Vail Resorts, Inc. (NYSE:MTN) Q1 2023 Earnings Call Transcript

Vail Resorts, Inc. (NYSE:MTN) Q1 2023 Earnings Call Transcript December 9, 2022

Vail Resorts, Inc. beats earnings expectations. Reported EPS is $-3.4, expectations were $-3.43.

Operator: Good morning, and welcome to the Vail Resorts Fiscal 2023 First Quarter Earnings Conference Call. Currently, all callers have been placed in a listen-only mode and following management’s prepared remarks, the call will be open for your questions. Please be advised, I will now turn the call over to Kirsten Lynch, Chief Executive Officer of Vail Resorts. You may begin.

Kirsten Lynch: Thank you. Good morning, everyone. During our earnings call yesterday, the conference call system vendor for the event experienced a significant technical outage disrupting the call. The vendor was unable to reestablish their systems yesterday evening, therefore, we rescheduled the call for this morning. We apologize for the inconvenience this call caused and thank you for joining us this morning. Joining me on the call 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 yesterday afternoon, along with our remarks on this call are made as of today, December 9th, 2022, 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 the Form 10-Q were filed yesterday afternoon with the SEC and are also available on the Investor Relations section of our website at www.vailresorts.com. With that said, let’s turn to our fiscal 2023 first quarter results. We are pleased with our results for the quarter with resort reported EBITDA improving, compared to the prior year period, primarily driven by the strong demand and visitation at Australian resorts.

Australian resorts continued to experience record visitation, driven by strong demand, following two years of COVID-19-related disruptions and supported by continued momentum in advanced commitment pass product sales following the addition of Hotham and Falls Creek in April 2019. Our North American summer operations continued to recover following the COVID-19 pandemic. Turning now to our 2022-2023 North American season pass sales and early season indicators. We are pleased with the results of our season pass sales, which continue to demonstrate the strength of the guest experience, our network of mountain resorts and commitment to continually investing in the guest experience. Pass product sales for the North American Ski season increased approximately 6% in units and approximately 6% in sales dollars through December 5th, 2022, as compared to the period in the prior year through December 6th, 2021, including sales for the Seven Springs Resorts in both periods and adjusted to eliminate the impact of foreign currency by applying an exchange rate of $0.74 between the Canadian dollar and U.S. dollar in both periods for Whistler Blackcomb sales.

Advanced commitment is our core strategy shifting lift ticket guests across all of our mountain resorts into a commitment before the season starts driving stability for our company and long-term lifetime value. Our North American season pass program has grown dramatically over the last three-years. Season pass units have grown approximately 86% in units and approximately 53% in sales dollars, compared to the sale — to sales for the 2019 and 2020 season through December 9th, 2019. We expect to have approximately 2.3 million guest in advanced commitment products this year, generating over $800 million of revenue in advance of the season and representing over 70% of all skier visits committed to our 40 North American and Australian resorts in advance of the season in a non-refundable pass, an increase of over 1.1 million guest in the program from the 2019-2020 season, including all pass products for our North American and Australian resorts.

This substantial base of pre-committed local and destination guests, revenue and visits also creates a strong foundation for in-season ancillary spending across our 40 mountain resorts in North America and Australia. For the full pass sales season, the business achieved strong unit growth from renewing pass holders, especially guests in destination and international markets, including strong renewals among those who are new to our pass program last year. Our strongest growth occurred in destination markets, which represents the largest addressable market for conversion of guests into advanced commitment and is a particularly attractive guest segment given the higher ancillary attachment. Our Epic Day Pass continues to be our highest growth product segment, targeting the large market of lower frequency skiers into advanced commitment and particularly destination guests with valuable ancillary spend.

Our local markets also grew over the prior year in excess of our expectations, remaining a critical foundation for our advanced commitment strategy and are the most developed and highly penetrated markets. Sales of Epic and Epic Local passes are consistent with our expectations and with the trends seen in our September results, with unit sales declining by 12% relative to the prior year and increasing 39% over the last two years and 55% over the last three years. This represents substantial growth in our highest priced products and among our most penetrated high frequency skier segment. And we expected this year’s performance as a result of the significant growth after last year’s price reset. We continue to expect that the majority of the future growth in advanced commitment will come from the large and attractive addressable market of destination guests, primarily through transitioning lower frequency lift ticket guests into Epic Day Pass products and transitioning guests at our local and regional resorts into advanced commitment.

Pass sales dollars continue to benefit from the 7.5% initial price increase and subsequent incremental price increases relative to the 2021 and 2022 season, offset by the mixed impact from the growth of new pass holders purchasing Epic Day Pass products. This year, net migration among renewing pass holders is in line with our expectations of a 4% decline year-over-year, following last year’s positive 10% net migration that resulted from pass holders trading up to higher value products with more access following the price reset. We proactively use the breadth of our product line and our data to retain guests in the advanced commitment program by offering and in certain cases, encouraging them to purchase lower priced products to best suit their needs based on their behavior.

We are pleased that over the last three years, we have maintained renewal rates among our unlimited pass holders, including Epic, Epic Local and Unlimited Regional passes, while growing these pass holders almost 75% during that time period. As previously announced, we completed a multi-year extension of our pass partnership with Telluride Ski & Golf and are pleased to continue offering Epic Pass our four to seven day Epic Day Pass with all resort access and Epic Adaptive Pass guests access to Telluride. Starting next winter for the 2023/2024 North American ski season, reservations will be required for pass holders skiing or riding at Telluride. Reservations will not be required for pass holders visiting Telluride in the 2022/2023 North American ski season, and more details will be provided in advance of next season.

Heading into the 2022/2023 North American ski season, we are pleased with our significant base of committed guests that provide meaningful stability for our company, especially during economic uncertainty. We have strong early season conditions at our resorts in the Rockies and West and typical seasonal variability at our resorts in the East. While our mountain resorts have not yet completed hiring for the winter season, we are on track to have the staff needed to achieve full operation of lifts and mountain terrain and deliver normal operations of important guest experiences such as our restaurants, lodging, ski and ride school, and rental and retail locations. Hiring is still ongoing and a top priority as our mountain resort teams focus on hiring for specific roles and continue hiring to manage staffing needs that occur throughout the season.

Looking forward, we are pleased with lodging booking trends for the upcoming season, which are consistent with pre-COVID-19 levels. We are also seeing lodging bookings that indicate visitation patterns may shift this year from the December holiday period into January through April. We are pleased to welcome guests to all of our resorts as the 2022-2023 North American and European ski season kickoff with significant investments in the guest experience, including 18 new or replacement lifts across 12 resorts, which will meaningfully increase lift capacity and reduce wait times at those lift locations. At Vail Mountain, this includes the installation of a new four-person high speed lift in the Sun Down Bowl and replacement of a four-person lift with a new six-person high speed lift in the Game Creek Bowl.

At Whistler Blackcomb, this includes the replacement of the four-person high speed Big Red Express lift with a new six-person high speed lift and replacement of the six-person Creekside Gondola with a new 10-person high speed Gondola. As discussed in prior announcements, this also includes the installation of new or replacement lifts at Breckenridge, Northstar, Heavenly, Stowe, Mount Snow, Attitash, Jack Frost, Big Boulder, Boston Mills and Brandywine. Now I would like to turn the call over to Michael to further discuss our financial results and fiscal 2023 outlook.

Michael Barkin: Thanks, Kirsten, and good afternoon and good morning. As Kirsten mentioned, we’re pleased with our first fiscal quarter performance. Net loss attributable to Vail Resorts was $137 million for the first quarter of fiscal 2023, compared to a net loss attributable to Vail Resorts of $139.3 million in the prior year. Resort reported EBITDA was a loss of $96.5 million in the first quarter of fiscal 2023, compared to resort reported EBITDA loss of $108.4 million in the prior year. This increase is primarily due to the greater impact of COVID-19 and related limitations and restrictions on results in the prior year. Our balance sheet and liquidity position remains strong. Our total cash and revolver availability as of October 31, 2022 was approximately $1.8 billion with $1.2 billion of cash on hand, $417 million U.S. revolver availability under the Vail Holdings credit agreement and $207 million of revolver availability under the Whistler credit agreement.

As of October 31, 2022, our net debt was two times trailing 12-months total reported EBITDA. The company declared a quarterly cash dividend of $1.91 per share of Vail Resorts common stock that will be payable on January 10, 2023 to shareholders of record on December 27, 2022. We will continue to be disciplined stewards of our capital and remain committed to continuous investment in our people, strategic high return capital projects, strategic acquisition opportunities and returning capital to our shareholders through our quarterly dividend and share repurchase program. Moving now to our fiscal 2023 outlook. We are encouraged by the strength of our pass sales, the strong early season conditions for our Mountain Resorts and the Rockies and the West, and staffing levels, which are on track to deliver an outstanding guest experience.

We are reaffirming our fiscal 2023 guidance for net income attributable to Vail Resorts of $321 million to $396 million and resort reported EBITDA guidance of $893 million to $947 million that was included in our September earnings release. Assuming a continuation of the current economic environment, normal weather conditions and no material impacts associated with COVID-19, for the 2022/2023 North American and European ski season or the 2023 Australian ski season. It is important to note that there continues to be uncertainty around the economic outlook and the impact that may have on travel and consumer behavior as we head into our primary operating season. Our guidance includes an estimated $4 million of acquisition and integration related expenses in fiscal year 2023 associated with the acquisitions of the Seven Springs Resorts and our majority ownership in Andermatt-Sedrun.

Foreign exchange rates have experienced recent volatility. The guidance assumes the foreign currency exchange rates as of our original September 2022 guidance. Relative to the fiscal 2023 guidance, if the exchange rates as of Wednesday, December 7th, 2022 of $0.73 between the Canadian dollar and U.S. dollar related to the operations of Whistler Blackcomb in Canada, $0.67 between the Australian dollar and U.S. dollar related to the operations of Perisher, Falls Creek and Hotham in Australia and $1.06 between the Swiss franc and U.S. dollar related to the operations of Andermatt-Sedrun in Switzerland were to continue for the remainder of the fiscal year. We expect this would have an impact on fiscal 2023 guidance of approximately negative $6 million for resort reported EBITDA.

I’ll now turn the call back over to Kirsten.

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Kirsten Lynch: Thank you, Michael. We remain dedicated to delivering an exceptional guest experience and we’ll continue to prioritize reinvesting in the experience at our resorts, including consistently increasing capacity through lift, terrain and food and beverage expansion projects. As announced in September, the company expects to invest approximately $180 million to $185 million in calendar year 2023 capital expenditures, excluding one-time investments related to integration activities, deferred capital associated with the Keystone and Park City projects and $13 million of growth capital investments at Andermatt-Sedrun. At Keystone, we plan to complete the transformational lift served terrain expansion project in Bergman Bowl, increasing lift-served terrain by 555 acres with the addition of a new six-person high speed lift.

At Whistler Blackcomb, we plan to replace the four-person high speed Jersey Cream lift with a new six-person high speed lift and replace the four-person high speed Fitzsimmons lift with a new eight-person high speed lift. At Breckenridge, we plan to upgrade the Peak 8 base area to enhance the beginner and children’s experience and increase uphill capacity from this popular base area. The investment plan includes a new four-person high speed 5-Chair to replace the existing two-person fixed-grip lift, as well as significant improvements, including new teaching terrain and a transport carpet from the base, to make the beginner experience more accessible. At Stevens Pass, we are planning to replace the two-person fixed-grip Kehr’s Chair lift with a new four-person lift, which is designed to improve out-of-base capacity and guest experience.

At Attitash, we plan to replace the three-person fixed-grip Summit Triple lift with a new four-person high speed lift to increase uphill capacity and reduce guests’ time on the longest lift at the resort. These lift projects are subject to regulatory approvals and are currently planned to be completed in time for the 2023/2024 North American winter season. Additionally, the Company plans to expand parking across four resorts by more than 500 spaces, to improve the guest experience. The Company is planning to introduce new technology for the 2023/2024 North American ski season that will allow guests to store their pass product or lift ticket directly on their phone and scan at lifts hands-free, eliminating the need for carrying plastic cards, visiting the ticket window or waiting to receive a pass or lift ticket in the mail.

Once loaded on their phones, guests can store their phone in their pocket, and get scanned hands free in the lift line using Bluetooth Low Energy technology. In addition to the significant enhancement of the guest experience, this technology will also reduce waste of printing plastic cards for pass products and lift tickets, and RFID chips, as a part of the Company’s Commitment to Zero. Even after launch, the Company will continue to make plastic cards available to any guests, who cannot or do not want to use their phone to store their pass product or lift ticket. The Company is also investing in network-wide scalable technology that will enhance our analytics, e-commerce and guest engagement tools to improve our ability to target our guest outreach, personalize messages and improve conversion.

In addition to these investments, we are pleased to announce plans to invest approximately $13 million at Andermatt-Sedrun in high-impact growth capital projects as an initial step in a multi-year strategic growth investment plan to enhance the guest experience on the mountain, which will be funded by the CHF110 million capital that was invested as part of the purchase of our majority stake in Andermatt-Sedrun. As part of the calendar year 2023 investments, we are planning to upgrade and expand Sedrun’s snowmaking to enhance the experience for key intermediate terrain. In addition, we plan to enhance the on-mountain dining experience with renovations to the Milez and Natschen restaurants and replacement of the Valtgeva restaurant. These investments are expected to be completed ahead of the 2023/2024 European ski season and remain subject to regulatory approvals.

Including $1 million of one-time investments related to integration activities, $10 million of deferred capital associated with the Keystone and Park City projects, and $13 million of growth capital investments at Andermatt-Sedrun, our total capital plan for calendar year 2023 is expected to be approximately $204 million to $209 million. We will provide further detail on our calendar year 2023 capital plan in March 2023. In 2017 Vail Resorts announced an ambitious plan to take action to address our direct impact with a commitment to achieve zero net operating footprint by 2030, including zero net emissions, zero waste to landfill, and zero net operating impact on forests and habitat. As recently announced in our EpicPromise Progress Report, we are pleased to be on track to achieve a zero net operating footprint by 2030 and have achieved 100% renewable electricity across our North American mountain resorts within the past fiscal year.

The Company is ahead of schedule to meet its emissions goals, and is on track to reach zero waste to landfill and zero net operating impact on forests and habitats to achieve a zero net operating footprint by 2030. We remain dedicated to doing our part as responsible stewards of the great outdoors and committed partners to our communities. More information about our Commitment to Zero and efforts towards sustainability can be found at EpicPromise.com. As announced last week, we are pleased to welcome Angela Korch back to Vail Resorts as our Executive Vice President and Chief Financial Officer, effective December 22, 2022. Angela rejoins Vail Resorts from CorePower Yoga, where she served as Chief Financial Officer since May 2020, after previously spending more than a decade in successive leadership roles within Vail Resorts’ finance organization, working closely with our current CFO, Michael Barkin.

Angela originally joined Vail Resorts in 2010 and was most recently in the role of Vice President of Corporate & Mountain Finance, responsible for supporting the company’s mountain division during a rapid expansion of its resort network. During her tenure, she managed financial and capital allocation strategies, transformed core processes, and played an integral role in the integration of 32 mountain resorts. Angela is a strong leader with deep experience in our industry, a passion for our sport, and a long history with our company. I wanted to take this moment to thank Michael Barkin for his service to the company. After 10-years with the company and nine years as CFO, Michael will be stepping down to pursue personal goals effective January 1, 2023.

Michael has played a central role in the Company’s national and global expansion, including the acquisition and integration of 34 resorts across four countries. Michael has built a best-in-class finance organization that has allowed Vail Resorts to grow and scale successfully. On a personal level, I will miss Michael tremendously. He has been a strategic thought partner and my friend for the past 10-years. I am grateful for his work to build an outstanding team of finance leaders, including our new CFO, Angela Korch, who will help lead our company into the future. Michael will be greatly missed. And on behalf of the company, I want to express my sincere gratitude to Michael, for his 10-years of service and leadership. In closing, I would like to thank all of our employees especially our frontline team for their passion, hard work, and commitment to creating an experience of a lifetime for our guests.

The guest experience that our employees create is our mission as a company and lies at the center of our success. We all look forward to welcoming skiers and riders back to our mountain resorts this winter season. At this time, Michael and I will be happy to answer your questions. Operator, we are now ready for questions.

Q&A Session

Operator: We’ll take our first question from Shaun Kelley with Bank of America.

Shaun Kelley: Hi, good morning, everyone. Michael maybe just start with thanking you for all your help, your guidance, maybe a little bit of your patience over the years, best wishes in your next venture here.

Michael Barkin: Thanks so much, Shaun.

Shaun Kelley: To Kirsten, if we were going to kind of dig into one thing that was kind of new on this release, I think it would probably be around some of your commentary on the lodging bookings. So could we expand on that a little bit specifically the comment around, sort of, the patterns that you’re seeing around the December holiday period this year? And sort of I think the perspective that a lot of questions we’re receiving have to do with, is there an issue or something that’s kind of changing the pattern around either the fiscal second quarter specifically around the holiday? Or is this sort of a kind of more natural yield management just as that period is always full and people are booking, kind of, further out in the pattern you’re able to track kind of similar people? Just help us understand that comment and what you’re getting at a little bit more there?

Kirsten Lynch: Thank you, Sean. Yes, regarding our pacing on the books and bookings, they look good versus pre-COVID levels and we’re pleased to see that, so that’s in total. As noted, there we are seeing some shift in the timing within that and between December into January through April and wanted to be transparent about that. The pacing for the entire season is looking strong and good at this point. And as, you know, we noted last year, we have seen more of a move to off peak, which we consider to be a positive. It’s still early in the season, but wanted to note that we’re seeing some shifting within the total bookings from December into January through April.

Shaun Kelley: That’s helpful. And then, curious to maybe just to, kind of, push or dig a little further on that. We talk about bookings or pacing. Are we talking about, sort of, nights and volumes? Or are we in including — are we talking about dollars? So are we including rate increases? Obviously for those of us who, kind of, focus on lots of leisure categories, pricing it up quite dramatically in most leisure activities out there? So help us think about are we talking volume or dollars, because we would think that probably dollars should be doing materially better than just bookings?

Kirsten Lynch: Yes. To clarify, Shaun, I am not referring to dollars, I am talking about occupancy.

Shaun Kelley: Great. Thank you very much.

Kirsten Lynch: Thanks, Shaun.

Operator: We’ll take our next question from Ben Chaiken with Credit Suisse.

Ben Chaiken: Hey, how’s it going? Michael, just want to echo Shaun, say good luck with whatever comes next. It’s been a pleasure and hopefully you can personally boost the FY ’23 skier visit number.

Michael Barkin: Thanks.

Ben Chaiken: With regards to ancillary, there seems to be a push to move skiers into advanced ticket options, especially the lower frequency, presumably this brings you closer to a very valuable customer and thus better situate you to drive ancillary spend. I guess the two questions on that would be when you look at the existing base of lower frequency skiers that you have, this may be tough, but how underpenetrated do you think you are? Is that something you can quantify? Have you done it like internally and then set in? What — can you kind of just talk about the levers you can pull once that advanced decision has been made? Is it as simple as email? I guess the question is basically saying like after the advanced purchase decision has been made by the customer, is that enough? Or is there still more work on your end? And then my frame of reference for these questions is again the lower frequency guests with the advanced purchase decision? Thanks.