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Good day and welcome to the Vail Resort Fourth Quarter Fiscal 2020 Earnings Call. Today’s conference is being recorded. [Operator Instructions]
At this time, I would like to turn the conference over to CEO, Rob Katz. Please go ahead, sir.
Thank you. Good afternoon, everyone. Welcome to our fiscal 2020 year-end earnings conference call. Joining me on the call this afternoon 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 afternoon along with our remarks on this call are made as of today September 24, 2020 and we undertake no duty to update them as actual events unfold. Today's remarks also include certain non-GAAP financial measures. The reconciliations of these measures are provided in the tables included with our press release which along with our annual report on Form 10-K were filed this afternoon 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 fiscal 2020 and fourth quarter results. Our results for the full year were negatively impacted by COVID-19 and the resulting closure of our North American destination mountain resorts and regional ski areas beginning on March 15, 2020, a decision we made for the safety of our guests, employees, and resort communities.
In addition, Resort Reported EBITDA for the year was negatively impacted by the deferral of approximately $118 million of pass product revenue and related deferred costs to fiscal 2021 as a result of pass holder credits offered to 2019-2020 North American pass holders to encourage renewal for the 2020-2021 season.
Following the resort closures and throughout the remainder of the year, we implemented a number of actions to enhance our liquidity and reduce costs, including raising $600 million through the issuance of unsecured senior notes, suspending our dividend for a cash savings of over $70 million per quarter, reducing our capital plan for calendar year 2020 by approximately $80 million to $85 million, and executing significant reductions in our operating expenses.
Our results for the fourth quarter continued to be negatively impacted by COVID-19, with the majority of our North American summer and Australian ski season operations not opening until late June and early July.
In Australia, we opened Perisher on June 24, 2020, and Hotham and Falls Creek on July 6, 2020, and decided to subsequently close Hotham and Falls Creek on July 9, 2020, following the issuance of stay-at-home orders by the Victorian government on July 8, 2020. At Perisher, our operations were negatively impacted by poor snowfall, resulting in limited terrain and, as a result, limited guest capacity for a portion of July.
In North America, our U.S. resort communities experienced increasing demand from leisure travelers throughout the month of July, with group demand negatively impacted by COVID-19-related disruptions. At Whistler Blackcomb, demand in July was below our expectations due in part to travel restrictions, with the Canadian border closed to international guests, including guests from the U.S.
We maintained rigorous cost and liquidity controls throughout the quarter. Resort net revenue for the fourth quarter declined $167 million compared to the prior year, while Resort Reported EBITDA declined $43 million over the same time period, reflecting $124 million in net cost reductions driven by a combination of reduced seasonal labor and expenses, as well as significant overhead cost-saving actions.
Turning to our operating plans for the upcoming North American ski season. We were pleased with the visitation we saw this summer at our US resort communities from leisure travelers. We believe this speaks to the current preference of travelers for outdoor experiences, locations they are familiar with and, for many, the option to drive to our resorts.
As we approach the 2020/2021 North American ski season, we are committed to providing a comprehensive on-mountain experience that is consistent with our historical practice of opening as many lifts and as much terrain as soon as possible.
We will be focused on the guest experience while also prioritizing the health and safety of our guests, employees, and resort communities. On August 27, 2020, we announced an operating plan that we believe will enable us to operate safely and consistently across our 34 North American ski resorts throughout the season, including the implementation of a reservation system for our guests that gives preference to our pass holders, limitations on lift ticket sales, limitations on our dining facilities, and other changes to our operations.
We expect these operating plans will help enable a safe and successful ski season but will also negatively impact our fiscal 2021 financial results. It is difficult at this time to fully assess the financial impact we may experience related to our operational and capacity plans, given continued uncertainty regarding the ultimate visitation to our resorts and any positive or negative changes which may be required to our operations based on new information and potential impacts from COVID-19.
Turning now to our 2020/2021 season pass sales. Given the challenging circumstances surrounding the impacts of COVID-19, we are very pleased with the results of our season pass sales to date. Season pass sales through September 18, 2020 for the upcoming 2020/2021 North American ski season increased approximately 18% in units and decreased approximately 4% in sales dollars, as compared to the period in the prior year through September 20, 2019, with sales dollars for this year reduced by the value of the redeemed credits provided to 2019/2020 North American pass holders.
Without deducting for the value of the redeemed credits, sales dollars increased approximately 24% compared to the prior year. Through September 18, we have sold a total of approximately 850,000 passes for the upcoming North American ski season, which compares to approximately 1.14 million total passes sold for the North American season last year through December 2, 2019.
We remain committed to providing the best value for all skiers and riders through our Epic Pass and Epic Day Pass advanced commitment products. As previously disclosed, we offered our 2019/2020 pass holders credits for the 2020/2021 season ranging from a minimum of 20% to a maximum of 80% for season pass holders, with no minimum but up to 80% for multi-day pass products such as the Epic Day Pass, and deferred approximately $121 million of season pass revenue from fiscal 2020 to fiscal 2021.
We believe our results through our September deadline demonstrate the loyalty of our guest base to the experience we offer at our resorts despite the travel challenges presented by COVID-19, the success of the pass holder credits offered to 2019/2020 to incent renewal, the introduction of Epic Coverage, the introduction of Epic Mountain Rewards, the additional time provided to guests to make their purchase decision, and our operating plans demonstrating our commitment to the safety of our guests.
Most importantly, we saw very strong unit growth in our destination markets with particular strength in our Northeast markets, benefiting from our continued momentum from those guests and the first full-year peak resorts in our season pass network.
We saw solid unit growth in our Colorado, Utah, Northern California, and Whistler markets. The primary driver of our unit growth was from renewing pass holders, and we believe the deadline for utilizing credits clearly drove an earlier season pass purchase for many of our renewing guests.
Total units renewed to-date are in excess of the total amount of renewals we saw last year. We were also pleased with past sales to new pass holders, which represent a substantial portion of our sales through the September deadline, and while lower than last year, it is encouraging to see guests move into the program this year given the current circumstances.
Through September 18, 2020, pass holders have used a total of $106 million of the aggregate credits we made available in comparison to the deferral of pass revenue from fiscal 2020 of $121 million.
As we enter the final period for season pass sales, we expect unit sales from September 19, 2020, through our December 2020 deadline will be lower than unit sales in the comparable period last year. And we expect our total unit sales will finish at or around last year's sales, setting a very strong foundation of pass holders to drive revenue in the upcoming season.
The decline in growth rate for the final period of sales is expected to be primarily driven by the pull forward of renewals to our September 17, 2020 deadline, given the expiration of the renewal credits. And potential declines in new pass holders with the continued uncertainty related to COVID-19 and its impact on the travel market.
It is important to remember that we've expanded Epic Coverage this year and we will see an increase in full or partial refunds based on pass holders who do not get their preferred priority reservations, guests who suffer an injury or other qualifying personal claim or if we close one or more of our ski resorts due to events such as COVID-19.
Our reported season pass growth rates do not include pending unprocessed transactions associated with approximately 71,000 online forms submitted around the deadline from guests that include transactions that could not be processed online, such as using a credit to purchase a lower price pass from what the guest had in 2019-2020.
Additionally, we received approximately 4,000 online forms requesting refunds of an earlier purchase of a 2020-2021 pass which have not yet been processed and are not reflected in our reported pass growth rates.
Collectively, these unprocessed forms could increase the growth rates we are reporting as we complete their requested transactions. Estimates of how these pending transactions will translate to sales are included in the full year expectations we have for the pass program mentioned above.
Pass sales results are adjusted to eliminate the impact of foreign currency by applying an exchange rate of $0.76 between the Canadian dollar and US dollar in both periods for Whistler Blackcomb sales. The season pass revenue deferral is an estimate and the actual amount of pass holder redemptions will differ from the amount of pass credit deferred revenue recognized during fiscal 2021.
Now, I would like to turn the call over to Michael to further discuss our financial results, liquidity and fiscal 2021 outlook.
Thanks, Rob, and good afternoon, everyone.
As Rob mentioned, our results for the fiscal year were significantly impacted by COVID-19 and the resulting closure of our North American mountain resorts. Net income attributable to Vail Resorts was $98.8 million or $2.42 per diluted share for the fiscal year 2020, compared to net income of $301.2 million or $7.32 per diluted share in the prior fiscal year.
Resorts reported EBITDA was $503.3 million for fiscal year 2020 compared to Resort Reported EBITDA of $706.7 million in the prior fiscal year, primarily as a result of the negative impacts of COVID-19, partially offset by the cost actions implemented.
Our liquidity position remained strong with total cash and revolver availability as of August 31, 2020 of approximately $953 million with $360 million of cash on hand, $419 million of US revolver availability under the Vail Holdings Credit Agreement and $174 million of revolver availability under the Whistler Credit Agreement.
As of July 31, 2020, our net debt was 4.1 times trailing 12 months total reported EBITDA. As previously disclosed on May 4, 2020, we completed an offering of $600 million in aggregate principal amount of 6.25% unsecured senior notes due 2025, a portion of which was utilized to pay down the outstanding balance of our U.S. revolver under the Vail Holdings Credit Agreement in its entirety.
Additionally, on April 28, 2020, we entered into an amendment to the Vail Holdings Credit Agreement, providing among other terms that we will be exempt from complying with the agreements financial maintenance covenants for each of the fiscal quarters ending July 31, 2020 through January 31, 2022, unless we make a onetime irrevocable election to terminate such exemption period prior to such date.
We continue to expect to have sufficient liquidity to fund operations through at least the 2021-2022 ski season, even in the event of extended resort shutdowns.
Moving now to our fiscal 2021 outlook, given the uncertainty across the economy and the challenge COVID-19 has created for travel demand, and specifically our assessment of the ultimate visitation to our resorts with evolving demand and capacity dynamics, the company will not be providing full-year guidance for fiscal 2021 at this time.
With that said, we are very pleased with the results of our season pass sales to-date and the indication that may provide on the loyalty and commitment of our guests to our resorts, even in the current environment.
Given the broader dynamics in the travel industry, we do expect to see material declines in visitation to our resorts and associated revenue declines in fiscal 2021 relative to our original visitation expectations for fiscal 2020, primarily as a result of expected declines in visitation from non-pass lift ticket purchases.
On a relative basis, we do expect stronger visitation from local and drive-to guests this season than guests who traditionally fly to our resorts. We also expect stronger visitation from repeat guests versus new guests and infrequent skiers and riders. We expect more significant declines in international travel, which will have a particularly challenging impact at Whistler Blackcomb where approximately 50% of visits typically come from outside of Canada.
Given the expected outsized impact to destination visitation, we expect material declines for our ancillary lines of business, including ski school food and beverage, and retail rental that tend to rely more heavily on our destination guests. Food and beverage is also expected to be negatively impacted by capacity constraints on our dining operations.
We are focused on disciplined cost management to efficiently operate the business. As previously mentioned, we plan to operate all of our North American resorts with a full terrain footprint, consistent with historical practices and conditions permitting, in order to ensure a comprehensive guest experience, to maximize our on-mountain capacity and to invest in the long-term loyalty of our pass holders and lift ticket guests.
However, given our lower expected visitation and revenue for the upcoming year, we have continued to actively manage our cost structure, including but not limited to the implementation of cost reductions totaling over $70 million on an annualized basis as compared to our original operating expense expectations for fiscal 2020.
We are also actively managing our expenses in the short term where it aligns with our business levels and does not materially impact the guest experience, with savings resulting from these efforts expected to be realized in the first quarter of fiscal 2021.
In addition, there are unique headwinds this year relative to the midpoint of our original fiscal 2020 Resort Reported EBITDA guidance range provided on September 26, 2019, including an estimated $13 million impact from additional expenses in fiscal 2021 to address COVID-related operational changes, an estimated $6 million of incremental offseason EBITDA losses from Peak Resorts from August 1, 2020 to September 24, 2020 as a result of the transaction closing on September 24, 2019 and the avoidance of those losses in the prior year, and an estimated $20 million impact from the inclusion of Epic Coverage in the price of every pass product based on the estimated personal injury claims paid, administrative expenses, the elimination of premiums for that coverage and any associated renewal credits for claims that would be deferred into the 2021/2022 season.
The company expects to incur approximately $2 million of acquisition and integration-related expenses in fiscal 2021, representing an approximate $12 million reduction in those expenses relative to fiscal 2020. Even with a more efficient approach to our operations, the nature of our business and our approach to guest service creates a high level of fixed cost.
In any material revenue declines experienced in fiscal 2021 will have a large percentage decline in our Resort Reported EBITDA and will also reduce our Resort Reported EBITDA margins. As an illustrative example, relative to our original Resort net revenue guidance provided for fiscal 2020, if our Resort net revenue declined by 30% for fiscal 2021 to approximately $1.8 billion, we would expect Resort Reported EBITDA of approximately $400 million.
We would expect that an increase or decrease in revenue, within a reasonable range, from this example would result in increases or decreases to Resort Reported EBITDA of approximately 75% of the change in revenue for fiscal 2021.
Full-year guidance for fiscal 2021 at this time, given the significant uncertainty across the economy and the challenge COVID-19 has created for travel demand, operational constraints and our ability to predict visitation to our resorts. We will look to provide an update in December as we gain additional clarity on pass sales and an updated view on demand and capacity.
I'll now turn the call back over to Rob.
Thanks Michael.
We continue to be confident in the long-term prospects of our business model that is built on the loyalty of our guests, the strong lineup of season pass products that provide access to our irreplaceable network of world-class resorts and the sophisticated data-driven marketing approach we use to communicate with and attract our guests. Our strong capitalization positions us to continue to invest in our people, our resorts and the guest experience while remaining flexible to manage through the evolving circumstances caused by COVID-19.
As we head into this ski season, we are grateful to our passionate, committed employees, who we know are looking forward to providing an exceptional experience for our guests as we prepare for the upcoming season. We could not be more proud of how they have shown up during this crisis.
At this time, Michael and I would be happy to answer your questions. Operator, we are now ready for questions.
[Operator Instructions] We will take our first question from Felicia Hendrix of Barclays.
So, Rob, I mean, this is an obvious comment, but COVID has definitely obscured a lot regarding your underlying fundamentals. That said, you did talk about seeing strength in the Northeast given the Peak acquisition. So just wondering if you could talk a bit more about what you're seeing from Peak Resorts, maybe for example how many Peak Resorts pass holders have converted to Epic and clearly also having incremental drag to resorts should help mitigate the decline in Destination you expect to see this season. So any data that you can give us in terms of how Peak is driving things would be helpful? Thanks.
Sure. Yes. I guess I'd say number one, I think what's maybe most important is that our Destination markets in total including outside of the Northeast or Peak markets perform very well.
And definitely again, was our strongest segment. I think that was certainly something that was in question even outside markets where we have a drive-to option. But I think within that, within the Destination kind of category, the Northeast once again was our top performer. And I think absolutely Peak is helping that.
I also think it's - we've now had a couple of years of continuing to build on the acquisitions that started all the way back with Stowe. I think many of our core Epic products are some of our strongest. And so that was also quite heartening to us in terms of people still I think looking to purchase a product that provides access to all of our resorts. And I think that drive-to option is a great nice to have but it isn't necessarily what everybody is focused on or necessarily buying to.
And I think, yes, this was a perfect opportunity, the Peak opportunity for us right now at this time because clearly, having a second option I think is definitely a big positive in people's minds. So when we look across our Peak Resorts, absolutely seeing a bump, I can't provide specific details on that and honestly probably tough to do that until we get to the end of the selling season anyway. But I would say yes, absolutely providing an extra bump over just strong performance broadly from the Destination markets.
So did the conversion of Peak to Epic, did that surpass your internal expectations?
Yes. I would say broadly yes. I think when we - we obviously saw some of that last year as well, right? So this is a phenomenon that started last year and I think we're starting to see this year. And I think again - again, I think the market is - the strong results that we're seeing in the Northeast I think highlight the success we've had at converting people who have an interest in those resorts, and I think at this point we probably have three factors all driving that success.
One is broad destination strength. The second is just these three or four years that we've had to compound, providing people in the Northeast more options, and then absolutely Peak this past year.
Great. Thanks. And then just as my follow-up, can you just talk about the mix of season pass sales you're seeing for this selling season, just day passes versus traditional Epic pass, maybe like what it looks like now versus what it might have looked like in a normalized year, and are you seeing a trade-up or a trade-down?
And then just as kind of the follow-up on that, the second part of that, you did give data in your prepared remarks and in the press release that said on the season pass sales, you sold about 75% of last year's units. We know there's a pull forward, but just so that we can have a basis of understanding of the implications, what percent of your passes are usually sold by this time?
So I would say I think, yes, we have not put out - on the second question, we've not necessarily put out that stat, so I can't comment on that. But I would say that the - what we feel is that this - the results this year, I think, by somewhat triangulating into the overall kind of estimates that we're giving for the full year I think gives you a sense, right, of how that's likely to play out for the rest of the selling season. I think in terms of mix, what I would say is we're very pleased with the strength of the kind of Epic and Epic local season pass products.
I would say that we don't - can't really give exact commentary on any kind of downgrades at this point, because it's very possible that once we get through the 70,000 online forms that we're sent in, many of which were for a downgrade, that mix could shift.
But I would say we, at this point, without even knowing what's in those forms because they haven't been fully processed and we haven't been able to go back to the guest yet, the performance of again Epic and Epic Local has absolutely surpassed our expectations.
We will now take our next question from Shaun Kelley of the Bank of America.
Just have a couple of one or two quick clarifications, I guess, to start, I really appreciate all the additional color. I know there's a lot in here to digest and clearly it's a lot more than is usually given. So, thank you for that. My first question is on the illustrative range that you gave, Michael, in the kind of sensitivity. Just to be super clear on this. That range excludes both the deferred sales and revenue impact from that carryover from the passes from last year. Am I thinking about that right?
That would be on a reported basis for last year's guidance versus what the 2021 numbers would be on illustrative basis. So, that would include the impact of the credits in 2021 and no adjustment to the guidance for last year.
Okay. So, it does include…
We did not try to do like a same-store for that adjustment in that example, if you will.
Okay.
For the credit.
So, second question, which is also a little bit of a technical. But Rob, you hit on it a couple of times about the downgrades or the 71,000 delayed forms. Just to be more precise on that, should we think about that as these are still I guess orders, but these have not been included in the units? But these would still be units that are yet to be counted, I guess excluding the 4,000 or so refund. Is that the right way to kind of directionally think about it? Yes, they may be at a different price point or they might be for a lower products, there might be some mix shift. But from a unit perspective, are those effectively additive to the unit base or what - how should we think about that?
So, - and so what I would say is, I think with all these forms, I mean I think we really, unfortunately just could not provide a pathway online given the short time frame that we had to essentially build the entire credit process. We couldn't provide a way online for people to downgrade their past, let's say from an epic to an epic local or an epic local to an epic four day and use their credit.
And so, we've told people they have to call in to the call center or use this online forum just given the numbers that we got. Actually, we have been able to process them. And these forums include kind of what their guest wants to do, but we still need to circle back to the gas, get their credit card and actually process it.
So, at this point, we can't 100% say what those forms will translate into. And they could include - again, they certainly could include somebody going from an epic past to an epic one day, but more likely, right, are going to include things along that continuum.
And I think we're putting it out there just to highlight that it's a meaningful number, but we can't be precise on that. And the same thing is true with refunds. We've got these requests for refunds. But until we actually go to the process of processing them, we can’t be sure exactly how they will come out.
I would say that it is actually not that surprising to us given the strength of our past sales that we would see a significant number of people wanting to downgrade because every year we have people upgrading and downgrading. But to do so with a credit this year, you really have to do it through a form.
But just to be clear, right, the 71,000 is not included in the 850,000 right? So…
Correct.
…even if I'm downgrading, there's like - there's no unit incorporated today. And that would be a unit. It just hasn't been processed.
Correct. So, we - the growth rates that we announced, 850,000, none of that includes anything with the 70,000 forms of the 4,000 forms.
And then - and this is sort of the maybe the bigger-picture question. I know this is going to be tough, but you have some experience now operating with a little bit of the capacity constraints in terms of your actual amount performance, I guess, at Perisher in Australia. So, could you just give us any color even if it's extraordinarily directional about what was some of the impact that you saw when you go to this feature, where you move to more of an advanced booking reservation component, and you're probably up some lift capacity constraints that’s higher than you would normally have? Like how does that impact just volumes on the mountain to maybe give people an illustrative sense of what we could expect in an environment like that because that's probably any normal course for this coming season.
Yes. So, what I'd say is I think two things. One, that it’s important to remember about Australia, one is that actually Australia had record-low snowfall and very, very limited terrain. And so, what I would say is it gives us an example of that. And I think one of the things we took away from that experience was that the reservation system was critical for those type of moments.
But in a - I don't know that it gave us, especially for the first half of the season, really gave us a lot of insight into kind of a normal operating. I think as the season went on, at [indiscernible] we saw better and better performance overall, better performance financially, better performance in terms of how we were able to allocate capacity.
I would say I think what - we believe that actually the insights that we've taken, allow us to hone the operating plan for this year in North America much, much - to a much greater level of sophistication. There's no doubt that the biggest impact, right, is lift capacity.
And so to the extent that we're not fully loading our lift, than that is capacity that we lose, some of that could be just brought down mountain capacity. Some of that could be upload capacity right at the start of the day and making sure that we're not creating a bad guest experience for people or any kind of safety issue.
And so we think there could be some capacity impacts to that. I would say as many of you know, that they’re very - even though we tend to think about those peak days, the truth is right most of the season would not be impacted by the most likely capacity constraints that we have. Beyond the lift, I think restaurant capacity is another limiter and we do think that's not necessarily a limiter for the overall capacity on visitation for the mountain. But it is absolutely a limiter in terms of the revenue that we will see from F&B this year.
And we think that we'll both have a demand constraint on F&B in terms of potentially less people buying food or less people coming to the mountain. But we will absolutely also have a capacity constraints, some of that somewhat related to local regulations, right. And obviously, we're going to be very much subject to those in terms of what guidance we get in terms of what - the number of people we can put in our restaurants, both in terms of a percent of capacity and an absolute number. Is that good, Shaun?
We will take our next question from Chris of Deutsche Bank.
I wanted to ask you about, I think historically this time of year sometimes you've given out data points on hotel reservations in some of the Colorado resorts. I mean how relevant - are you willing to share any of those data points with us today, but also how relevant do you think they are right now given that there seems to be a shorter decision making booking window?
Yes. We don't think they're very relevant at this point. I think this is typically pretty early in the cycle and even in the best years. And clearly, I think we saw this coming out of the 2008/2009 recession. I think we're going to see it today. The booking window is obviously going to shrink quite a bit. And obviously, we are telling people that they will need a reservation to get on the mountain.
And so, we feel like we're probably not going to see the more substantial booking interest until after we put out our reservation system in early November. So, I would say we're not putting too much focus on these early booking data points.
And then can you share with us given the reservation system that's in place for the upcoming season, is that had been in place last season? Is it possible to kind of back into how many days you would have had to turn people away? I mean I assume it's a pretty small number, but wanted to ask.
Yes. We really - it's tough to give precision around that. So I think we've put out there publicly that we do believe that certainly for our season pass holders, we feel like they'll absolutely be able to access the mountain on the vast majority of days during the year and it won't be an issue.
I think it's - at this point in terms of lift ticket purchases, daily lift ticket purchases, I think that's more unknown, and I think we made clear in the release that we do think that we will see a material decline in that as we limit those sales and potentially as impulse purchases have to go down.
On the other hand, obviously some of that could ultimately help some of our sales on pass sales, right, for the remainder of our pass selling season. So we'll have to just see how that plays out. But, yes, very difficult for us to say exactly this year versus last year other than to say that, yes, we're talking about managing a handful of days throughout the year for each resort, again assuming normal weather conditions, and I think we need to put that out there. Obviously, if we have very poor conditions, then we may see the capacity restrictions be more frequent.
And just kind of a housekeeping question, how do the mechanics work for - you mentioned with the reservation system, there could be people who later request a refund. I mean, how does that work? Who's eligible for that? How do they request it? I mean, what are the mechanics behind that?
Yes. So what we're saying to people is, for our season pass holders, they get up to seven priority reservation days, so obviously the maximum of the number of days they have on their product or seven. And when we open our reservation system, people will be able to go in and get the days that they want.
If they don't, if somehow someday that they want to come is - doesn't have any capacity and they can't purchase it, they can come back to us and ask for a refund and for the whole product. And that is - and that'll happen really at the end of the reservation period, that priority reservation period which ends at the beginning of December. So, you know, we would have a pretty good sense of that probably going into final pass sales reporting on our earnings call but not 100%.
We will now take our next question from David Katz of Jefferies.
Thank you for the copious detail and the usual transparency.
Thanks.
Number one, I just want to go back to the illustrative model that you provided which I think, Michael, you said excludes any impact of carryover revenues, right. If we were to hypothetically illustrate further, adding, I think, you have $121 million of deferred pass revenue on top of what's there, what does that do to the - to net flows through at a much higher level, right, to the EBITDA line? What…
So, David, I just want to - yes, I just want to clarify the illustrative model assumes that the deferred revenue for the credits is recognized in 2021 as we’ve outlined in our prior disclosures. All we're doing is providing a reference point to the original guidance from 2020.
Right. So, the $121 million is…
The 2021 illustrative example includes an assumption of the deferred revenue being recognized this year.
Right. And is it fair to assume that that deferred revenue flows through at a very high level and raises the margin that would be in there otherwise? Is that a fair impression?
Yes. Because the deferred revenue largely mirrors, right, the revenue we would recognize in any year, right, with past sales because the credits are largely a onetime issue. So, it's really a question of when the cash was received. But from a financial statement perspective, we - our perspective on it is that that largely mirrors a normal, right, revenue profile for the business because it's essentially grossing up to normal, right, pricing levels.
And my second question, if I may, is the operating model that you've laid out, if we were to apply that to, say, last year or a hypothetical normal year, is it a fair question to ask how many visitors may have been turned away under those circumstances with this operating model? Just to get a sense of…
No.
…that kind of impact?
I think to Rob's prior comment, at this point, we really can't provide any more precision on kind of the capacity side. I think largely what we're trying to do with the - with - by providing the road map of the illustrative example is to really give you a sense of our cost structure both fixed and variable, and then - yes, give you a starting point that then people can adjust revenue based on your assumptions. And we're certainly providing our perspective that there will be material declines this year but not providing any specificity on visitation or revenue around that.
All right.
I mean, I would just add onto that to say that the illustrative example is being driven by demand, consumer demand not really being driven by capacity constraints. So other than for F&B, where that obviously that is factored in because we have a pretty clear understanding of what that's going to be.
But as he said earlier in the release of the script, we really - it's hard to quantify what the capacity impacts are going to be this year. So at this point, when you look at that illustrative model, it's really driven on demand, that's how - that said of course, whether we exclude people because of capacity limitations or there's no demand, it's obviously you know similar revenue loss.
We will take our next question from Patrick Scholes of Truist.
My questions concern the - obviously the logistical challenges with lift capacity and related to that, how do you think about potential staffing issues going into the winter specifically with international visa restrictions and potential employee’s fear of coming into the US due to COVID? How much of a challenge will that be this year?
Well, I think we are assuming that we will not be - in the US, we will not be bringing in any international visa employees for the most part, no material amount of them. And there's no doubt that that is a real loss. On the other hand, obviously, the unemployment rate is higher than it has been for the last number of years.
So, we do feel like there will be other people in the US, who would be interested in working at our resorts this year. And obviously, many of these folks might have been active in the restaurant, retail, leisure industries, elsewhere. And of course, that's where we've seen the biggest reduction right in workforce. And so, we do feel like we will be able to make up for the loss of international employees with additional hiring in the US.
And then any high level lessons or takeaways that you learned from the Australian ski season, specifically cost structures, operational issues that you will be taking forward to the North American ski season?
I think a key lesson was that it was critical for us to dial in the capacity of the resort. And we saw that in Australia. A key lesson was obviously how to manage the reservation system which in Australia we had to do very, very quickly with limited opportunity to really create a custom system and took us a while to kind of get that burned in where we feel like we've taken that. And now, we're going to be launching a much more sophisticated approach to those pieces.
We think we saw even though the restaurants are at Perisher were limited in terms of visitation. We saw a tremendous guest enthusiasm for the overall experience and people adjusted. They understood that they may or may not get into the restaurant exactly when they wanted. And they brought food and did other things to give themselves a great experience.
I think maybe as much as anything, we learn that even during COVID, there's tremendous demand and excitement for getting out to ski at the resorts. And that’s a core experience is, one, because it's outdoors and naturally has a lot of spacing and it's one that actually resonates with people, and that the lift the limitations in terms of how many people are loaded is one that they were able to execute on successfully. And we feel like we can do the same.
I look forward to the coming season. Hopefully, you'll have the cascade lift running early this year so we can use that to bypass the village and the potential lines there. So thank you in advance for that.
Absolutely. We'll make sure to do that.
We will take our next question from Alex Maroccia of Berenberg.
The website explanation of Epic Pass credits in circumstances where somebody chooses a cheaper pass makes it sound like the credit only applies to the price of the cheaper pass not the original pass. Can you just explain the mechanics of how this is going to impact deferred revenue, and should we assume that the remaining $14 million in deferred revs won't be recognized in full?
So the credit - so a couple of things. One is the way the mechanics work is that the credit that everybody got an individual unique credit. And that credit could be used in full dollar amount for an equal or greater price pass this year. If you wanted to reduce - downgrade essentially your pass, the credit was also reduced to maintain the same percentage of the purchase price that you were paying. Just one of the reasons why we couldn't do it online.
The deferred revenue that was on the balance sheet when we put that out last year was an estimate of what the total usage would be of deferred revenue this year. And we don't - until we get through the rest of these forms, we don't know what the final deferred revenue usage will be. And so we won't know that until we’ll be able to update everybody in our December release.
And then, secondly, are you expecting to change the timing of CapEx in fiscal 2021 given the potential refunds you might see with Epic coverage? And then when you resume normal CapEx, what's going to be prioritized?
So we're not - - at this point, yes, we're not really making any adjustments to CapEx in terms of capital spending, which would really happen after the season. This year, obviously, we of course are going to be monitoring the season closely.
And before we come out with any plan for calendar year 2021, we'll make sure we're incorporating what happened this year. I think we of course feel like we’ll likely be in still a conservative approach, though hopefully not as conservative as last year because the environment around COVID and travel has all improved.
And, yes, we will definitely be prioritizing, just as we always have, projects that we think will have a significant impact on the guest experience, and certainly some of the projects that we've deferred from last year to next year or this year to next year will be, yes, the top of the list in terms of what we're going to review.
We will take our next question from Paul Golding of Macquarie.
So, in looking at that $70 million figure of cost reductions over the expectations for fiscal 2020, I’m curious, what amount of that, if there’s any breakdown you can give that could indicate maybe something around marketing savings or something that we might expect to come back in following years.
And then my second question is around capacity. In the Lodging segment, any limitation there on capacity? And any expectations around how the drive-up or local predominance this season could flow through to that segment? Thanks.
Sure. On the cost savings, there is a component within that cost savings, which is marketing. At this point, yes, not going to give additional details or granularity on that. A lot of that was obviously related to feeling that the credits that we were offering to people were obviously a very big marketing incentive. And so, probably needed less marketing - external marketing expense than normal for that. And, yes, we would assume that in a normal year, we would see that marketing come back.
I would say that component of the $70 million is still on the smaller side, right? The vast majority of this does relate to our operating structure, I think, for the Resorts. And on the Lodging side, yes, we're, at this point, not anticipating any limitations on room capacity. Of course, that's always going to be subject to local regulations. So, we'll, of course, be following that.
But at this point, we're not planning on that. I think some of the activities within Lodging, we think, will certainly be less whether that's in the spa or food or other things. So, like, any other operator, but in terms of rooms, we're not, at this point, expecting a reduction because of capacity limitations.
And we will take our last question from Ryan Sundby of William Blair.
I just want to follow up on the strength in the northeast. Could you maybe talk about how much capacity maybe in terms of potential additional skier visits you could add in a normal year that the Peak mountains could take on if we do see some of the destination visitation shift kind of out of the western resorts into there? Because it does feel like maybe you're not going to see restrictions on a bigger mountain like Park City. But maybe you do see them on something like Mount Snow.
Yes. I think there's certainly - there is additional capacity we feel like we could add there. But in relation to the overall visitation in our western resorts, obviously that’s far from a one-for-one opportunity. And I think - yes, that there could be capacity limitations on that front as well. Again most of the - but we're only talking about those handful of days where there could be an issue. I'd say we also feel good because again people - there was an opportunity for people to buy a regional product in the northeast.
And again we saw real strength in Epic and Epic Local which I think tells us that people are really planning to come out west for their vacation. Obviously, of course, it's all going to be subject to COVID and what's going on with it at that time. But we do - we feel good about that. But I think the addition of Peak and Mount Snow and a couple of smaller resorts is great as an additional option, but not a capacity transfer opportunity of any material size from the west.
Got it. That makes sense. And then Rob, just kind of curious from a pass standpoint, sales I think holding up better than any of us would have expected. Do you think maybe you can give some kind of renewal discount going forward is a good idea? Do you think that’ll help kind of hook people in the passes this year?
You know there's no doubt. I think we obviously created the credit program to create loyalty. And I think we certainly saw the possibility that between people being disappointed with last season and the concerns about COVID coming into this season that there was a chance of course that the program could take a material hit. Even if our ultimate visitation for the year came out down but okay, but if we lost a lot of people from our advance commitment program, I think we were quite concerned about the loyalty piece.
And so I think we're quite proud of the sophistication that we used to put together this program. And of course, did incent loyalty in some cases, from the people who are most likely to churn, right, obviously with the - with low usage from last season. I don't think as we go forward, no, I don't - we don't think that this is necessarily something we think this was more of a unique situation because of the odd dynamics of last year. And we think going forward, we wouldn't see this again even if there were resort closures.
This year we've got a refund program in place that's very clear on what people got. And so I think we would much - we would assume that we're going to be moving much more back to the same approach that we had before. But the good news for us is that we'll be going into that return to kind of normal with a very high level of loyal and committed skiers and riders. And so that in our minds is a big win as we think about what life looks like post-COVID.
Excellent. And then just last on the dividend rates, still kind of thinking two quarters or could that straighten out?
You know, I think at this point, yes, we're not making any decisions on that. Obviously, we - there are certain restrictions in the notes that we raised. But I think we'll take it quarter by quarter. But obviously we're going to be incredibly sensitive to the dynamics and environment around the company.
And we'll make sure one, that we don't jump too early if we don't feel like we've seen real stabilization. On the other hand, I think certainly before COVID, we were quite aggressive on returning capital to shareholders and I think we would obviously go back to that once we saw the environment stabilize.
Thank you. There are no further questions in the questioning queue.
Thank you, Operator. This concludes our fiscal 2020 year-end earnings call. Thanks to everyone who joined us on the conference call today. Please feel free to contact me or Michael directly should you have any further questions. Thank you for your time this afternoon and good-bye.
Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect.