Vail Resorts, Inc. (NYSE:MTN) Q3 2023 Earnings Call Transcript

Vail Resorts, Inc. (NYSE:MTN) Q3 2023 Earnings Call Transcript June 8, 2023

Vail Resorts, Inc. misses on earnings expectations. Reported EPS is $8.18 EPS, expectations were $8.84.

Operator: Good day everyone. Good afternoon and welcome to the Vail Resorts Fiscal 2023 Third Quarter Earnings Call. Today’s conference is being recorded. Currently, all callers have been placed in a listen-only mode and following management’s prepared remarks, the call will be opened up for your questions. [Operator Instructions] I will now turn the call over to Kirsten Lynch, Chief Executive Officer of Vail Resorts. You may begin.

Kirsten Lynch: Thank you. Good afternoon, everyone. Welcome to our fiscal 2023 third quarter earnings conference call. Joining me on the call this afternoon is Angela Korch, 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, June 8, 2023, and we undertake no duty to update them as actual events unfold. Today’s remarks also include certain non-GAAP financial measures.

Reconciliations of these measures are provided in the tables included with our press release, along with our quarterly report on Form 10-Q were filed this afternoon with the SEC and are also available on the Investor Relations section of our website at www.vailresorts.com. Let’s turn to our fiscal 2023 third quarter results. We are pleased with our overall results for the quarter and for the 2023/2024 North American ski season with strong growth in visitation and spending versus the prior year. After the challenges experienced in the second quarter of fiscal 2023, driven by weather disruptions in Tahoe and across our Midwest, Mid-Atlantic, and Northeast resorts, collectively referred to as our Eastern U.S. resorts, the results in March and April improved as expected, with strong demand from local and destination guests, driving visitation, and resort net revenue above prior year record levels.

Favorable conditions enabled an extended season at resorts across Utah, Tahoe, and the Northeastern U.S., while some resorts in the Midwest and Mid-Atlantic regions closed earlier than originally intended due to unseasonably warm weather and lack of terrain. Our results throughout the 2022/2023 North American ski season highlight both the stability that comes from the advance commitment from season pass products and our strong operational execution through the season. The winter season included significant weather-related challenges from the travel disruptions over the peak holiday period, abnormal weather variability across our Eastern U.S. resorts, and significant storm related disruptions at our Tahoe resorts during multiple peak periods throughout the season.

Despite these weather events, the company grew visitation, resort net revenue and Resort Reported EBITDA to record levels, supported by the stability created from our advance commitment strategy, and a strong finish to the season with good spring conditions at our resorts in Colorado, Utah, Tahoe, and the Northeastern U.S. Our ancillary businesses, including ski school, dining, and retail/rental, experienced strong growth, compared to the prior year period, when those businesses were impacted by capacity constraints driven by staffing, and in the case of dining, by operational restrictions associated with COVID-19. Staffing levels enabled our mountain resorts to deliver a strong guest experience, resulting in a significant improvement in guest satisfaction scores, which exceeded pre-COVID-19 levels at our destination resorts.

Now, I would like to turn the call over to Angela to further discuss our financial results and fiscal 2023 outlook.

Angela Korch: Thank you. As Kirsten mentioned, we are pleased with our overall results for the quarter. And as expected, we saw improved results in March and April. Net income attributable to Vail Resorts was $325 million or $8.18 per diluted share, for the third quarter of fiscal 2023, compared to the net income attributable to Vail Resorts of $372.6 million, or $9.16 per diluted share, in the prior year. The decrease in net income attributable to Vail Resorts, compared to the prior year, is primarily attributable to an increase in expense associated with a change in the estimated fair value of the contingent consideration liability related to our Park City resort lease. Resort Reported EBITDA was $623.3 million in the third quarter at fiscal 2023, an increase of $12.8 million, or 2.1%, compared to the same period in the prior year.

Resort Reported EBITDA was impacted by the timing of recognition of past product revenue as a result of delayed resort openings in the prior year and early resort openings in the current 2022/2023 North American ski season. This change in resort operating dates – opening dates resulted in a past product revenue decrease of approximately $40 million for the third quarter of fiscal 2023, compared to the third quarter of fiscal 2022 and represents a timing difference that offsets with our second quarter of fiscal 2023. Now, turning to our outlook for fiscal 2023. The strong finish to the season produced Resort Reported EBITDA results that were in-line with our expectations. And we now expect net income attributable to Vail Resorts for fiscal 2023 to be between $251 million and $283 million, and Resort Reported EBITDA for fiscal 2023 to be between $837 million and $853 million.

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Our balance sheet remains strong and the business continues to generate robust cash flow. Our total cash and revolver availability as of April 30, 2023 was approximately $1.5 billion with $896 million of cash on hand and $628 million of combined revolver availability across our credit agreements. As of April 30, 2023, our net debt was 2.3x trailing 12 months total reported EBITDA. The company repurchased approximately 1.8 million shares at an average price of $225.01, for a total of $400 million during the quarter, representing 4.4% of the company’s outstanding stock as of the beginning of the third quarter. We have approximately 1.8 million shares remaining under our authorization for share repurchases and remain focused on returning capital to shareholders, while always prioritizing the long-term value of our shares.

Additionally, the company declared a quarterly cash dividend on Vail Resorts’ common stock of $2.06 per share. The dividend will be payable on July 12, 2023 to shareholders of record as of June 27, 2023. We will continue to be disciplined stewards of our capital and remain committed to prioritizing investments in our guests, and employee experience, high return capacity expanding capital projects, strategic acquisition opportunities, and returning capital to our shareholders through our quarterly dividend and share repurchase program. Now, I’ll turn the call back over to Kirsten to discuss our spring pass sales.

Kirsten Lynch: Thank you, Angela. We are pleased with the results for our season pass sales to date and with continued unit growth over the strong pass sales results the business achieved last spring. Pass product sales through May 30, 2023 for the upcoming 2023/2024 North American ski season increased approximately 6% in units and approximately 11% in sales dollars as compared to the period in the prior year through May 31, 2022. Pass product sales are adjusted to eliminate the impact of foreign currency by applying an exchange rate of $0.74 between the Canadian dollar and the U.S. dollar in both periods for Whistler Blackcomb pass sales. Relative to season to date pass product sales for the 2022/2023 season, the company achieved strong unit growth among renewing pass holders.

The company successfully grew units across destination, international, and local geographies, with the strongest unit growth in destination markets, particularly in the Northeast, and across all major pass product segments, with the strongest product growth in regional unlimited pass products and Epic Day Pass products as lower frequency guests and local Northeast guests continue to be attracted to the strong value proposition of these products. Pass sales dollars are benefiting from the 8% price increase relative to the 2022/2023 season, partially offset by the mix impact from the growth of Epic Day Pass products. While pass results to date have been strong, we still have the majority of our pass selling season ahead of us, and given our efforts to drive more guests to purchase passes in the spring, we expect the full-year pass sales growth rate may moderate relative to our spring growth rate.

We will provide more information about our pass sales results in our September 2023 earnings release. We are pleased with the performance from ongoing sales of the Epic Australia Pass, which end on June 14, 2023 and are up approximately 16% in units through June 1, 2023, relative to the comparable period through June 2, 2022. These passes provide advance commitment for this winter in Australia, but also provide advance commitment from Australian guests for our North American ski resorts for the 2023/2024 winter season. Our commitment to reinvesting in our resorts and the guest experience remains one of our highest priorities. As part of this, we are pleased to be launching a new innovative business and new technology for the upcoming 2023/2024 North American ski season.

We are piloting My Epic gear at Vail, Beaver Creek, Breckenridge, and Keystone for a limited number of pass holders during the 2023/2024 North American ski season, which will introduce a new membership program that provides the best benefits of gear ownership, but with more choice, lower cost, and no hassle. My Epic Gear provides its members with the ability to choose the gear they want, for the full season or for the day, from a selection of the most popular and latest ski and snowboard models, and have it delivered to them when and where they want it, guaranteed, with free slopeside pick up and drop off every day. In addition to offering the best skis and snowboards, My Epic Gear will also offer name brand, high-quality ski, and snowboard boots with customized insoles and boot fit scanning technology.

The entire My Epic Gear membership, from gear selection to boot fit to personalized recommendations to delivery, will be at the members’ fingertips through the new My Epic app. My Epic Gear will officially launch for the 2024/2025 winter season at Vail, Beaver Creek, Breckenridge, Keystone, Whistler Blackcomb, Park City Mountain, Crested Butte, Heavenly, Northstar, Stowe, Okemo, and Mount Snow. And further expansions are expected in future years. The company is planning to introduce new technology for the 2023/2024 ski season at its U.S. Resorts that will allow guests to store their pass product or lift ticket directly on their phone and scan at lifts hands-free, eliminating the need for carrying plastic cards, visiting the ticket window, or waiting to receive a pass or lift ticket in the mail.

Once loaded onto their phones, guests can store their phone in their pocket, and get scanned hands free in the lift line using Bluetooth Low Energy technology, which is designed for low energy usage to minimize the impact on a phone’s battery life. In addition to the significant enhancement of the guest experience, this technology will also ultimately reduce waste of printing plastic cards for pass products and lift tickets, and RFID chips, as a part of the company’s commitment to Zero. For the first year of launch, to ensure a smooth transition, the company will provide plastic cards for passes and lift tickets to all guests, and in future years plastic cards will be available to any guest who cannot or do not want to use their phone to store their pass product or lift ticket.

We are also excited to announce the launch of our new My Epic app, which will include Mobile Pass and mobile lift ticket, interactive trail maps, real-time and predictive lift line wait times, personalized stats, My Epic Gear, and other relevant information to support the guest experience. The company is also investing in network-wide scalable technology that will enhance our analytics, e-commerce, and guest engagement tools to improve our ability to target our guest outreach, personalize messages, and improve conversion. Additionally, as previously announced, this summer and fall, we will be completing important strategic capital projects. At Keystone, we plan to complete the transformational lift served terrain expansion project in Bergman Bowl, increasing lift-served terrain by 550 acres with the addition of a new six-person high speed lift.

At Breckenridge, we plan to upgrade the Peak 8 base area to enhance the beginner and children’s experience and increase uphill capacity from this popular base area. The investment plan includes a new four-person high speed 5-Chair to replace the existing two-person fixed-grip lift, as well as significant improvements, including new teaching terrain and a transport carpet from the base, to make the beginner experience more accessible. At Whistler Blackcomb, we plan to replace the four-person high speed Fitzsimmons lift with a new eight-person high speed lift in calendar year 2023. At Stevens Pass, we are planning to replace the two-person fixed-grip Kehr’s Chair lift with a new four-person lift, which is designed to improve out-of-base capacity and guest experience.

At Attitash, we plan to replace the three-person fixed-grip Summit Triple lift with a new four-person high speed lift to increase uphill capacity and reduce guest ride time on the longest lift at the resort. These lift projects are currently planned to be completed in time for the 2023/2024 North American winter season. Additionally, the company plans to expand parking by more than 500 spaces across Heavenly, Mount Sunapee, Liberty and Roundtop to improve the guest experience. In closing, we greatly appreciate the loyalty of our guests that visited across our entire network of Mountain Resorts this past season and the continued loyalty of our pass holders that have already committed to next season. With the North American and European ski season coming to an end, I would like to especially thank our frontline employees for their passion and tireless dedication to delivering an experience of a lifetime to our guests.

Our employees are the core of Vail Resorts mission to create an experience of a lifetime. We cannot create an experience of a lifetime for our guests without first creating an experience of a lifetime for our employees, and we are all looking forward to a great winter season at our three Mountain Resorts in Australia. At this time, Angela and I will be happy to answer your questions. Operator, we are now ready for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] We’ll take our first question from Shaun Kelley of Bank of America.

Shaun Kelley: Hi, good afternoon, everyone. Thanks for taking my question. Kirsten, maybe we could just start-off with the pass sales. Obviously, plenty of color and an encouraging start, but if we go back to last season, there was some commentary around some of the full price products. And I was wondering if you could, kind of update, sort of where we sit with some of the behavior you saw in the renewal period here towards full price epic passes? Are you seeing some of that same behavior you saw last year or has that started to normalize at all?

Kirsten Lynch: Hi, Shaun. Thanks for the question. Overall, yes, we are very pleased with the start to the pass selling season being up 6% units and 11% of dollars, especially on top of a strong start to spring pass sales last year. I’ll give a couple of dynamics that I think are particularly encouraging and also talk about what I assume you mean our high frequency products as well. So, one of the dynamics that I see that I think is really encouraging is strong loyalty. Our renewals among existing pass holders are very strong and is the driver of the growth versus prior year. We’re seeing growth across all geographies, destination, international, local geographies, also in the Midwest, Mid-Atlantic, and Northeast where there were some challenges, as you know, with conditions and terrain.

And we see growth across all major past product segments. And that includes our high frequency products, Epic and Epic Local. It also includes our regional unlimited high-frequency products, as well as our limited frequency products like Epic Day Pass. We saw strong growth across the board. Epic and Epic Local as that tier or segment of products was up slightly versus prior year. And then the last dynamic that we saw that I think is very encouraging is, strong effective pass price with units of 6%, 11% on sales dollars, really pleased to see the price realization on that.

Shaun Kelley: It’s great. And then to change gears with my follow-up, we don’t typically ask about buybacks or capital return too much, but obviously it was a very large amount in the quarter. So, just kind of wanted to ask what made now the right time to lean in there? Perhaps how should investors think about that versus some of the other investment opportunities you have? I think we all know there was a lot of cash on the balance sheet, but, sort of what made now the right time given the size of that relative to, sort of your past behaviors on the buyback program?

Kirsten Lynch: Yes. Thanks, Shaun. We are very focused on being disciplined stewards of capital allocation, prioritizing high return capital projects, investing in our people, strategic acquisitions, and returning excess capital to our shareholders. We did share in March that our board had approved an increase in authorization for share repurchase and our intention to be aggressive in returning capital to shareholders. We really were leveraging capital we have raised opportunistically over the past few years at extremely low cost of debt to capitalize on this opportunity to repurchase shares at an attractive valuation. We’re very confident in the stability of the business, encouraged by our growth outlook. Dividend continues to be the primary method of returning capital to shareholders, but we are pleased to have had the opportunity to repurchase the shares and have about 1.8 million shares remaining in our authorization and intend to continue to return capital to shareholders, while being very disciplined in prioritizing the long-term value of those shares.

Shaun Kelley: Thank you very much.

Operator: We’ll take our next question from Laurent Vasilescu of BNP Paribas.