Vail Resorts Inc (MTN) 2017 Q3 法說會逐字稿

Good day, everyone, and welcome to the Vail Resorts Third Quarter Fiscal Year 2017 Earnings Call. Today's conference is being recorded. For opening remarks, I'll now turn the conference over to Mr. Rob Katz, Chief Executive Officer. Please go ahead, sir.

Thank you. Good morning, everyone. Welcome to our fiscal third quarter 2017 earnings conference call. Joining me on the call this morning is Michael Barkin, our Chief Financial Officer.

Before we begin, 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 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, June 8, 2017, and we undertake no duty to update them as actual events unfold.

Today's remarks also include certain non-GAAP financial measures. Reconciliations of these measures are provided in the tables included with our press release, which, along with our quarterly report on Form 10-Q, were filed this morning with the SEC and are 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 fiscal 2017 results.

We are very pleased with our performance in the quarter and for the entirety of the 2016/2017 North American ski season.

Including results from Whistler Blackcomb, total lift revenue increased 25.3%, driven by a 26% growth in visitation, partially offset by a 0.5% decrease in Effective Ticket Price compared to the same period in the prior year. The ETP decline was driven by the inclusion of Whistler Blackcomb's ETP in results in fiscal 2017, which are lower on a U.S. dollar basis than the company average. Excluding Whistler Blackcomb, ETP increased 7.5% in the third fiscal quarter compared to the prior year.

Guest spending continues to be strong, which, with the addition of Whistler Blackcomb, drove a 23.5% increase in ski school revenue, a 28.7% increase in food and beverage revenue and a 28.6% increase in retail and rental revenue compared to the same period in the prior year.

Results from Whistler Blackcomb in the third quarter of fiscal 2017 continued to be exceptionally strong, with the resort completing the season with significant growth above its record prior year. The resort benefited from excellent conditions throughout the season; a low Canadian dollar versus U.S. dollar exchange rate, driving significant destination growth from U.S. and other international guests; and the outstanding experience the resort provides. Excluding Whistler Blackcomb operations, total lift revenue increased 5.6%.

Park City continued to deliver the strongest growth among our U.S. resorts, driven by growing destination visitation and yield improvements in our second season following the transformational investments to combine Park City and Canyon. The Tahoe resorts benefited from excellent conditions following the storms in January and achieved record revenue result -- record revenue levels in all key business lines. In Colorado, strong guest spending drove results that were in line with last year's record performance despite weaker snowfall later in the season.

Third quarter U.S. destination visitation to our U.S. resorts remained robust despite significant growth in the number of U.S. destination visitors going to Whistler Blackcomb. The strength in U.S. destination visitation to our U.S. resorts was partially offset by a decline in international visitation to our U.S. resorts from both Mexico and Canada, a trend that significantly benefited Whistler Blackcomb.

Our year-to-date results highlight the continued success of our season pass and guest-focused marketing efforts, the importance of our geographic and currency diversification in our resort network and the outstanding experience we provide at our resorts.

Our growth in season pass sales, which in fiscal 2017 represented approximately 44% of our total North American lift revenue, continues to be driven by sales to both local and destination guests, who increasingly appreciate our network of resorts and the compelling value proposition our season pass products offer for their ski vacations. We also continue to benefit from our improved ability to segment and personalize our marketing messages to guests resulting from the significant investments we have made in data capture and analytics over the past several years.

Now I would like to turn the call over to Michael to talk further about our results.

Thanks, Rob, and good morning, everyone. Before discussing our results and fiscal 2017 guidance, I want to remind you that you can find the full discussion of our financial results for the third quarter and year-to-date periods of fiscal 2017 in our quarterly report on Form 10-Q, which we filed this morning 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 third quarter results. Including results from Whistler Blackcomb in the third quarter of fiscal 2017, Resort net revenue was $789.8 million, an increase of 22.3% compared to the prior year. Resort reported EBITDA was $392 million, an increase of 27.9% compared to the prior year. Our Resort EBITDA margin for the third fiscal quarter improved 210 basis points over the prior year as we continued to drive strong flow-through from our revenue growth and leverage our scale.

Excluding transaction, transition and integration costs and Whistler Blackcomb operations in the third quarter fiscal of 2017, as well as $3.5 million of Lodging reported EBITDA associated with the termination of the company's Half Moon Resort management agreement in the third quarter of fiscal 2016, Resort reported EBITDA increased 7% compared to the prior year.

Including results from Whistler Blackcomb in the third quarter of fiscal 2017, Mountain revenue was $721.2 million, up 25.9% from the prior year, while Mountain reported EBITDA was $381.3 million for the third quarter, up 31% from the prior year. Excluding transaction, transition and integration expenses of $2.3 million and Whistler Blackcomb operations, Mountain reported EBITDA increased 7.9%.

Our third fiscal quarter Lodging segment net revenue, excluding payroll cost reimbursements, decreased 6.3% compared to the prior year period, with the prior year period including the receipt of the onetime $3.5 million termination fee for the Half Moon Resort in Jamaica. Lodging results were impacted by variable late-season conditions in Colorado, which comprised a disproportionate amount of our Lodging portfolio versus properties in Utah, California and Whistler, as well as the sale of the Inn at Keystone in November of 2016.

Regarding Real Estate, during the quarter we closed on 2 condominium units at the Ritz-Carlton Residences, Vail. Net Real Estate cash flow for the third quarter of fiscal 2017 was $2.8 million. Since April 30, 2017, we have closed on the last remaining unit at Ritz-Carlton Residences, Vail. We are now sold out of our One Ski Hill Place and Ritz-Carlton Residences, Vail residential condominium projects.

Real Estate EBITDA for the third quarter of fiscal 2017 includes a $4.3 million onetime charge related to our expected contribution to a new to-be-constructed 160-space public parking structure owned by the Town of Vail in a project that was recently identified by the Town. The creation of this new public parking and our related contribution has been under consideration for over a decade and will be a great enhancement to the guest experience as Vail continues to grow.

Net income attributable to Vail Resorts, Inc. was $181.1 million for the third quarter of fiscal 2017, or $4.40 per diluted share as compared to net income of $157.6 million or $4.23 per diluted share for the same period in the prior year. Included in net income for the third quarter of fiscal 2017 on a pretax basis are charges for an increase in the Canyons' contingent consideration of $14.5 million, foreign currency losses of $9.1 million on the intercompany loan to Whistler Blackcomb and a future contribution to the Town of Vail parking of $4.3 million.

Our balance sheet remains strong. We ended the quarter with $195.8 million of cash on hand, and our net debt, including the capitalized Canyons lease obligation, was 1.7x trailing 12 months' total reported EBITDA, which includes outstanding debt of $1.2 billion as of April 30, 2017.

Given the strong performance to date this year, particularly at Whistler Blackcomb, we expect that our fiscal 2017 Resort reported EBITDA will finish the year between $591 million and $600 million, which includes approximately $10 million of Whistler Blackcomb transaction and integration expenses, approximately $2.2 million of Stowe transaction and integration expenses and $3.5 million of expected Stowe operating losses related to the period between closing and the end of the fiscal year. Excluding the expected Stowe operating losses and Stowe transaction and integration expenses, we expect our Resort reported EBITDA to be between $597 million and $606 million for fiscal 2017.

Before turning the call back to Rob, I want to also highlight the closing of our acquisition of Stowe, which occurred yesterday. The final purchase price after adjustments was approximately $41 million, and we are thrilled to add the premier high-end ski resort on the East Coast to our family of world-class mountain resorts. Stowe is now included on the Epic Pass and other season pass products for the 2017/2018 ski season.

I'll now turn the call back to Rob to review our season pass sales.

Thanks, Michael. We are very pleased with the results for our season pass sales to date. Pass sales through May 30, 2017, for the upcoming 2017/2018 North American ski season increased approximately 10% in units and approximately 16% in sales dollars as compared to the prior year period through May 31, 2016. This represents continued significant growth over our record unit performance last spring, which was up 29% over spring of 2015, and our strong results in the spring of 2015, which was up 12% over spring of 2014.

Our spring pass sales include strong growth from our destination guests and particular strength in our Northern California and Pacific Northwest local markets following great conditions in the 2016/2017 ski season and the full inclusion of Whistler Blackcomb on the Epic Pass for next season.

Whistler Blackcomb pass products are included in both current and prior year periods at comparable exchange rates, with the exception of 1- and 3-day EDGE cards, the vast majority of which were sold after the beginning of the ski season and will not be offered for the 2017/2018 ski season. While in the past 2 years we have seen a material deceleration of our pass sales growth rate from spring results to fall results, we expect the growth rate this year to be more stable between the 2 time periods.

We look forward to being able to fully include Stowe in our season pass marketing efforts this fall and incorporating the guest information they have into our database CRM efforts. Further, we look forward to beginning our more comprehensive guest information collection effort at Whistler Blackcomb for the upcoming season.

Historically, Whistler Blackcomb has had information on only approximately 20% of their non-season pass guests, dramatically lower than our U.S. resorts data capture of approximately 96%. We have found that this information and the ability to better segment and personalize our communications to our guests has been one of the largest drivers of our season pass growth in past years, setting us up very well for continued pass sales growth for fiscal 2019 and beyond.

Perisher's 2017 ski season kicked off one week earlier than expected on June 3. We're very pleased with sales of the Epic Australia Pass heading into the season, which end on June 12, 2017. Through June 4, 2017, Epic Australia pass sales are up 21% in units as compared to the prior year period through June 5, 2016, benefiting from the addition of Whistler Blackcomb to the resort network, which is one of the top North American ski destinations of choice for Australians.

I'm pleased to announce that our Board of Directors has declared a quarterly cash dividend on Vail Resorts' common stock of $1.053 per share, payable on July 13, 2017, to shareholders of record on June 28, 2017.

With the 2016/2017 North American ski season behind us, we are now looking forward to the investments we will be making this summer and fall to improve the guest experience for next season. As we've noted previously, the key projects for the upcoming season are the upgrade of the Northwoods chairlift or Chair 11 at Vail Mountain from a high-speed 4-person to a new high-speed 6-person chairlift.

At Breckenridge, we'll be upgrading the Peak 10 Falcon Chair from a 4-person high-speed chair to a 6-person high-speed chair.

At Keystone, we'll be investing significant capital to continue to enhance the experience at this outstanding family-focused resort. We'll be upgrading the 4-person Montezuma chair to a 6-person high-speed chair to improve circulation on the front side of the mountain, and we'll be renovating and expanding LaBonte's restaurant by 150 indoor seats.

At Beaver Creek, we will be upgrading the fixed-grip 2-person, Drink of Water chair to a 4-person high-speed chair.

Our capital plan also includes the second phase of a 2-year process to revamp our primary websites to a single responsive desktop mobile platform, which will be integrated with our database and personalized marketing technology, and the first phase of a 3-year plan to completely revamp and modernize our POS, the primary software platform for all of our resort operations.

Finally, I'm pleased to share that we have received approvals for a significant employee housing project in Keystone. We have partnered with a developer who will build and lease back 36 units of employee housing on a parcel slated for development that Vail Resorts owns.

This summer, we are very excited to welcome visitors to the first year of Epic Discovery at Breckenridge, which will officially open this weekend, along with our second full year at Vail and Heavenly. Our summer guests will have the opportunity to enjoy a great lineup of activities for the whole family, including ropes courses, zip line, summer tubing and alpine coasters, along with incredible opportunities for experiential learning in a high alpine environment.

Finally, I want to thank our -- all of our employees for their hard work in creating incredible experiences for our guests in the 2016/2017 ski season.

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

(Operator Instructions) We'll go first today to Shaun Kelley with Bank of America.

I was -- Rob, I was hoping maybe you could touch on the comment around the season pass sales volumes. So you said that typically, you do see these -- the volumes decelerate as you move through the pass selling period. But this year, you're looking for them to be more stable. What gives you the confidence there? Is it including Stowe that's really going to help that? And what else are you seeing that's sort of changing -- you think might change that pattern?

I would say a couple things. I think, first, there's no doubt that as we look at the kind of velocity of sales, the period that we're kind of going up against obviously also dictates the growth rate. And so since last spring, we were going up against a truly historic, right, growth rate in the spring. Obviously, we knew that it would be more challenging to drive more significant growth.

As we look to the fall, we feel like we can maintain kind of the velocity and momentum that we have. And obviously, that will ultimately create a more stable year-long growth rate versus last year, where we were so strong in the beginning and then we knew it was going to decelerate towards the finish.

That said, I also do think, yes, that as we include Whistler, as we include Stowe, as we're bringing new people into the program, very often those are people who are less willing to commit, right, in the spring and, if they are brand-new to the program, are more willing to consider a new purchase in the fall. So I'd say both of those trends actually kind of have us believe that, yes, the growth rates will be more stable where last year, obviously, was pretty lopsided in terms of the balance between spring and fall.

That's great. And then sort of the other area we were focused on was on the Whistler results. Clearly, I think, surprised to the upside as you look at how well that -- they performed there. The question here is, did you -- obviously, there's still -- there was a significant synergy target that you had provided when you originally announced this transaction.

And were -- did you pull forward any of the synergies or initiatives you were expecting to achieve early to help bolster those Whistler results? Or is this pretty organic and really a reflection of snowfall and everything -- and performance at the mountain itself?

I think there's probably some. I think there's some pull forward of some of our efforts. But I would say we -- yes, we certainly think that much of what we want to accomplish is still yet to come. But there's no doubt that, yes, some of that, we absolutely saw this year.

And there's also just trending, right, in terms of this was a year where we saw significant U.S. destination visitation go to Canada and we saw significant visitation on our Epic Pass at Whistler. And so what I'd say is I think we already have started to see some of the benefits of kind of that network effect, but there are other components of it that we won't be able to implement until next year.

We'll go next to Anthony Powell with Barclays.

The Aspen and KSL consortium has clearly made some big deals in recent months. How do you view them as a competitor in terms of both customer mind share and also as a competitor for acquisitions in the future?

Yes, I think it's -- I guess I'd say broadly speaking, we think it's a good thing for the industry. I mean, I think to the extent that there's enthusiasm and energy, investment in the industry, we think that's positive. And so I think we have made that same commentary before about the Mountain Collective and about the M.A.X. Pass and other things that have been introduced.

We think the more that the skiing public has more choices, has more value opportunities to really engage in the sport, that builds broad enthusiasm. And we're quite comfortable that given the resorts that we have, that we're going to do great in that environment. And so candidly, we wish them nothing but the best.

And I do feel, to the extent that this new entity certainly can come out with products that provide the same kind of enthusiasm that our Epic Pass has, I think that would be fantastic. And those are -- so we kind of look forward to that.

And then I think on the acquisition front, our perspective, and I think we've been quite clear about that over the years, is at the end of the day, we're pretty focused on the things that we think will really make a difference in our network. And when we identify those, we're very aggressive. But we're also fairly disciplined. And obviously, there's a lot of ski resorts, both in the U.S., in North America, around the world, and we tend to focus on the handful that's important to us.

And I would say that certainly, it's always good to have competition around that, but I think we always have had other people who are interested. And candidly, just, I think, within our industry, given the passion, a lot of those acquisition discussions, they take a long time. They're about building relationships. And again, I think we feel quite good that having more folks around to talk to people about how we can improve the overall industry, we think, is a good thing.

And on the season passes, how did your season pass sales fare in Colorado, especially among the more local and value-oriented passes? And if they were slower there due to the conditions this year, do you have any initiatives to maybe accelerate those in the fall?

I would say our pass sales here in Colorado were fairly stable. I think we -- I think Colorado is a more mature market for us, kind of always has been if you go back historically. It's been one of the slower-growing markets because of that maturity and because we've been at the kind of season pass effort here in Colorado for so many years.

So we do feel -- that said, it's one of -- it's obviously one of the biggest, if not the biggest, market we have. So there's no doubt that we will be focused on continuing to drive engagement, enthusiasm, both, I'd say, in terms of getting pass sales and in terms of just making sure the people get up to the resorts and, I think, fully enjoy an experience with their pass. So it's a little bit of a different effort than what we're doing on the destination side but no less important.

Got it. And one more granular one for me. I think your Lodging EBITDA guidance for the full year implies roughly $7 million to $9 million in fourth quarter EBITDA. That would be a big increase over $4 million last year. What's driving that in the fourth quarter?

Well, the fourth quarter for Lodging includes Grand Teton Lodge Company, and -- which is a big driver of EBITDA. I have to look at -- I'll follow up with you on the implied growth.

We'll go next to Cameron McKnight with Wells Fargo.

First of all, on summer, Rob or Mike, were you able to point to or talk about anything you're seeing on -- anything you're seeing in terms of forward bookings? And anything new at Vail and Heavenly this year on the summer side?

Yes. I would say we feel good about summer bookings. Typically, those bookings don't have the same kind of lead times as you might see, obviously, in the winter. But I think certainly, from what we see so far, we feel good. I think I'd say even more strongly, I think up in Canada at Whistler. And so we feel good as we go into the summer.

And I think I'd say we have kind of 2 efforts, though, on the booking side. Our summer activities that we're putting up on the Mountain, we're not -- we don't know that those are necessarily driving incremental bookings to our resorts. We think they kind of help, right, with the overall complement of activities, but it's a pretty wide array of activities.

So our goal there is, right, obviously, our Lodging groups and Sun res groups, they are out there booking for summer just like they always have been. And again, we feel good about what we're seeing so far for the summer, but then our real focus is how do we get people to really get up on the mountain and kind of experience our mountains in a different way than they have before.

And we have always felt that we've got significant summer visitation in all of our key kind of summer resorts, Vail, Breckenridge, Heavenly, certainly Whistler, Park City. And so the goal for us really is that we know they're going to come because of the overall community experience that's provided. And so now the question for us is how do we, again, give them this opportunity to get up on the mountain in a new way.

Great. And then just back to the third quarter. In terms of the 7.5% ETP growth, excluding Whistler, are you able to talk to some of the drivers of that and some of the mix effect that might be flowing through that result?

Yes, I would say it is a -- we have -- we take a very methodical and detailed approach to our pricing, and we're constantly looking at opportunities for us to make sure we're connecting in the right way to our guests and delivering value. And obviously, all the capital that we invest in our resorts, the upgrades and the improvements and new things we're doing, that's a huge driver of that.

And it's not -- less about specific price increases at any one resort and a little bit more about, yes, how we kind of think about our overall portfolio and kind of drive visitation to that. And there's no doubt that the strength that we saw, I think, in Tahoe, the strength that we see in Park City, right, helps as you're overall looking to drive your total yields.

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

Just wondering what -- if you could frame what inning you think you are with respect to CRM segmentation and targeted marketing and how much more opportunity you continue to see.

Well, I think what we would say on -- so on season passes I think what we've talked about is we feel like we're maybe in inning, whatever, 6 or 7. I mean -- where I think one of the -- we've done, we feel, an amazing job at segmentation, at studying the data, going back historically and then using that.

I think the key thing on season pass, as we mentioned in our remarks, is actually having the data on our guests to be able to market season passes to them. And that is where we're really looking forward to this season, collecting the data from Whistler Blackcomb and Stowe, and then obviously using that to help drive FY19. Obviously, we'll have -- we have some data going into this season but obviously even more data, we think, that'll help drive FY19 and beyond.

On kind of our traditional day-to-day kind of destination marketing, non-season pass marketing, yes, we're very early innings there, probably kind of second inning or something, where we have a long way to go not really in the technique but in building up the data capture. So although we mentioned in our remarks that we collect 96% of our lift ticket data on our guests and Whistler maybe at 20%, but we've been only collecting at that level for a couple years.

So the -- our -- the sophistication and the precision and the insight that we have, right, goes up pretty dramatically every year in that segment with those guests. So we kind of feel like, yes, we've got a nice ramp here to continue to get better at not only the season pass piece, which obviously, we feel like we're on a great trajectory but then really including that daily lift ticket sale as well.

And then a little more detailed question. The operating loss at Stowe of $3.5 million that you talked about, is that a normalized run rate for this time of year? And is it fair to assume, as we think about a pro forma number for the quarter, that'd be $5 million to $6 million?

Yes, I think this is kind of our best estimate. We obviously just closed on the deal, and so I think we're using our best estimate based on the information that we have at this point. So we'll get in there and evaluate what we think the run rate is.

Obviously, we've also not, right, integrated the resort, and so that has its own piece of evaluation which we plan to do actually not in advance of this season but sometime in advance of the next season. So I think it's our best estimate at this point. And yes, we'll go from there and provide more information as we get deeper into it.

Ladies and gentlemen, that will conclude our question-and-answer session. Mr. Katz, I'll turn it back to you for closing remarks.

Thank you, operator. This concludes our fiscal third quarter 2017 earnings call. Thanks to everyone who joined us on the conference call today. Please feel free to contact Michael or me directly should you have any further questions. Thank you for your time this morning, and goodbye.

Ladies and gentlemen, thank you for your participation. This does conclude our conference for today. You may now disconnect.