Vail Resorts Inc (MTN) 2018 Q3 法說會逐字稿

Good day, everyone, and welcome to the Vail Resorts Third Quarter Fiscal Year 2018 Earnings Conference. Today's call is being recorded.

And now I would like to turn the conference over to Rob Katz, Chief Executive Officer. Please go ahead, sir.

Thank you. Good morning, everyone. Welcome to our fiscal third quarter 2018 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 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, June 7, 2018. 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 2018 results. We are pleased with our performance in the quarter and for the full 2017-2018 North American ski season, particularly given the challenging weather conditions across the Western U.S. for much of the season. Our performance demonstrates the resiliency of our business model, the stability provided by our geographically diverse resort network, and the importance of increased advanced purchase products, including our season passes.

Our improved results in the third fiscal quarter also underscore the strength of the high-end consumers demand for ski vacations, once conditions improved across our network. Mountain revenue increased 7.1% for the third fiscal quarter compared to the same period in the prior year, with lift revenue growing 7.9% primarily as a result of strong season pass sales for the 2017-2018 North American ski season and the inclusion of Stowe, partially offset by lower non-pass lift revenue at our Western U.S. resorts. Total visitation, including Stowe, grew 6.4% for the third fiscal quarter compared to the prior year period.

Whistler Blackcomb experienced excellent conditions and achieved another season of record results. As conditions improved across the Western U.S. in the second half of the ski season, overall skier visits rebounded sharply, despite total snowfall remaining significantly below the long-term average at many of our Western U.S. resorts.

With our winter season behind us, we are pleased that our year-to-date results delivered growth over the prior year despite the very challenging conditions in the first half of the season. We believe this highlights the continued success of our season pass strategy, and guest-focused marketing efforts, the importance of geographic diversification in our resort network, and the outstanding experience we provide at our resorts. We also continue to benefit from our improved ability to target and personalize our marketing messages to guests, resulting from the significant investment we have made in data capture and data-driven marketing capabilities over the past several years.

Now I'd like to turn the call over to Michael to talk further about our results, our outlook and our acquisition announcement this week.

Thanks, Rob, and good morning, everyone. As Rob mentioned, we are pleased with our third quarter performance and the stability of our results in the face of challenging conditions across our Western U.S. resorts for much of the season. Resort net revenue was $841.4 million in the third fiscal quarter, an increase of 6.5% compared to the prior year. Resort reported EBITDA was $419.7 million in the third fiscal quarter, an increase of 7.1% compared to the prior year.

Net income attributable to Vail Resorts, Inc. was $256.3 million for the third quarter of fiscal 2018 or $6.17 per diluted share as compared to net income of $181.1 million or $4.40 per diluted share for the same period in the prior year.

Results for the third quarter of fiscal 2018 include a reduction in our provision for income taxes resulting from U.S. tax reform.

Our balance sheet remains very strong. We ended the fiscal quarter with $181.6 million of cash on hand, and our net debt was 1.5x trailing 12 months' total reported EBITDA.

I'm also pleased to announce that our Board of Directors has declared a quarterly cash dividend on Vail Resorts' common stock of $1.47 per share payable on July 12, 2018, to shareholders of record on June 27, 2018.

Additionally, during the third fiscal quarter of 2018, the company repurchased shares totaling $25.8 million at an average share price of $223.51.

Earlier this week, we were very pleased to announce that we entered into an agreement to purchase Triple Peaks LLC, the parent company of Okemo Mountain Resort in Vermont, Mount Sunapee Resort in New Hampshire, and Crested Butte Mountain Resort in Colorado. The company will acquire Triple Peaks LLC from the Mueller family for a cash purchase price of $82 million, subject to certain adjustments at closing and will simultaneously pay $155 million to pay off the leases that all 3 resorts have with Ski Resort Holdings LLC, an affiliate of Oz Real Estate.

In a separate transaction, we also entered into an agreement to purchase Stevens Pass Resort in Washington State from Ski Resort Holdings LLC for a cash purchase price of $67 million, subject to certain adjustments. The transactions are expected to close this summer, subject to receipt of new special use permits from the U.S. Forest Service for Crested Butte Mountain Resort and Stevens Pass Resort, as well as administrative review and consent from the states of Vermont and New Hampshire. The acquisitions are collectively expected to generate incremental annual EBITDA in excess of $35 million in Vail Resorts' fiscal year, ending July 31, 2019.

Each of these 4 resorts is an important strategic addition to our network and our season pass products, providing more choice and access to our passholders across the U.S. and around the world. Okemo in Vermont and Mount Sunapee in New Hampshire will significantly enhance our regional offerings to skiers in the northeast and will be a great complement to Stowe. Crested Butte is an iconic Colorado destination that will expand our offering for destination skiers and Colorado guests seeking incredible skiing and a historic town experience.

Finally, Stevens Pass is a great addition to Whistler Blackcomb for our Pacific Northwest skiers with outstanding skiing, just a 2-hour drive from Seattle.

Subsequent to the closing of the 2 transactions and incremental to our normal rate of capital expenditures, we plan to invest $35 million over the following 2 years to continue to elevate the guest experience across the 4 resorts. In addition, annual ongoing capital expenditures are expected to increase in the aggregate by $7 million to support the addition of these 4 resorts.

Given our performance to date this year, we expect our fiscal 2018 resort reported EBITDA will finish the year between $612 million and $622 million, which includes an estimated $7 million of acquisition and integration-related expenses specific to the Triple Peaks and Stevens Pass acquisitions and an estimated $3.2 million of integration-related expenses specific to Whistler Blackcomb and Stowe.

Our updated outlook for fiscal year 2018 does not include any estimate for the closing costs and operating results of Triple Peaks and Stevens Pass, as the transactions remain subject to closing, which is expected to occur this summer.

Excluding the impact of the acquisition and integration-related expenses associated with the Triple Peaks and Stevens Pass transactions, our resort reported EBITDA for fiscal year 2018 would be at the high end of our guidance range issued on March 8, 2018, as a result of our strong results in the third fiscal quarter.

I'll now turn the call back over to Rob.

Thanks, Michael. We are very pleased with the results of our season pass sales to date. Excluding sales of our Military Epic Pass product, pass sales through May 29, 2018, for the upcoming 2018-2019 North American ski season increased approximately 12% in units and approximately 19% in sales dollars as compared to the prior year period through May 30, 2017. Our spring pass sales included strong growth across nearly all markets, with continued strong performance among our destination guests in the U.S. and internationally. We have particularly strong pass sales in Whistler Blackcomb's regional market with solid growth in Colorado and Tahoe, despite the challenging conditions experienced throughout the season in those regions. As a result of the strength of our network and the new resort partnerships we entered into, our premium Epic Pass has been the fastest growing product among all of our pass products this year. In addition to all of these results, we also saw very strong sales of our new Military Epic Pass, with huge enthusiasm and engagement from current and past members of the Armed Forces. We saw significant Military Epic Pass sales to new guests as well as to guests who had previously purchased one of our season pass products. We are still in the process of verifying our new Military Epic Pass sales and will be releasing additional information on those results in the fall.

Whistler Blackcomb pass products are included in both the current and prior year, adjusted to eliminate the impact of foreign currency by applying current period exchange rates to the prior period. It is important to note that a portion of our spring growth includes passholders who purchased 2017-2018 North American ski season passes last fall.

Perisher's 2018 ski season kicks off this weekend, and we are very pleased with ongoing sales of the Epic Australia pass, which end on June 12, 2018, and are up 19% in units through June 3, 2018, as compared to the prior year period through June 4, 2017, benefiting from the addition of Hakuba Valley in Japan under a long-term pass alliance, which is an extremely popular option with Australian skiers and snowboarders.

Our commitment to reinvesting in our resorts and the guest experience remains one of our highest priorities. This summer and fall, we will be completing important strategic capital projects to increase capacity and elevate the experience across our network of resorts, as part of our previously announced $150 million capital plan, excluding anticipated investments for U.S. summer-related activities, onetime integration-related capital expenditures, and capital investments associated with third-party reimbursements. We will be completing the $40 million transformational Whistler Blackcomb plan, which includes the new signature Blackcomb gondola, the new 6 person high-speed Emerald chair, and the new 4 person high-speed Catskinner chair.

At Park City, we will be focused on improving the family and dining experience on the mountain, with a significantly improved beginner area, with a new high-speed lift and snowmaking improvements, along with 2 restaurant upgrades. These projects, along with the Galaxy chair upgrade at Heavenly and several important enterprise-wide technology projects, continue our efforts to enhance the experience for our guests across our resorts.

As we transition to summer operations, I want to take a moment to thank all of our employees for their hard work in creating memorable experiences for our guests during the 2017-2018 North American ski season. Our results over this challenging season would not be possible without their passion and dedication to providing an experience of a lifetime.

Operator, we are now happy to answer questions.

(Operator Instructions) And we will go first to Shaun Kelley at Bank of America.

Congratulations on the strong early pass sales results. Could you, Rob, maybe give us a little bit of your sense for the trajectory of, kind of, how you're thinking pass sales are going to play out through the balance of the year? In the past, we've seen some seasons where, I think, things have slowed a little bit. I believe, last year, actually, the expectation and the results were that things were flat to actually improving a little bit. So just based on the type of mix and everything you've seen right now, kind of, what are your expectations, as we move through the balance of the selling period?

Yes. No, thanks. Yes, I think -- well, first of all, it certainly bears repeating that. We think these are really strong results for the spring selling season, and I say, we feel very good about how pass sales are going. I do think, as in the past, our goal is to pull forward purchases into the spring to get that commitment as early as possible, and that is reflected in our spring growth rate, which is a headwind, as it has been in earlier years. This year, we also have new military pass sales, and we'll be focused on a unit growth rate that includes military pass sales to people who previously purchased one of our other season passes. So that's something we're going to be focused on. And then obviously, now we also have the potential impact from the new acquisitions, which we feel good about as well. So we do have a lot of different factors impacting, I think, the growth rate for the full season, and at this point, we're not going to provide specific guidance on it.

Understood. The one thing you called out in the release that we are hoping to get a little bit more color on was that comment on the spring growth, including some passholders from last -- from some passes sold last fall. Could you just elaborate, specifically, on what is that, and any color on, sort of, how material that might be?

Yes, so actually that -- we actually have that dynamic every single year. So every year, right, we are constantly pulling people, that's one of our core strategy, is really is to get people not just to buy a season pass, but even if they're buying a season pass, to buy it earlier and earlier in the selling period. And so every year, we have people in the spring, and part of our growth rate that's reflected from folks who, last year, bought in the fall. So obviously, that's a headwind as you go into the growth rate for the full year. Again, something that, again, we've had to address before with new sales. And obviously, this year, we also have Military Epic Pass sales, some of which, right, were folks who bought last year. And then -- but then we also have the new acquisitions. So a little bit of a repetition of what I said earlier, but I would say we feel good about where our growth rate is right now, how we did in the spring, and I think we feel good about what this says for the full selling period. A little tough to -- be -- give a lot of precision around that, given all of these dynamics that are at play, but again, in total, we feel pretty good.

Understood. Last one on the passes would just be the spread that you saw in pricing is probably at the high end of what we were expecting, and I think, other people likely as well. In your analysis, is that largely a reflection of mix shift to Epic Pass, or is there anything in terms of Canada versus U.S.? Any color you can provide us? Because like you said, probably a 7-point spread is on the higher end, given that we, sort of know your weighted average price increase is a lot closer to maybe 4 to 6?

Yes, I think, absolutely a mix shift. Because, obviously, you can see the -- you can obviously do the math, as you just said, on the -- kind of pass-to-pass increase, which was lower, right, than our -- then the spread between units and revenue. And yes, that's largely attributed to the strength of the Epic Pass this year, which is definitely one of the strongest performances we've seen from the Epic Pass over the last number of years. And obviously -- now -- those growth rates don't include military on either side, which is a lower-priced product. So if you actually factored that, and certainly, that spread would come down, although, of course, the growth rate, both unit and revenue, would go up.

Understood. Last question for me would be, you're just switching gears to the acquisition. So clearly, doing 4 Mountains, 2 separate transactions is a lot of work, and it really adds a ton of visitors to the overall base of what you guys have today. Could you just tell us like at the highest level, do you think there are still more opportunities like this in North America? I mean, I think one thing a lot of the investment community has struggled with is just what kind of market opportunity is left within North America proper? And there are a couple of these and maybe a couple of others that have targeted markets we didn't know about, like Stevens Pass. So just, kind of, what's your sense and specifically, do people start to increasingly need to affiliate or resorts need to affiliate with, sort of, yourself or the other large, kind of, let's call it, network pass product to be successful ski operators?

Well, I think, I would say that -- to answer the first question, I think, we absolutely believe there are still select opportunities in North America. And I think the benefit for us right now is that the ability for us to add something that is unique, that is very targeted can be quite powerful to the overall network even if the cost of the acquisition is not necessarily huge compared to the size of our company at this point. So I think it actually -- we feel very good about that. Now obviously, as time goes on, yes, the ability to identify our assets that -- and resorts that don't overlap with something we already have that truly are different, that are differentiated in terms of how the guest perceives it, that's very, very important to everything in terms of how we look at acquisitions. And so of course, finding those, yes, becomes, yes, we have to be even more selective, I think, at this point. And there are opportunities though, as we've talked about, outside of North America that I think we can start to have some of the same impacts that we've seen in North America. I think, I feel like there is an opportunity for resorts in our industry to really have a lot of different choices. Certainly, there are benefits to being standalone. There are benefits to being standalone and aligning, maybe, with the pass product. And then I think there are also benefits in becoming part of a company like us. I do think with increased weather volatility, with other challenges that ski resorts face, with the opportunities, right, positive opportunities that are provided by more sophisticated marketing and being part of a larger network, yes, we do feel that this kind of geographic diversity and the alignment that we can bring to resorts is a very powerful formula to driving success within our industry. Doesn't mean it's for everybody, but this is certainly where we think the best opportunity is for resorts going forward and their communities.

We'll go next to Chris Woronka at Deutsche Bank.

Want to ask you follow-up on the Triple Peaks and Stevens Pass acquisitions, and I know when you bought Whistler, kind of getting access to that customer data was a really big deal. Can you just tell us if you'll, kind of, get similar access here? I know it's smaller numbers but kind of, maybe, how that positions you to capture more of the northeastern skier?

Yes, absolutely. I think -- we -- that's an important part of the acquisitions, and each one of these resorts has a certain amount of data that are certainly parts of the transactions. I think, more important than even that though is our ability as we put in our systems to increase that data capture, the detail of it, the sophistication of it. So it's not only the data capture they might have had over the last 5 years, it's the data capture that will come in over the next 5 years, and so that's, I think, that's certainly true with Whistler Blackcomb as well. So there is certainly a certain amount of data, but as we've talked about, it wasn't necessarily as big a priority for them as it is for us, and that really allows us to be, yes, just much more personalized with our guests in terms of how we communicate. Much more direct, so we can talk to them, and have a conversation truly one-to-one. And each of these acquisitions really provides that opportunity for us going forward.

Okay, great. Just want to ask, as you kind of plan for the upcoming ski season, are -- is there going to be, kind of, any incremental investment on the labor side in terms of housing or anything you can tell us at this point?

Yes, absolutely. I think, we are very focused on continuing to improve the employee value proposition of working at Vail Resorts. With the increasing costs and housing shortages in our community, we see that we have a huge responsibility to make those investments. And we've got a number of affordable housing projects in the works, and it's hard to tell exactly what the timing of them will be, because lot of that is based upon some of the same regulatory processes we go through for market traditional real estate developments, and so we still have to go through those. But that's something that's a huge priority for us next year. And I do think, we'll continue to see employee wages and compensation growing faster than inflation. And I think, we've been talking about that for the last couple of years. I think, the good news for us is that lot of the markets that we operate in, both our local resort communities and the regional markets that we operate in are seeing some incredible strength and success, and that also means that we have to put our own investments, and increase our own investments into our employees.

Great. One final follow-up, if I could, on the recent acquisitions. Is that $35 million of EBITDA for fiscal '19, is that, kind of, your like vision of a fully baked number with revenue and expense synergies you might find? Or is that kind of just initial for next year?

Yes, I think the way we would characterize it is very much a year 1 EBITDA. It -- as we've seen with prior acquisitions, we go through a process of investing. One of the things that we announced with this deal is that we'll invest about $35 million of incremental capital in opportunities to elevate the guest experience across the resorts. So we would expect to get returns from that over time. And as Rob suggested, we'll be collecting data and putting our systems and marketing in place. So what we want to do is provide a year 1 number, and we'll take it from there.

And we'll go next to Anthony Powell at Barclays.

Could you talk about the process of how you got partnerships with the owners of Okemo to the deal, and could that process be replicated with future partnerships?

Yes, I mean, I think, these deals, like we've talked about for years are -- in this industry are about buildings relationships and understanding what various owners are looking for. In the case of Triple Peaks, we were able to establish that relationship and build out a pass partnership, which we were able to announce in March. And through those discussions and as we, I think, both considered the strategic opportunity to partner together, that transformed into an opportunity to do a full deal. I think, in this case, the benefits of doing the full deal are quite significant for us in terms of being able to fully integrate, being able to offer an unlimited experience on our pass products for our guests. So all of those pieces, we think, are definitely a big benefit for us and our guests in doing the full transaction that we announced this week. I think as it relates to other pass partnerships, we don't go into it with that intention, and in many cases, that's probably unlikely to be replicated. But in this particular circumstance, it worked out for both parties.

Right. Did anything change in the 3 months since March, or was this, kind of, always the, kind of, idea for both parties?

Yes, I'm not going to comment on, kind of, the details of how the transaction unfolded, but would just say that it was, yes, absolutely, part of the relationship and strategic discussions that we had with the Mueller family.

Got it. And the multiple on deals seems very attractive relative to Whistler deal and even Stowe deal. Is that kind of pricing, 6 to 9x forward EBITDA, all in, is that what you can achieve going forward, or is it -- or is this kind of a special situation?

No, I think these -- each deal is negotiated independently. It's actually quite close to where we wound up on Stowe, when you took the final purchase price of just over $40 million and our expected $5 million-plus of EBITDA on that deal. So I think, yes, each deal is negotiated independently. We certainly felt like it was a deal that we wanted to get done. And obviously, both sides have to get there.

And we'll move next to Ryan Sundby at William Blair.

Rob, when you look at the 12% unit growth so far this year, can you provide any more color on maybe where these holders are coming from? And I'm not talking so much from a geographic standpoint, so any color there is always appreciated, but more so, perspective on who these skiers are. So are they new to season pass offerings? Are they coming over from competing passes? Are they former Epic holders? Are they skiers at some of the new partners or resorts you've added this year? Just -- I know you're not going to get into specifics, but just big picture, any color on who these skiers are, and kind of, if there's a group or 2 that stands out as, kind of, being a big driver of growth.

Yes, I guess what I said, we certainly don't know when somebody joins our pass with any kind of precision or detail whether or not they were on somebody else's pass last year. We have, kind of, general understanding from our research that there are people who sometimes move back and forth between the products, based upon where -- what resorts they are planning to go to in the upcoming season. We do know that there are a lot of skiers out there who are, what we call, kind of samplers, who don't like to go to the same resort every time. And one of the goals of our marketing program, both for season passes and lift tickets is picking up incremental visits from those folks', incremental trips to one of our resorts. And so I think there's no doubt that, that is a component of our season pass growth, though little bit, again, hard to see that day in and day out when we get our results in from pass sales. I think when we look broadly, what we really are seeing is that folks who were prior year lift ticket purchasers, either of -- last couple of years, that is, obviously, a very important market for us. These are people who have already been to one to our resorts and therefore, might -- would be the highest probability of considering a pass for us. I think, yes, we also have prior year lapse, like somebody who might have had a pass last year or 2 years before, that's an important component. I think the good news is, we are still seeing a lot of what we call kind of prospect growth, which is people who are truly new to the program and I think we're kind of seeing growth and new additions on all of those. And then honestly there's another piece that's just keeping more folks in the pass who were passholder last year. So minimizing kind of the lapse rate, so to speak, of people who were there last year and, I think all of those factors combine to get in -- to drive that growth rate, including, as we talked about earlier, moving -- for -- when you're just looking at the spring, obviously, a part of that growth is also folks who were passholders last year, but had purchased in the fall. So all of those things contribute to how we drive our growth.

I guess, just a follow-up on the last point there, one thing we've seen companies in other industries that offer season pass talked about moving towards the monthly membership to help with retention, is that something you guys would be interested in doing or testing at some point? Or does that not apply for kind of ski industry?

Well, I think there are some differences for us in that we -- what's very important to us is that we make our final season pass sales largely before the season begins. So I don't think that we would consider a monthly payment plan over the season itself, because I think the whole goal is that we are providing this incredible value that I think our -- all of our season pass products, right? At this point given the resorts that you can access, the price points, I mean, it really is one of the best values in all of travel. And so to the extent that we're offering that it is because we want people to kind of make that commitment before the season begins. We've thought about whether -- could you do a monthly payment plan from the spring all the way until November, but I think we have really oriented in on this. Either during the spring, a $49 down. We think that's -- that allows people to make a commitment, but a very manageable commitment, and we've seen terrific results on -- ensuring that those folks actually, ultimately make their final payment and become passholders. So to us, we've kind of -- we feel like we've fine-tuned a little bit this benefit of, kind of, during the spring, people putting a small amount down and then making that final payment in September, which is only a couple of months before they're going to use the pass. It doesn't mean that there aren't other ways to potentially consider it, but at this point, I don't think we're really thinking about moving to a monthly payment plan that would go over the season.

Yes, that makes a lot of sense. And then, just this last question for me, we saw a nice rebound, I guess, in skier visits and Mountain revenues this quarter. But lodging, I think, was a little light. Any thoughts there on what's kind of needed to grow it. Is it just a function of kind of mix of who is skiing late in the year or any thoughts there would be great?

Yes, I mean, our Lodging business is more concentrated geographically. So certainly has more concentration particularly in Colorado. We did see a rebound there, but certainly the continued strength in places like Whistler Blackcomb and Stowe were good tailwinds for us throughout the year. And so the diversification of the Lodging business is just not as significant as the rest of the Mountain business.

And we'll move next to Brett Andress at KeyBanc Capital Markets.

So as recently as last month your new competitor took the price up on their pass product by $100 earlier than, I think, many expected, and now that product is priced above yours, and so I'm curious, will that development play into your pricing strategy for later this year, in future years? Because, I mean, in theory, it creates some additional pricing room for you from a competitive standpoint, but also from a broader industry standpoint.

Yes, I think, I would say, certainly, not going to comment on future pricing per se, but I guess I'd say that we spent a lot of time really analyzing and studying the connection that we have to our passholders and we know that having them feel like this is really the best value in skiing, one of the best values, again in travel, is critical. And so we're just very focused on ensuring that we've got that relationship in the right spot. Obviously, we do pay attention to other competitors and what they're doing on their products, of course, we do. But I'd say the large part of how we go to market is really more based on our own information and our own communication and dialogue with our passholders and our potential passholders and from that standpoint, it's just so critical, right? To ensure that we retain that kind of best value proposition. And so I'd say, as we go forward, will continue to keep our eyes open as to what's going on, but we are unlikely to necessarily move off of the key strategies that we've had for a long time.

And lastly kind of following up on an earlier question -- answer you gave, can you provide a little more bit more color on the $35 million of capital that you plan to put in to the recent acquisitions over the next 2 years? Is this more a growth-type capital? Is it a catchup, maintenance capital after maybes some years of underinvestment? Just trying to get a sense of the return profile of that $35 million?

Yes. I would say we are still early in the evaluation of that. I mean, we've sized that, we think appropriately for the kinds of opportunities we have to improve the experience at -- across those 4 resorts, and as we get closer to each of the resorts and get through closing, and as we start to think about capital plans for the next couple of years, we will provide more detail on that.

And that will conclude the question-and-answer session. Mr. Katz, I'll turn things back over to you, sir.

Thank you. This concludes our fiscal third quarter 2018 earnings call. Thanks to everyone who joined us on the call today. Please feel free to contact me or Michael directly should you have any further questions. Thank you for your time this morning and goodbye.

And ladies and gentlemen, once again, that does conclude today's conference. Again, I'd like to thank everyone for joining us today.