Vail Resorts, Inc. (MTN) Q1 2014 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Vail Resorts Fiscal 2014 First Quarter Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Rob Katz. Please go ahead, sir.

Thank you. Good afternoon, everyone. Welcome to our Fiscal First Quarter 2014 Earnings Conference Call. Joining me on the call this afternoon is Michael Barkin, our Chief Financial Officer. Before we start, 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 the press release that we issued this afternoon, along with our remarks today, are made as of today, December 9, 2013, and we undertake no duty to update them as actual events unfold. Today's remarks also include certain non-GAAP financial measurements. The reconciliation of these measurements is provided in the tables included with our press release and in our quarterly report on Form 10-Q filed this afternoon with the Securities and Exchange Commission and is also available on the Investor Relations section of our website at www.vailresorts.com. In addition, during this call, we will discuss results that exclude certain acquisitions and transactions in fiscal 2013, including Afton Alps, Mt. Brighton and Canyons Resort, which we will refer to, collectively, as the acquisitions. So with that said, let's turn to our first quarter fiscal 2014 results. Our first fiscal quarter is historically a loss quarter since our Mountain resorts are not open for winter ski operations during the period. The quarter is driven primarily by our late-summer Mountain activities, dining, retail and lodging operations, and administrative expenses for our year-round employees. Our Resort EBITDA loss for the quarter were consistent with our expectations and was higher than the prior year, due largely to expenses from the acquisitions. Mountain net revenue in the quarter increased 10.4% to $57.3 million, driven by growing summer visitation and associated dining revenue, strong retail activity and the impact of the acquisitions. Our Lodging segment performed well during the quarter with revenue increasing $4.7 million or 9% for the 3 months ended October 31, 2013, as compared to the same period in the prior year. Lodging revenue growth was partially offset by the negative impact of the government shutdown on Grand Teton Lodge Company that forced the park to close early. Turning to our Real Estate segment. We are very pleased with the continued level of sales activity at both of our development projects. In the first fiscal quarter, we closed on sales of 2 Ritz-Carlton Residence Vail units and one unit at One Ski Hill Place. While Real Estate Reported EBITDA was a loss of $0.4 million for the first fiscal quarter, Net Real Estate Cash Flow totaled $7.5 million. Since quarter end, we have closed on one additional One Ski Hill Place unit. I am also very pleased to announce that our Board of Directors has declared a quarterly cash dividend of Vail Resorts common stock. The quarterly dividend will be $0.2075 per share of common stock and will be payable on January 10, 2014, to shareholders of record on December 26, 2013. Turning now to our early season metrics. The season is off to a strong start with all 10 of our resorts open. Colorado has very good early season conditions with significantly more terrain than last year. Recent storms have resulted in an additional 1 to 2 feet of snow across Colorado, Tahoe and Utah, which bodes well as we head into Christmas. We are very pleased with the continued strength of our season pass results as we approach the end of our selling period. Season pass sales, including 4-packs, are up approximately 13% in units and 16% in sales dollars through December 7, 2013, compared with the similar period in the prior year and including the acquisitions in both periods. This year, season pass sales represent the largest percentage increase of the program since the introduction of the Epic Pass in 2008. These season pass results continue to demonstrate a compelling value proposition to our loyal guests, and the ongoing success of our efforts to get out our guests to commit to skiing and riding our resorts before the season begins. We continue to see strong growth in our large Colorado and Tahoe markets and also achieved good growth in our first year with a presence in Utah. Once again, our new urban ski area markets of Minneapolis and Detroit represented our best-performing destination market for pass sales. Our international markets also had strong growth with the exception of the U.K., which continues to be sluggish due to its economic challenges. We believe adding Canyons, the Urban ski areas, and our European pass partnerships to our pass products had a very positive impact on our results. As a reminder, revenue from season pass sales is recognized over the course of the second and third fiscal quarters. As we look forward to the season, we are seeing lodging bookings trending ahead of this time last year with good momentum across our properties on both occupancy and rate, particularly in Vail, Beaver Creek, Breckenridge and Canyon. Based on historical averages, less than 50% of the bookings for the winter season have been made by this time. Now I would like to turn the call over to Michael to further discuss our financial results and our fiscal 2014 outlook.

Thanks, Rob, and good afternoon, everyone. Before discussing our results and fiscal 2014 guidance, I want to remind you that you can find a full discussion of our financial results for our first quarter of fiscal 2014 ended October 31, 2013, in our quarterly report on Form 10-Q, which we filed today with the Securities and Exchange Commission. Our Form 10-Q and our earnings announcement can be found on our website at www.vailresorts.com. As Rob mentioned, we are pleased with our continued progress in our summer business in both our Mountain and Lodging operations. Mountain net revenue in the quarter increased 10.4% to $57.3 million and increased 5.9% excluding the Acquisitions driven by growing summer visitation, associated dining revenue and strong retail activity. Dining revenue increased $1.1 million or 17.1% for the 3 months ended October 31, 2013, compared to the same period in the prior year, primarily driven by the Acquisitions, which contributed $0.7 million of dining revenue. Dining revenue was also favorably impacted by improved summer visitation to our Colorado Mountain resorts, especially at Keystone, which experienced improved group business. Retail/rental revenue increased $2.2 million or 8.1% for the 3 months ended October 31, 2013, compared to the same period in the prior year, primarily due to retail revenue generated by Hoigaard's, our Minneapolis-based retail store acquired in April 2013 and the addition of our Acquisitions. Our Lodging segment revenue increased $4.7 million or 9% for the 3 months ended October 31, 2013, as compared to the same period in the prior year. Excluding the Acquisitions and payroll cost reimbursements, Lodging segment net revenue increased $1.8 million or 3.5%, which is largely attributable to an increase in revenue at our Mountain properties from improved summer visitation and increased group business. Our fiscal first quarter Resort revenue was favorable compared to the prior year by 9.7%, reflecting the increased summer visitation and the employee spend along with the additions of Canyons Resort and the Urban ski areas. Excluding the Acquisitions, Resort revenue was up 3.9% over the prior year. Our first quarter Resort reported EBITDA was unfavorable by $12 million compared with the same period in the prior year. This increased loss is primarily driven by the addition of operating results from the acquisitions, which generated an EBITDA loss of $7.6 million, including $2.7 million of integration and litigation-related costs. Excluding the acquisitions, Resort reported EBITDA declined by $4.4 million. Looking at Real Estate for the first fiscal quarter, our net Real Estate cash flow was $7.5 million for the 3 months ended October 31, 2013, up 36.5% from the same period in the prior year. Real Estate reported EBITDA improved $3.3 million to a loss of $0.4 million for the 3 months ended October 31, 2013, as compared to the same period in the prior year. Finally, net loss attributable to Vail Resorts, Inc. was $73.4 million or a loss of $2.04 per diluted share for the first quarter of fiscal 2014. Our balance sheet continues to be very strong. We ended the quarter with $114.2 million of cash on hand and no borrowings under the revolver of our senior credit facility. Our net debt was 3.1x trailing 12 months total reported EBITDA, which includes $307.7 million of capitalized long-term obligations associated with the Canyons transaction. Before turning it back to Rob, I'll conclude my remarks by reiterating our guidance for fiscal 2014. Our guidance, issued in September, of Resort Reported EBITDA between $280 million and $295 million remains unchanged and would result in 16.3% to 22.5% growth from fiscal year 2013. It is important to note that included in these estimates for fiscal 2014 Resort Reported EBITDA is an estimated $7.2 million of integration and litigation-related expenses, including an estimated $5 million in fees associated with the Park City Mountain Resort litigation. I'll now turn it back to Rob.

Thanks, Michael. I wanted to conclude today by looking ahead to the upcoming year. Our 2013/2014 ski season is just underway, and we are excited about the many important enhancements we are offering guests this year. We look forward to welcoming new and returning skiers and riders to Canyon, marking our first season in Park City, Utah. Our Urban ski areas at Minneapolis and Detroit are open and benefiting from significant improvements in facilities, snowmaking and lifts that will differentiate Afton Alps and Mt. Brighton in their local markets and build strong connections between our Urban ski areas and Western resorts. We are thrilled that our guests will have the opportunity to experience the new terrain at Peak 6 at Breckenridge, offering 23% more terrain for the resort, serviced by 2 new lifts, including a high-speed 6-person chair. Peak 6 will be an iconic feature of Breckenridge offering incredible bold skiing for intermediate and advanced skiers at one of the most visited mountain resorts in the United States. In addition, Vail is following up on the successful launch of Gondola One, with a new 6-person Chair 4 with significantly increased capacity that will provide guests with faster access to Vail's famous Back Bowls. At Beaver Creek, guests will enjoy the new Talons on-mountain restaurant at the base of Beaver Creek's famous Birds of Prey racecourse. This 500-seat restaurant has more than double the existing restaurant capacity and offers gourmet dining options in an upscale cafeteria setting. This season also brings the fourth generation of the groundbreaking and award-winning EpicMix application, EpicMix Academy, which offers a unique to earn and share your accomplishments in our world-class ski and ride school. These investments will allow us to offer our customers the outstanding mountain resort experience that they expect from Vail Resorts. As we look ahead, we remain committed to disciplined reinvestment in our resorts and generating strong returns for our shareholders. While we will announce our final capital plan for 2014 in March 2014, we expect the plan will provide for capital expenditures of approximately $85 million excluding any spending for new summer activities, the timing of which will be determined based on regulatory and other approvals, and excluding any future acquisitions. The full details of the plan will be provided in March, but the highlights of the plan will include 2 new 6-person chairlifts that will upgrade both the Centennial chair at the base of Beaver Creek and the Colorado chair at Breckenridge. These improvements will create additional skier capacity and improve the guest experience at 2 of our most profitable mountain resorts, dramatically reducing wait times at these critical high-volume lifts. Our attention to service and our commitment to delivering an outstanding guest experience will continue to be the hallmarks of our company and the focus of our efforts. I would like to thank all of our employees for their passion, hard work and commitment to our organization which, as always, lies at the center of our success. Operator, we are ready for questions.

[Operator Instructions] And our first question comes from the line of Anthony Powell from Barclays.

Given the strength you're seeing at Detroit and Minneapolis, have you thought about acquisitions or other types of marketing partnerships with other resorts in the U.S. and particularly the northeast?

Yes, Anthony, we absolutely consider -- one, I would say we are actively looking, obviously, at other acquisitions, whether that be Urban ski areas or, obviously, destination resorts. And we look for additional partnerships. And those are conversations that will always be ongoing. In terms of the northeast, that's definitely something we consider. And if we can find the right connection that we think really delivers exceptional value and new experiences to our guests, that's always going to be something that we consider.

Just one more on the summer activities. Can give us an update on the status of the activity at the various resorts and how the Forest Service approval is going, and when you think you're going to report revenues and EBITDA from this summer? What will you really see or you think you could report the result in...

Sure. So the broad answer at certainly all of our resorts, the ones that operate on Forest Service land, is that the Forest Service published a draft policy governing these new summer activities. That policy is now open for comment. We would expect the Forest Service to receive comments and then ultimately publish a final draft, and that should be early in 2014. I think what we've been talking about is that we were hopeful to try and get our construction season going potentially in the summer of 2014. But I think it's more likely that, for a lot of our program, that construction season won't be until December of 2015. So at this point, I think we will definitely see an increase, certainly based on our current expectations, in revenue and EBITDA from summer in 2014 but -- and a bigger one in 2015, and then probably the biggest one in 2016.

And our next question comes from the line of Shaun Kelley with Bank of America.

Just was hoping, maybe we can lead off, Rob, I think in some of your remarks you had mentioned the good snowfall that you guys have seen in the early season. Can you just give us a sense, because last year, obviously in the early season -- I think it was right around this time, probably December 4 or so -- you were obviously running a little bit behind. Do you think you're at least in with an average season at this point, or do you think you might be better than that, or could you help us benchmark where you think we are at now in terms of snowfall and, overall, how the openings are going?

Sure. What I would say -- the year ago, when we provided commentary regarding the impacts of the early season, I think some of that was because of the actual results we were seeing at that moment, but a lot of it was what we thought the impact would be going forward. And what I would say today is, obviously having reissued and affirmed guidance, I think we feel like certainly the conditions that we're seeing are such that we still feel comfortable about the full year. In Colorado, I think we have a very good early season, and I think what we're seeing so far is -- certainly folks feel very good about bookings within our Colorado resorts. And that's a very large component of our destination kind of nonseason passholder visitation base. I think Utah is behind Colorado in terms of conditions, not hugely far behind but definitely further behind than where Colorado is. I think Tahoe is a little bit further behind. The good news is this past year everybody got good snow. I would say that Colorado is definitely ahead of normal in terms of where it is. I'd say Utah probably a little bit behind Tahoe. Hard to say, probably a little bit behind the overall averages. But as we all know, with Tahoe, it's kind of one big storm between now and Christmas, and the experience there can change dramatically given the amount of snow that they get. Also, as we sit today, I think we feel pretty good. Temperatures have been pretty low over the last week, particularly in Colorado and Utah, and we see that going off in the next week. So that tends to provide good snowmaking temps, also holds the existing snow that we have. So at the moment, I think we feel like this is a good start to the year.

That's helpful. And then I guess, secondarily, obviously with the pass metrics being up so much from where you are, it seems like -- at least what we can see -- Canyons probably made a nice contribution as well as probably Minnesota and Detroit, but could you just give us a breakdown maybe across the quarter? Did you see any changing trend? Was it pretty constant in terms of kind of where you ended up, or did you even see a pickup in the most recent weeks as you've gotten snowfall, just kind of how you saw the booking pattern go for the passes?

Sure. I think, yes, I think we definitely feel as though all the Canyons and certainly the pass partnerships in total, really aided our season pass sales. And I think we feel like -- our results in Utah are certainly good, but the bigger impact I think was across our destination markets. And although Minneapolis and Detroit, I think, were certainly the strongest, we really saw good growth across the board in our destination markets. And we attribute a good chunk of that to Canyons because we think that's the most obvious place if you were going to choose to go. Colorado, a very strong year this year. I think adding Eldora, our new Keystone A-Basin Pass, targeted towards the value segment here in the state, I think it was also very successful. Tahoe had a very, very strong run all along. I would say, in the last couple of weeks, there's no question that Colorado kept up its strength more than Tahoe, but we didn't see an acceleration, per se, but we just saw the kind of momentum continue, where I think we saw some slipoff at the end in Tahoe. Again it's still a good year for Tahoe. But, obviously, with the weather there not as good as Colorado, I think the finish probably wasn't as strong as it could have been. But, overall, we're pretty pleased.

It sounds -- again, the metrics I think kind of speaks for themselves. So then I guess the last question for me would just be -- we get this from a lot of investors but any update on timeline or anything you could give us, on the current -- I know it's sensitive, but the current status of the Canyons litigation -- or the Park City litigation? That'd be helpful.

Nothing really new on timing. I think we have talked about hopefully getting a [indiscernible] and a ruling of some kind out of litigation. I'd say, at this point, we're probably now over the next 6 to 9 months. I think we talked about 1 year in the last call. So I think it's in that zone. With that said, that doesn't -- it's hard, of course, in any kind of litigation, as we all know, to really kind of expect the final timing. But we still feel good about where the case is, and I think we announced in the last call that the judge had set the end-of-fact discovery for mid-January. And that date, at least at the moment, is still holding true.

And our next question comes from the line of Joel Simkins with Credit Suisse. Joel H. Simkins - Crédit Suisse AG, Research Division: A couple of quick questions. I guess the first is -- you obviously continued to chip away at some of the real estate you're still holding. I mean, assuming secondary real estate continues to get better, I guess, what do you guys need to see to start thinking more, in earnest, about Ever Vail and some of the other projects we talked about a few years ago?

I think we need to see the velocity change. So I think just chipping away, which I agree, is what we're doing, and [indiscernible] I think a very strong year last year, and even in the off quarter that we just finished, we had a very strong quarter, and we're still seeing kind of good traffic. We really need to see the whole market change in velocity before we would consider Ever Vail, given the size and scope and some of the upfront infrastructure costs that are there. I'd say, at the moment, that would appear to be a dramatic change in velocity from what we see in the market. If you look back at past cycles, sometimes those changes happen quickly. But it's hard to guess, I think, given where we sit today. Joel H. Simkins - Crédit Suisse AG, Research Division: And in the press release you guys talked about some CapEx projects for the 2014 season. Is there anything that would also sort of come to mind for next year with regard to driving additional on-mountain spending? Any new lodges, et cetera?

I think, again, we'll be providing additional detail related to the capital plan in March. I think what we -- we want to announce these 2 projects, which will be 2 of the bigger projects of the entire plan. So I think we're going to look at our -- we'll certainly have a number of additional projects, and to the extent we have something to disclose on the lodge front, we'll talk about that in March. Joel H. Simkins - Crédit Suisse AG, Research Division: Sure. And I have to ask since we've gotten a few investors as well. Obviously, you have a major -- or you have an activist fund that just took a position, a pretty sizable one, in the company. Do you have any sense of sort of their agenda or do you -- had discussions with them at this point?

Yes, we have no sense whatsoever. We have absolutely had conversations with them, and I would certainly characterize them as consistent with the kind of conversation we have with all of our investors, and we're certainly happy to have their investment.

[Operator Instructions] And our next question comes from the line of Whitney Stevenson with JMP Securities.

I was just wondering, when you gave us the last season pass update, you had about 55% to 60% of the sales completed at that point. Approximately, can you let us know where we are as of these updated numbers?

Yes, we're in the upper 90s. I mean, we still have certain passes that haven't fully closed out, but we're very close to the end here. We have certain passes we sell through club, certain passes we sell to homeowners and merchant passes, things like that. But largely speaking, the vast, vast majority of all of our consumer passes are coming to a close.

And then, based on the mix that you're seeing, should we, continue to -- for modeling purposes, continue to think about 35% to 40% of revenue from the pass sales?

Well what I'd say is that, that obviously is -- at this point my hope would be that, that percentage goes down because that's a percentage that now would be over, right -- season passes -- and over our paid kind of nonseason pass lift ticket sales. So we obviously are now in the business of trying to grow our nonseason pass lift ticket sales as much as we possibly can. With that said, I would imagine that, yes, that modeling -- in that 35% range, plus or minus, is probably still going to be good. But again, it will -- that's going to be highly dependent on how successful we are for the remainder of the season and kind of our day-to-day lift ticket sales.

And our next question comes from the line of Chris Agnew with MKM Partners.

To the extent that you track this, I wonder if you could comment on airline capacity. I mean, obviously the airline has been cutting for the last couple of years but are actually looking to add in 2014. So I was wondering what you're seeing in terms of airline capacity coming into major ski destinations. And maybe an extension to that, do you feel your resorts are being serviced adequately in the 2 Urban ski areas that you acquired last year?

Yes, so what I said -- I don't have the airline capacity numbers right in front of me, but that's something that we can circle back with you on. What I would say is that, in Denver and Reno and Salt Lake, so -- which are obviously the 3 primary airports, all 3 of those have good inbound capacity. They have a number of airlines. We've seen, particularly in Denver and Reno, Southwest getting to both of those airports and really help to fill the capacity that was being dropped by some of the other major airlines. So, Denver and Reno, in particular, have not seen the kind of declines that you've seen in other airports. Salt Lake is a huge international airport with good flights from around the country. So again, we don't see too much of an issue there. In Eagle, which services Vail in Beaver Creek, again, good capacity there as well. I think the biggest news there would be addition of the direct flight from Toronto. We see Toronto as a growing market for us, an important, terrific financial presence there, in terms of securities work and Wall Street-related business, which obviously is a market that we do quite well in at both of those resorts. So that flight, we think, is a big addition. So I think, to me, that's probably the biggest news on that front. We don't see airline capacity, in total, as an issue for us going into this season. As we see flights get added, obviously, there are changes throughout the season, but it's certainly something we can update on.

And I'm showing no further questions at this time. Please continue with any closing remarks.

Thank you, operator. This concludes our fiscal first quarter 2014 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 goodbye.

Ladies and gentlemen, this concludes the Vail Resorts Fiscal 2014 First Quarter Results Conference Call. Thank you for your participation. You may now disconnect.