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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, everyone. And welcome to the Vail Resorts Third Quarter Fiscal 2018 Earnings Conference. Today's call is being recorded. And now, I'd like to turn the call 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 and we undertake no duty to update them as actual events unfold.
Today's remarks also include certain non-GAAP financial measures. Reconciliations of those 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 Web site 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 vacation 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 highlight 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 would 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 1.5 times 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, the 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 three resorts have with Ski Resorts 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 to 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 four resorts is an important strategic addition to our network and our season pass products, providing more choice and access to our pass holders 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 in a historic town experience. Finally, Stevens Pass is a great addition to Whistler Blackcomb for our Pacific Northwest skiers with outstanding skiing, just a two hour drive from Seattle.
Subsequent to the closing of the two transactions and incremental to our normal rate of capital expenditures, we plan to invest $35 million over the following two years to continue to elevate the guest experience across the four resorts. In addition, annual ongoing capital expenditures are expected to increase in the aggregate by $7 million to support the addition of these four resorts.
Given our performance to-date this year, we expect our fiscal 2018 resort reported EBITDA will finish the year of 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 products, 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 we’ll 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 pass holders 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, one-time integration related capital expenditures, and capital investments associated with third-party reimbursement.
We will be completing the $40 million transformational Whistler Blackcomb plan, which includes the new signature Blackcomb gondola, the new 6% high-speed emerald chair and the new 4% high-speed Catskinner.
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 two restaurant upgrades. These projects along with the galaxy chair upgrade at Heavenly heavenly, and several important enterprise wide technology products continue our efforts to enhance the experience for our guest 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 how you’re thinking pass sales are going to play out through the balance of the year? In the past, you’ve seen some seasons where 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, what's your expectations as we move through the balance of the selling period?
I think, first of all, it certainly bears repeating that we think these are really strong results for the spring selling season, and I'd 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 back 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’re hoping to get a little bit more color on was that comment on the spring growth, including some pass holders 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?
We actually have that dynamic every single year. So every year, right we are constantly pulling people that's one of our core strategies really is to get people not just to buy season pass, but even if they are 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 have 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, but then we also have the new acquisitions. So a little bit of a repetition to 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 as on the higher end given that we know your weighted average price increase is a lot closer to maybe 4 to 6.
I think, absolutely, a mix shift, because obviously you can see the -- you can obviously do the math as you just said on kind of the pass-to-pass increase, which was lower, right than our -- than 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 the 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 just switching gears to the acquisitions. So clearly, doing four Mountains, two 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’s 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 then maybe a couple of others that have targeted markets we didn’t know about like Stevens Pass. So what’s you sense? And specifically, do people start to increasing need to affiliate or resorts need to affiliate with yourself or the other large, let’s call it network pass product to be successful as ski operators?
I think, I would say that to answer the first question, I think we absolutely believe there are 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 actually -- we feel very good about that. And obviously, as time goes on, the ability to identify assets 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 corresponding those outcomes we have to be even more selective, I think at this point. And there are opportunities those we’ve talked about outside of North America that I think we can start to have some other 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 stand alone there benefits to being standalone and aligning maybe with a pass product. And I think there are also benefits in becoming part of a company like us.
I do think with increased weather volatility with other challenges ski that resort phase with the opportunities, positive opportunities that are provided by more sophisticated marketing and being part of a larger network, we do feel that this geographic diversity and the alignment that we can bring to resorts is a very powerful formula into driving success within our industry. It 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.
I want to ask you follow-up on the on the Triple Peaks and Stevens Pass acquisitions. And I know you bought Whistler, getting access to that customer data was a really big deal. Can you just tell us if you’ll get similar access here? And I know it's small numbers, but maybe how that positions you to capture more of the northeastern skier?
Absolutely, I think that’s an important part of the acquisitions, and each one of these resorts has a certain amount of data that that are certain parts of the transaction. But 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 that might have had over the last five years, it's the data capture that will come in over the next five years.
And so that's -- I think, that's certainly true with Whistler Blackcomb as well. So there was certainly a certain amount of data. But as we've talked about, it wasn't necessarily a bigger priority for them as it is for us. And that really allows us to be just much more personalized with our guests in terms of how we communicate much more direct, so we can talk to them and have conversations truly one-to-one. And each of these acquisitions really provides that opportunity for us going forward.
I just want to ask as you plan for the upcoming ski season. Is there going to be any incremental investment on labor side in terms of housing or anything you can tell us at this point?
I think we are very focused on continuing to improve the employee value proposition of working into our 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 us after what the timing of that will be, because a lot of that is based upon some of the same regulatory process as 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.
One final follow up if could on the recent acquisitions. Is that $35 million of EBITDA -- for fiscal '19, is that your vision of a fully baked number with revenue and expense synergies you might find or is that just an initial for next year?
I think the way we would characterize is very much a year one EBITDA. 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 resort. So we would expect to get returns from that overtime. 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 one number, and we'll take it from there.
And we'll go next to Anthony Powell at Barclays. Please go ahead.
Could you talk about the process of how you got from a partnership with the owners of Okemo to the deal? And could that process be replicated with future partnerships?
I think these deals, like we've talked about for years are in this industry, are about building 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 consider the strategic opportunity to partner together that transformed into 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 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 your 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.
Did anything change in the three months since Mercer, or was this always the idea and both parties?
I am not going to comment on the details of how the transaction unfolded, but which it say that it was absolutely part of the relationship and strategic discussions that we have with the Mueller family.
And the multiple loan deals seem attractive relative to the Whistler deal and the [indiscernible] deal. Is that pricing, say in that times for EBITDA all in at that, what you can achieve going forward, or is this a special situation?
No, I think 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 in our expected $5 million plus of EBITDA on that deal. So I think 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 anymore 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 the coming over from competing passes? Are they former Epic holders? Are they skies at some of the new partners, the resorts you’ve added this year? I know you’re not going to give any specific. But just big picture, any color on who the skiers and if there’s a group or two that stand out being a big driver for growth.
We certainly don’t know when somebody joins our path with any precision or detail, whether or not they were on somebody else’s pass, last year. We have general understanding from our research that there are people who sometimes move back and forth between the products based upon what resorts they’re planning to go to in the upcoming season. We do know that there are a lot of skiers out there who what we call 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 is no doubt that that is a component of our season pass growth, so a little bit again hard to see that day-in and day-out when we get our results 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 the last couple of years, that is obviously a very important market for us. These are people who have already been to one of our resorts. And therefore might -- would be the highest probability of considering a pass for us.
I think yes, we also have prior year left like somebody might have had path last year, or two years before, that's an important component. And I think the good news is we are still seeing a lot of what we call prospect growth, which is people who are truly new to the program. And I think we're seeing growth and new additions on all of those. And then honestly there is another piece that's just keeping more folks in the pass who were a pass over the last year.
So minimizing the lapse rate, so to speak, of people who were there last year, and I think all of those factors combined to drive that growth rate, including as we talked about earlier, moving -- when you're just looking at the spring, obviously, a part of that growth is also folks who were pass holders last year, but have purchased in the fall. So all of those things contribute to how we drive our growth.
I guess, just talk on the last point there. One thing we've seen companies and other industries that offer season pass is it’s talked about moving towards a monthly membership to help with retention. Is that something you guys would be interrupted and doing or testing at some point, or does that not a point for 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 begin. 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. And I think our -- all of our season pass products, 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 travel.
And so to the extent that we're offering that, it is because we want people to make that commitment before the season begins. We 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 during the spring of $49 down, we think 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 feel like we have fine tuned a little bit this facet 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. 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.
And then just last question from 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 unit of growth, is it just a function of mix of skiing late in the year, or any thoughts there would be great?
Our lodging business is more concentrated geographically. So it certainly has more concentration, particularly in Colorado. We did see a rebound, but there 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 businesses is 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 and in future years, because in the theory, create some additional pricing room for you from a competitive standpoint, but also from a broader industry standpoint?
I would say -- I’m certainly not going to comment on future pricing per se. but I would say that we spend a lot of time really analyzing and studying the connection that we have to our pass holders. 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 got that relationship in the right spot. Obviously, we do pay attention to other competitors and what they're doing on the 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 pass holders and our potential pass holders. And from that standpoint, it's just so critical to ensure that we retain that best value proposition. And so I would say as we go forward we’ll continue to keep our eyes open as to what's going on but we’re unlikely to necessarily move off of the key strategies that we have for long-time.
And lastly following up on earlier question -- answer you gave. Can you provide a little bit more color on the $35 million capital that you plan to put in to the recent acquisitions over the next two years? Is this more growth type capital? Is it catch-up maintenance capital, after maybe some years of underinvestment, just trying to get a sense of the return profile of that $35 million?
I would say we’re still early in the evaluation of that. I mean we sized that, we think appropriately, for the kinds of opportunities we have to improve the experience at across those four 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’ll 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 good bye.
And ladies and gentlemen, once again, that does conclude today’s conference. Again, I would like to thank everyone for joining us today.