guest's commitment to purchase their resort access ahead of this season. As we have said before, a key to the great results we have seen is the passion and commitment of everyone who works here at Vail Resorts.

We will continue to remain very focused on retaining and attracting the best talent and constantly improving all parts of the experience we provide to our employees. We are incredibly thankful for all their amazing hard work.

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

(Operator Instructions). Felicia Hendrix.

Good morning. Thank you. Rob, I was just wondering can you give us a perspective in terms of you did really well in Lake Tahoe this year, there was certainly a recovery. But just to help us put it into perspective, can you talk a bit about what Lake Tahoe has looked like in prior peak years in terms of maybe skier visits, lift ticket revenues or other metrics just to get a sense of the current season if it is more of a normal year or if it is being driven by pent-up demand?

I would say this year Tahoe is probably -- it is hard to say normal because the last four years have so much variability. But I would say that the results this year are certainly tracked closer to the kind of upper end of the range. So I don't think necessarily as strong as the absolute peak but certainly more in that direction than if I looked at an average over the last four years.

Okay, that is helpful. Thank you. Michael, I was just wondering if you could just touch upon how you are thinking about your target leverage ratio, you are now below 2 times on a net debt to EBITDA basis. So just wondering how you are thinking about your leverage going forward?

Yes, I think we are consistently looking at leverage and our capital structure. Obviously, the benefit of our results has been that it has reduced in some deleveraging and the free cash flow generation that we produced has been very strong I think. Certainly as Rob indicated on the call, we have put forward a significant increase in our quarterly dividend continuing to evaluate our repurchases and constantly looking at both of those from a capital return perspective.

Thanks. And then just finally, there is also the Australian visitation, which is certainly a positive surprise especially with the impact of currency. I was just wondering, Rob, I know you have been loathe in the past to really give any kind of quantifiable view on this, but just wondering if you could talk about the kind of growth that you think you can generate out of Australia going forward?

I think we talked about this before the season ultimately. The currency obviously is going to drive a lot of our results and so I think certainly if we see a rebound in the Australian dollar, I think that will help our numbers. I think what we said at the beginning of the season was that we were confident that Australia would significantly outperform markets like Canada and the UK, Brazil and that is exactly what we've seen by very significant margins. And that has been driven by the connection that we have with our pass between Perisher and the Western resorts and obviously then we get all of the spending that comes with that. The Australian guest stays longer than our US guest, stays longer than actually a lot of our other international guests.

So I'm not going to give specific guidance because it is hard given that there are so many other factors that drive those results. But I think we remain -- we think this year has only proven the point that we wanted Australia to outperform everything else and it has.

Thank you. Thanks so much, guys.

Afua Ahwoi.

Just one or two questions from me. First, as we think about the skier visit growth you have seen season to date, obviously the season has slowed a little from the first half and we expected that. But maybe it is a little below -- just slightly below what we thought. So is there anything driving that. I know you said international has moderated so is there anything else maybe we were missing when we initially came out with our numbers?

Then as we think about your acquisition in Chicago, is there any way to help us think about what the potential lift could be of sort of overall season pass revenue? I know that all season pass visits, I know that is part of your strategy to bolt on these resorts and just enhance that whole network. So anything you can help us think about what the lift could be?

Sure. So on the first point on the growth, I mean some of that I would say, there are some technical components to it too just in terms of the -- when you are looking at an overall percentage obviously and you are starting at the beginning of the season the relative sizing of Tahoe and Colorado and so some of this, some of that growth I think and some of those trends are not necessarily indicative of not necessarily indicative of a change. But we have such a mix now of all these different markets. I would say that would be one piece.

That said, I think obviously as we go into March and we factored into our guidance the fact that March is going to be -- and April slightly shorter season than we had last year because Easter is so much earlier. And so that certainly also affects our thinking as we think about the growth for the remainder of the year which is included in the updated guidance that we provided.

On Chicago, we are not going to give specifics. I think this is something that we will probably talk a little bit more about as we give guidance for all of next year. What I can say is that we have seen particularly in the first couple of years after we do the acquisition, a dramatically improved season pass growth. I mean that is at least so far kind of wildly ahead of every other destination market that we have. Kind of that first couple of years after an acquisition we can make a quantum change and I think we are hopeful to be able to do that here as well.

We don't give specific pass numbers by market but Chicago is one of our strongest markets and we are hopeful to be able to replicate some of the great results we saw in Minneapolis and Detroit and I think you do you see some of those results driving the overall growth we have shown in our season pass numbers for the last couple of years. So we feel like it will be a significant contributor.

Got it. Actually one follow-up question. When can we expect to see sort of a press release announcing the sales of season passes for the next season? I think it comes out around this time?

Actually it came out yesterday or Monday so it is out already.

Got it.

Shaun Kelley, Bank of America.

Good morning, guys. Rob, you guys usually give guidance based on normalized snowfall and obviously this year for the first time in a number of years, we are seeing it feels like all three mountains kind of firing on all cylinders. So I know you are probably not going to get into specifics but just at a high level, would you characterize snowfall across the resorts and as we think about guidance and maybe next year's season things being above your expectations or generally sort of in line what you think a normalized season would be or how would you sort of characterize that?

I would characterize Colorado and Utah as good but not wildly out of the range. I would say that Tahoe has been absolutely certainly through the second quarter at the top of the range in terms of snowfall. Now how it will finish when you look at kind of February and March and then early April there I am not sure, so we will be able to talk more about that probably in April and then in June. But I would say in the end, I would say that Tahoe is certainly from last year to this year, there is no doubt that Tahoe has gyrated from one of the worst years we have ever seen to a very good year.

Got it. But I guess to sort of say it out loud, it doesn't feel like you think based on the trends that we are saying based on snowfall themselves would be the largest driver of some of the growth that you are seeing. It does seem like all of the other initiatives -- it is just getting hard for us to add up when it is acquisitions plus the integration of Utah plus the urban stuff and Perisher and everything you have done to piece together the pieces. But it seems like most of it if you were to try and line it up, it seems like you feel it would be organic. Would that be fair?

I would say that we certainly through the metrics that we released today I think we feel like the driver in Colorado and Utah, I think it is good that there have been good conditions but the drivers of the growth in US destination guest is because of our business strategy. Certainly the growth we are seeing in Park City this year, certainly the growth we are able to drive in Colorado are because of the US consumer, are because of the capital that we have invested, the marketing strategies and all of that. And in some respects, I would say obviously we went into the season and this is maybe the most important point, we went into the season with a very strong increase in season pass sales so that was well before there was any snowfall and obviously that helps to drive the season.

So that is a huge percentage of our lift ticket revenue and visitation and we had baked in a good growth and then on top of that, driving other pieces.

Very helpful. Last question for me and I am sure you guys will get into this probably at the analyst day as well. But big picture ballpark, what inning do think we are in now that you have seen the numbers and you have seen some of the reaction to the capital improvements that you have made in Utah? Where do you think we are relative to the penetration ratios and frankly the EBITDA and margins you know you can achieve at some of your other big mountains, where do you think we are in the lifecycle of what you want to accomplish at Park City and Canyons?

So I would say -- I think we are in the early innings from the standpoint of we obviously just made the improvement and are just dialing in everything there and I think we will be able to make a lot more operational improvements from this year to next year just because it is the nature of starting something new.

But there is no doubt that we have already seen from our season pass efforts and even from this year we have already seen a big improvement and a big advance. I would say though on the financial results side, I would say kind of middle innings in terms of if the ninth-inning is kind of tracking along with Vail and Breckenridge, I would say we have a bunch of innings to go before we are kind of at that level meaning I think we see Park City as having more growth than the Colorado resorts over the next number of years.

Great. Thank you very much, guys.

(Operator Instructions). Scott Hamann, KeyBanc Capital.

Thank you and good morning. Just in terms of some of the visitation trends you are seeing this year obviously strong numbers and likely gaining some share, is there any sense you can provide as to where some of these people are coming from? Is there a share shift within your portfolio and are you seeing any benefit that you might be able to quantify from some of the weaker conditions in the Northeast?

So that is a hard one for us to track obviously. So if somebody went to a -- was not a guest of ours last year and then came to us this year, it is hard to know exactly where they skied last year or if they did ski. There is a big chunk of the skiing population who we call samplers, people who try different resorts every year. And our goal is just to kind of incrementally get an increased share of those samplers and I would say that we certainly feel but the data is not all in and we have to wait until the end of the season and really be able to look at it closely. But yes, we do feel like we are obviously picking up a good piece of that.

I would say that certainly Park City, we feel like we are doing that there. Certainly even in Tahoe, we've got a lot of business that we are seeing in Tahoe is northern California but then we also have a big chunk of destination visits that is coming in as well outside of that region. So I think we don't have kind of a quantifiable answer on that but there is no doubt that we have made real progress at this.

And again, I go back to the previous answer, just the sheer increase in season passes going into this season we know represents us locking in a lot of our guests to get all of their visits and then bring their family and friends with them and that in and of itself helps to drive our overall share of the ski market.

Okay. In terms of M&A, obviously the East has had a bit of a more challenging year and it seems like there are a few more markets that you might like to add within the urban portfolio. I mean do you feel like there might be some opportunities to do that as we move through the next couple of quarters?

I think we are out there trying to make acquisitions really in every quarter and I think we are very cognizant of the variations of weather and I think most people who own ski resorts are too. So we don't see dramatic changes in our acquisition activity just because of a bad snow year in one region.

We are also pretty focused -- we are not -- our Company is not just looking to make un-acquisition. We have a very particular interest in certain targets and we really wait and are patient about creating the right opportunity for those.

So whether this weather pattern really has an impact on that, I am not sure. I think if I look back over the last five to 10 years I don't know that I'd see a huge correlation there. But I would say that we will continue to be aggressive about looking for resorts that we think really add value to our customer network and to the season pass offering.

Okay and then the last question just on Tahoe. I think coming into the season, the season passes were a little bit light there not surprisingly coming out of the last couple of years. Obviously with the snowfall, the results seem to be good. Was there a disproportionate benefit from people kind of buying single day, higher-margin, higher price products versus really getting on the season pass program because it was too late once they realized the snow is here?

I would say I think certainly on the margin, yes, I think there is probably some benefit in our results from that. And that is something that I guess the way that plays out though is typically we would expect to see some good tailwinds in season pass sales going into northern California as we head into next year. So even though there are some benefit from that, the benefit of actually locking in more of our guests ahead of time in our mind is actually the true long-term benefit as we look to the future.

Great. Thanks for the thoughts.

Matthew Brooks, Macquarie.

Thanks for taking my question. Just sort of following on some of the earlier questions about acquisitions, just wondering if you could make any sort of conceptual sort of high level thoughts about what adding a large destination resort in Canada potentially could add to your portfolio and to your pass? And related to that whether you would consider buying assets that would cost more than $500 million?

I'm not going to respond to that directly. I would say that we -- I think certainly we have an interest in large destination resorts because those resorts typically have a real impact on our season pass, obviously bringing their guests into our network I think is a huge positive. And that is something obviously we are interested in in the United States, it is something we have been very public on we are interested in another countries certainly including Canada or other countries around the world that have strong ski markets.

So -- and I would say, yes, the size for us is absolutely a factor and certainly the more expensive an acquisition is for us the bigger impact whatever we are buying would have to have on the company. And we feel like we take an incredibly disciplined approach and it is part of our analysis is about the multiple, what EBITDA multiple would we be buying? But big part of the analysis too is just even if we could buy something in a good multiple is what is the overall impact on our network? And we are very careful about that. So I would say yes, we absolutely would look for acquisitions of size but then we'd have to make sure that they are the right one.

Just as a follow on, have you looked at Japan and potential markets in the past with the idea that maybe that becomes a stepping stone to try and get Chinese skiers into the USA?

I would say we absolutely have looked at Japan in the past and can at least still consider it an important opportunity for us in the long-term. Because it does, it is very proximate to China so it does benefit from I think growing Chinese tourism and growing Chinese engagement in winter sports. Obviously Japan also has a strong connection to Australia and so our acquisition of Perisher has made Japan I think more unique for us.

But that said, I think all of the same things I just talked about apply, discipline, the right acquisition, the right time, the right relationship all of that. So yes, I would say that stays on our radar but again in a methodical way.

Thank you very much. Good results, guys.

Christopher Agnew, MKM Partners.

Thanks very much. Good morning. From memory I think Tahoe closed early last year and I can't remember about Park City. But is there potential for the season to be extended this year versus last year? And then also on Easter, I know it was in your third quarter this year, third quarter this year but given that it is earlier in March, does that have a benefit in terms of skier visits?

We make a decision on extending the season based on the conditions at our resorts. I would say that extending the season is typically not something that has become material to our overall financial results but is something that we definitely do and I think we want to provide a great experience to all of our season pass holders and certainly anyone who wants to make the trip. And so I think if we see really strong conditions that is something we consider and we consider it across every resort and I think if you look back historically we have very often extended the season where it makes sense.

On Easter, no, I would say we feel like Easter being this early is a negative because it tends to shrink the season and although it obviously makes for that week of Easter that is in March a strong week, it certainly takes away other weeks where the travel pattern drops off pretty dramatically.

As I said obviously that is factored into all of the numbers we put out but ideally if we could lock Easter in, I think we would rather have Easter in kind of early April. But that said, I think this is something we have obviously addressed and dealt with many years looking backwards. So we are certainly comfortable with it.

Great. Thank you.

It does appear we have no further questions at this time. I will now hand it back over to the speakers for any additional or closing remarks.

Thank you, operator. This concludes our fiscal second-quarter 2016 earnings call. Thanks to everyone who joined us on the conference call today. Please feel free to contact Michael or myself directly should you have any further questions. Thank you for your time this morning and goodbye.

That does conclude today's program. We would like to thank you for your participation. Have a wonderful day and you may disconnect at any time.