U.S. Markets close in 5 hrs 55 mins

Edited Transcript of MTN earnings conference call or presentation 4-Jun-20 9:00pm GMT

Q3 2020 Vail Resorts Inc Earnings Call

BROOMFIELD Jun 5, 2020 (Thomson StreetEvents) -- Edited Transcript of Vail Resorts Inc earnings conference call or presentation Thursday, June 4, 2020 at 9:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Michael Z. Barkin

Vail Resorts, Inc. - Executive VP & CFO

* Robert A. Katz

Vail Resorts, Inc. - Chairman & CEO

================================================================================

Conference Call Participants

================================================================================

* Alexander Rocco Maroccia

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Charles Patrick Scholes

SunTrust Robinson Humphrey, Inc., Research Division - MD of Lodging, Gaming and Leisure Equity Research and Analyst

* Chris Jon Woronka

Deutsche Bank AG, Research Division - Research Analyst

* David Brian Katz

Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure

* Felicia Rae Kantor Hendrix

Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst

* Marc J. Torrente

Wells Fargo Securities, LLC, Research Division - Associate Analyst

* Ryan Ingemar Sundby

William Blair & Company L.L.C., Research Division - Research Analyst

* Shaun Clisby Kelley

BofA Merrill Lynch, Research Division - MD

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day, and welcome to the Vail Resorts Third Quarter Fiscal 2020 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Katz. Please go ahead, sir.

--------------------------------------------------------------------------------

Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [2]

--------------------------------------------------------------------------------

Thank you. Good afternoon, everyone. Welcome to our third quarter fiscal 2020 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, June 4, 2020, and we undertake no duty to update them as actual events unfold.

Today's remarks also include certain non-GAAP financial measures. Reconciliations of these measures are provided in the tables included with our press release, which along with our quarterly report on 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.

So with that said, let's turn to our third quarter fiscal 2020 results. Our results for the quarter and for the full 2019/2020 North American ski season were significantly impacted by COVID-19 and the resulting closure of our North American mountain resorts beginning March 15, 2020, a decision we made for the safety of our guests, employees and resort communities. In addition, even before the closure and during the first 2 weeks of March, we experienced a negative change in performance that we believe was due to the impact of COVID-19 on traveler behavior.

As of March 18, 2020, we anticipated that our operating results in March and April would be negatively impacted by $180 million to $200 million compared to the Resort Reported EBITDA expectation we had on March 1, 2020. Relative to these expectations, our results were favorable by approximately $40 million, primarily driven by cost actions implemented in April 2020. In addition, Resort Reported EBITDA for the quarter was negatively impacted by the deferral of approximately $113 million of past 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 next season.

Looking ahead to our summer operations, we are planning to be operational for the North American summer and Australian ski season in late June or early July, which could vary by resort. And opening dates for each business are subject to new information and public health guidance with regard to COVID-19. We expect that our results in the fourth quarter of fiscal 2020 will be materially negatively impacted by the travel environment, and we will see lower visitation to our resort properties.

However, we are not able to fully assess that impact at this time and will not be issuing guidance for the fourth quarter or fiscal year. We believe we have developed efficient operating plans to deliver a safe and enjoyable guest experience at our resorts this summer in North America and for the Australian ski season, with the ability to adjust as consumer demand and local guidelines and practices shift.

Now I would like to turn the call over to Michael to further discuss our financial results, balance sheet and liquidity.

--------------------------------------------------------------------------------

Michael Z. Barkin, Vail Resorts, Inc. - Executive VP & CFO [3]

--------------------------------------------------------------------------------

Thanks, Rob, and good afternoon, everyone. As Rob mentioned, our results for the quarter were significantly impacted by COVID-19 and the resulting closure of our North American mountain resorts.

Resort Reported EBITDA was $304.4 million for the third fiscal quarter of 2020 compared to Resort Reported EBITDA of $480.7 million for the same period in the prior year, primarily as a result of the negative impacts of COVID-19, offset by cost actions implemented.

Net income attributable to Vail Resorts was $152.5 million or $3.74 per diluted share for the third quarter of fiscal 2020 compared to net income of $292.1 million or $7.12 per diluted share for the same period in the prior year.

We expect to have sufficient liquidity to support our business as we continue to navigate the impacts of COVID-19 with total cash and revolver availability as of May 31, 2020, of approximately $1.1 billion, with $465 million of cash on hand, $419 million of U.S. revolver availability under the Vail Holdings Credit Agreement and $168 million of revolver availability under the Whistler Credit Agreement.

As of April 30, 2020, our net debt was 3.6x trailing 12 months total reported EBITDA. In April and May, we implemented plans to support our liquidity, including completing an offering of $600 million of 6.25% unsecured 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, we implemented plans to support our liquidity by reducing our capital plan for calendar year 2020 by approximately $80 million to $85 million; suspending cash dividends to shareholders for 2 quarters, which preserves an additional $142 million of liquidity; furloughing a significant number of our year-round hourly and salaried employees in the U.S.; and implementing 6-month salary reductions for all salaried employees in the U.S. among other cost actions.

The company has also recognized approximately $9 million of labor cost offsets in the third fiscal quarter associated with the U.S. CARES Act, Canada Emergency Wage Subsidy and Australian JobKeeper Legislation. Additionally, we entered into an amendment to the Vail Holdings Credit Agreement providing, among other terms, that Vail Holdings would be exempt from complying with the agreement's financial maintenance covenants for each of the fiscal quarters ending July 31, 2020, through January 31, 2022, unless Vail Holdings makes a onetime irrevocable election to terminate such exemption period prior to such date. We expect to have sufficient liquidity following these actions to fund our operations for up to 2 years, even in the extent of extended resort shutdowns.

During the third fiscal quarter, the company paid a cash dividend of approximately $70.7 million or $1.76 per share of common stock. Additionally, we repurchased approximately $25 million of stock at an average price of $155.33 per share, which was completed by March 13, 2020. Subsequent to these events, we suspended our cash dividend for a minimum of 2 quarters.

I'll now turn the call back over to Rob.

--------------------------------------------------------------------------------

Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [4]

--------------------------------------------------------------------------------

Thanks, Michael. As announced on April 27, 2020, to address the difficult decision to close our North American mountain resorts as a result of the unprecedented circumstances surrounding COVID-19, we have rolled out a comprehensive plan to address our pass holders' concerns about the early closure this past season and provide improved coverage for the future.

We are providing credits to 2019/2020 North American pass holders to apply towards the purchase of a 2020/2021 pass product. Season pass holders will receive a minimum credit of 20% towards the next season's pass. For season pass holders who used their pass less than 5 days, they will be eligible for higher credits up to a maximum of 80% for season pass holders who did not use their season pass at all.

For Epic Day Pass, Edge Card and other frequency-based products with unused days remaining, we will be offering credits for each unused day up to a maximum of an 80% credit. The credits will be available for our pass holders who purchased 2020/2021 pass products by September 7, 2020. As a result of the early closure, this season and the meaningful credits we are offering to 2019/2020 North American pass holders, we will be delaying the recognition of approximately $121 million of our deferred pass revenue as well as approximately $3 million of related deferred costs that would have been recognized in the remainder of fiscal 2020 and will now be recognized primarily in the second and third quarters of fiscal 2021.

This shift in recognition timing will partially or fully offset the negative impact of the credits being offered to pass holders depending upon the final usage of such credits towards the purchase of 2020/2021 North American pass products.

We are redefining how we will protect season passes through the launch of Epic Coverage. Epic Coverage is free for all North American pass holders and completely replaces the need to purchase pass insurance. Epic Coverage provides refunds in the unlikely event of certain resort closures, including for COVID-19, giving pass holders a refund for any portion of the season that is lost. Additionally, Epic Coverage provides a refund for personal circumstances covered by our pass insurance for eligible injuries, job losses and many other personal events.

Given the uncertainty surrounded COVID-19 and the broader economy, we feel it is important to give our pass holders the time they need to make decisions regarding next season. And we have very intentionally delayed having any call to action around price increases, benefit reductions or credit expirations. While we have been the leader in moving pass purchases earlier and earlier in the cycle, the critical feature for us is that they are bought before the season really begins. And in this moment, with all that is going on in the world, we feel Labor Day is a much better time to have a conversation with our pass holders about next season. And we'll continue to monitor things as we get to the fall and continue to be agile if necessary.

As a result, we eliminated our traditional spring deadlines and are providing pass holders until September 7, 2020, to use their 2019/2020 credit and to receive spring benefits, including Buddy Tickets. We are also extending the period for pass holders to lock in their purchase with only $49 down for the next few months. As a result of moving our first deadline to September, we will not be providing an update on the results of season pass sales until our fourth quarter earnings conference call in late September.

We plan to open Perisher, Falls Creek and Hotham in Australia for skiing and snowboarding on June 24, following approval by the New South Wales and Victoria governments. Given the current dynamics, we extended the final pass payment date for the Epic Australia Pass and plan to provide more information to our guests about the upcoming operations this season by June 15 as well as any new pass options that will address COVID-19 impacts on our season. Pass holders in Australia will then have the option to request a refund of all payments made towards their Epic Australia Pass and pass refund protection or a move forward with a new pass product. Given the delay to openings and the uncertainty caused by the proximity of the Australian season to broader reopening plans for the Australian economy, we anticipate having greater clarity on operations and pass sales heading into the North American ski season this fall.

As we plan to reopen our operations in late June or early July, we remain focused on developing safe operating plans in consultation with industry and government leaders, which will include social distancing measures, enhanced cleaning protocols and necessary changes to regularly offered programs and services. We believe we are uniquely positioned within the travel industry to deliver a safe, high-quality guest experience. Our strong network of resorts provide unparalleled outdoor experiences that are located within drive-to proximity of major population centers in the U.S., Canada and Australia. We believe that this will be a significant advantage this summer and next ski season with expectations in outdoor experiences and drive-to leisure travel will be an early area of recovery relative to broader travel demand.

In addition, with the exception of Whistler Blackcomb, the vast majority of the guests to all of our resorts are domestic travelers. And while more internationally focused, Whistler Blackcomb also has a very strong domestic guest base, representing approximately 50% of its visits in fiscal 2019. In addition, our ability to leverage our guest data, targeted digital marketing efforts and broad product offering, including the introduction of Epic Mountain Rewards and its associated discounts on the full ski vacation experience will position us well as travel recovers.

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 marketing approach we use to communicate with and attract our guests. We will be focused on providing a safe and exceptional experience for our guests through our passionate employees and the investments we've made in our resorts and technology, supported by our strong capitalization and liquidity that positions us well to pursue our growth goals over time.

I am incredibly grateful for the commitment and loyalty of our teams. I would like to thank all of our employees and particularly our employees on furlough for their continued passion and dedication during this time. We are constantly evaluating the situation with the goal of getting our employees back to work as soon as feasible as we look towards the North American summer, the Australia ski season -- the Australian ski season and beyond.

At this time, Michael and I would be happy to answer your questions. Operator, we are now ready for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) We'll take our first question today from Felicia Hendrix with Barclays.

--------------------------------------------------------------------------------

Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [2]

--------------------------------------------------------------------------------

It's good to hear the both of you. I was just wondering if you could walk us through what the post COVID-19 ski experience looks like? And are you seeing any demand at all for the next ski season? I know you said you would give more season pass color in the September call. But are there any data points you can share regarding season pass sales so far as well?

--------------------------------------------------------------------------------

Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [3]

--------------------------------------------------------------------------------

Yes, good to hear you too, Felicia. I mean I think at this point, it would -- I think we're very much in a constantly moving environment in terms of exactly what the ski experience will look like. Right now, we're focused in terms of ski experience in Australia, where I think at this point there'll certainly be a limitation on the total capacity of the resort to ensure that we protect social distancing. But at the same time, we're very confident that we can provide a terrific experience for people who come. And our teams are working hard to kind of put all the details together, and we'll be sharing that over the next week to 10 days. And then that will give us, I think, some very unique insight that we'll be able to use as we plan the North American ski season on next year. And so we are going to be closely monitoring every piece of the experience at our 3 resorts. And we intend, obviously, to of course look to improve, right, each week of the ski season every single part. Obviously, this is new for all of us. But we do have the opportunity through -- over the next couple of months to continue to find ways to just improve, expand and protect, right, our guests in every single aspect of what we do. And we really do believe that by the end of that, we'll be in a terrific position for next year. But of course, some of that will remain based on -- in terms of -- some of the particulars will remain based on whatever the local guidelines and local restrictions are at the time.

I do feel, though, as we said in our comments, that the fact that the core part of our experience is an outdoor experience over a very wide piece of ground that allows people to really spread out. And then our focus will be on those pinch points certainly inside of our restaurants and lift lines. And certainly, as people enter the resorts, our job will be to make sure that we can maintain social distancing while still giving people a great experience.

--------------------------------------------------------------------------------

Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [4]

--------------------------------------------------------------------------------

And any early data points you might have in terms of demand?

--------------------------------------------------------------------------------

Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [5]

--------------------------------------------------------------------------------

Yes. We really don't. I think we feel, I'd say, very good about the fact that there's tremendous passion and enthusiasm. I think -- although, obviously, our pass sales are, of course, lower than last year, as you would expect, given we don't have a deadline. I think our takeaway from what we're seeing is what we would expect, that it's another strength, I think, not only of our company but of the whole industry that there's an incredibly passionate, committed base of skiers who see skiing and riding as a core part of what they do. And every indication that we have so far would suggest that, that's going to continue. Exactly to what level, that remains to be seen.

--------------------------------------------------------------------------------

Felicia Rae Kantor Hendrix, Barclays Bank PLC, Research Division - MD & Senior Equity Research Analyst [6]

--------------------------------------------------------------------------------

And Michael, just as you contemplate opening, have you been able to fully reevaluate your cost structure, though? So that as you open, are there opportunities to be leaner or to do away with certain practices or offerings that may not have been as profitable as you may have thought in the past?

--------------------------------------------------------------------------------

Michael Z. Barkin, Vail Resorts, Inc. - Executive VP & CFO [7]

--------------------------------------------------------------------------------

Yes. I think we've gone through a comprehensive review, certainly, on the cost actions that we took in reaction to the shutdown and certainly are trying to take a measured approach as we look to reopen to ensure that we're taking, yes, a balanced view that's really oriented to ensuring that we deliver that guest experience that Rob talked about while also sizing the operations appropriately, both for the distancing requirements as well as the potential demand scenarios.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

Next we'll hear from Shaun Kelley with Bank of America.

--------------------------------------------------------------------------------

Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [9]

--------------------------------------------------------------------------------

Hope you guys are safe and well. Just wanted to ask or dig in a little bit further on maybe the pass behavior, Rob. I know there's only so much we can glean, given exactly, as you said, that there's no real kind of deadline or call to action at the moment. But perhaps you could just maybe tell us a little bit about either what was the reaction you saw kind of before the trend you were seeing before you made some of the material updates? And then did that -- how materially did that change after you gave the credit program? And then also any color on destination versus local behavior is what I think would be really interesting or useful?

--------------------------------------------------------------------------------

Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [10]

--------------------------------------------------------------------------------

Yes. I think one of the challenges with that, Shaun, is that so much of our business is done around the deadlines and they are a key part of our selling cycle. And so it really is tough to read anything into the information that we're seeing today versus what we might have seen last year because of the absence at this point now of 2 different deadlines. But I think what I would say is that given that we have not had deadlines, I think we're pleased with the enthusiasm, pleased with the engagement. And obviously, our message to pass holders at this point has been to give them more time, because we think that the conversation about next season is best had when there is more information about next season. So I'd say, so far, I think what we take away is positive, but I think to read into any trends might be misleading at this point. So hard to comment on that.

--------------------------------------------------------------------------------

Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [11]

--------------------------------------------------------------------------------

And yes, I mean, is there any material differences on the destination and local piece, Rob? I mean, is like -- or all just a little bit too early to tell?

--------------------------------------------------------------------------------

Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [12]

--------------------------------------------------------------------------------

Again, I think it's too early to tell. And again, I don't -- I think we've -- we do a huge percentage of our business on these deadlines. And so when you eliminate them, that's one of the reasons why we're not giving commentary is because, again, neither positive nor negative. We just don't think we want to read anything into it. And -- but again, I feel like, again, that certainly the -- many of the indicators that are out there in a number of different forms, I think, would suggest that there's tremendous passion and enthusiasm to get back on the mountain. Exactly how that will play out in the final numbers, again, we don't know. But at this point, we feel good about the pass. And I would say, certainly, anecdotally, I think we're getting very good response from many of our pass holders, not all, but many, many of our pass holders who I think certainly were disappointed in last season and I think feel good about what we're doing for next season, both in terms of the credits we're giving, and we are providing credits up to 80%, that we're giving everybody a 20% credit from a season pass holder perspective, the Epic Coverage addition. People feel, I think, good about that. They feel like -- I mean they're being protected. And I think they feel good about the time. I think people understand that this is a tough moment. So again, I'd say on the -- what we hear from e-mails, what we see in social media and everything has been reassuring.

--------------------------------------------------------------------------------

Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [13]

--------------------------------------------------------------------------------

That's helpful. And I think you talked in the past, and certainly, I think in recent quarters about a little bit of a kind of a trend line relative to -- for Vail relative to broader, let's call it, luxury travel. Just any indicators or anything you're watching on just maybe that broader travel behavior as you're trying to gauge maybe your own summer program and then, obviously, heading into the fall that you think are particularly important, whether it's -- things going on, on the airlift side or anything else? Again, I'd appreciate that. Like many of the decisions are maybe made -- being made last minute. But just kind of what are you keeping an eye on as you're trying to gauge that capacity piece or that occupancy piece kind of way out in the next season?

--------------------------------------------------------------------------------

Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [14]

--------------------------------------------------------------------------------

Yes. We're tracking very rigorously a number of travel consumer surveys, and we're also obviously listening to the input feedback we're getting from other people in the travel sector. And I think our takeaways, which we have mentioned before, but I think are worth reiterating, is that there's no doubt that the -- right now at least, consumer sentiment seems to be the shorter the distance, the better. So obviously, for our resorts, the fact that we're near so many major urban markets, I think, is a big positive. No doubt, domestic travel as air travel, I think, is in a much better spot than international travel, which again, I think, bodes well for most of our resorts. Obviously, Whistler does have exposure there, as we mentioned.

And I think another piece is that all of our resorts, for the most part, are really located near major metropolitan airports as well and we're not really subject to some of the smaller efforts. We benefit them -- from them in certain locations. But at the end of the day, all of our resorts are largely conveniently located to these airports. And that's where I think most of the capacity is going to remain. And so we feel like that gives us an advantage as well as we look into next year, where we're not necessarily dependent on the smaller local or regional airport.

--------------------------------------------------------------------------------

Shaun Clisby Kelley, BofA Merrill Lynch, Research Division - MD [15]

--------------------------------------------------------------------------------

Last question would be this. I mean you alluded to this a moment ago about working through some guidelines, especially in Australia around potential capacity restrictions. Obviously, this industry is not, right now, probably front and center for governments. They're trying to figure this out across lots of different industries and lots of different businesses. But is your base case or is your expectation that there could be some capacity constraints into the next ski season? Obviously, you can plan around it either way. But just kind of curious how you're -- like how you're thinking about it and what that conversation might be like with local authorities?

--------------------------------------------------------------------------------

Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [16]

--------------------------------------------------------------------------------

Yes. I think the 2 places that we're certainly well aware of potential capacity constraints, one is on loading lifts and gondolas. And to the extent that you're maintaining social distancing between unrelated groups, right, that could limit the number of people that you could put on a chair, put on a gondola in any one time, and that's certainly something that will likely be a part of the plan in Australia. Unclear whether that will still be necessary next winter season, but that's one potential constraint. Another potential constraint is in food service and the ability in terms of how many people we could have in food service, how -- what our food and beverage operation will look like. That could shift as well, which I think will be the case down in Australia. And again, hard to know whether that will still be the case next winter.

Interestingly, some of these are things that were actually implemented before we shut down our resorts, and we were able to do that very quickly. Obviously, probably a little bit on the clumsy side in terms of guest experience, because we were so focused on the safety piece. But I think with more time, we feel like we could start to narrow these in and make sure that we could manage the capacity and the experience on all these fronts. Certainly, there's impacts depending on the regulation of the restriction that could be across the board. But certainly, those are the 2 things that I think are probably top of mind for us right now. And I think that will be the question, even apart from capacity restrictions, what will ultimate consumer travel demand be December through March of next year and how will that marry up with any capacity constraint that we have.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

David Katz with Jefferies has our next question.

--------------------------------------------------------------------------------

David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [18]

--------------------------------------------------------------------------------

In the -- and good to hear everyone's voices, for sure. In the context that you all have historically been quite good at getting to the right answer and listening to the commentary, not September 7 deadline. Is that -- how firm would you say that is? Or is that something we could get closer and start to reevaluate?

--------------------------------------------------------------------------------

Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [19]

--------------------------------------------------------------------------------

Yes. I think right now, I'd say it's a firm deadline, and it's a deadline that we are, of course, hoping to adjusting if that's what's required. I think if we have learned anything over the last number of months, it's that dynamics on the ground shift. And we're going to shift with that, with the mindset of doing what's right for our guests and I think -- and especially our pass holders in this case. And I think we are very focused on the long term. And so we're going to -- to the extent that we can incent earlier behavior, we are absolutely going to do that. And we think that's the right thing for us. We think that provides great value to our guests. But if we -- if deadlines have to shift, we're going to do that too. And ultimately, this is about guest loyalty and making sure that we do what we can to protect it. And so we're going to look at every option. And that said, yes, at this point, given the trajectory that I think we are on, we feel like as we get to Labor Day, probably we'll be in a good spot to really ask our pass holders to make a decision.

--------------------------------------------------------------------------------

David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [20]

--------------------------------------------------------------------------------

And if I can just go back to Michael on one point, and apologies for the background noise, it's not my dog, that can't be stopped. On the subject of cost base, what we are seeing across a lot of asset-based companies is opening with very limited demand, tight restrictions, but the ability to perhaps do so with much better profitability and perhaps even structure things that will endure. And is that a reasonably expected outcome here?

--------------------------------------------------------------------------------

Michael Z. Barkin, Vail Resorts, Inc. - Executive VP & CFO [21]

--------------------------------------------------------------------------------

I can't comment on profitability, obviously, as we're still evaluating exactly how the planning for next year will take place. But what I would say is that I think we'll continue, as I said earlier to Felicia's question, continue to take the same rigorous approach that we've taken to our cost structure all the way through. And I think that we've certainly demonstrated that over the years relative to our focus on margin and free cash flow over time. But again, I think really important, to Rob's point, that we will continue to take a very balanced long-term view to really focus on ensuring that we're giving our guests the right experience. And if that involves investing beyond the demand to ensure that we give that experience, I think we'll be assessing each of those decisions as we go into planning for next year, but certainly, always with an eye towards cost discipline where we think it's appropriate.

--------------------------------------------------------------------------------

Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [22]

--------------------------------------------------------------------------------

Yes. And maybe I'll just tack on to that. I do think that may be important to just emphasize that even we understand that there may be situations where we have less guests and -- but we're still going to, of course, have the full mountain open with the full experience for them. And so there'll be areas where the volume piece, obviously, could potentially be reduced in terms of our expense load. But we are not going to pull back at all on what guests would expect when they come to one of our resorts.

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

Our next question will come from Patrick Scholes with SunTrust.

--------------------------------------------------------------------------------

Charles Patrick Scholes, SunTrust Robinson Humphrey, Inc., Research Division - MD of Lodging, Gaming and Leisure Equity Research and Analyst [24]

--------------------------------------------------------------------------------

I know in a prior press release, you had possibly indicated you might open up say, Breckenridge for -- at the end of the season. I did see that A-Basin has reopened. I'm sure it's not too financially impactful if you did or didn't, but it did seem to give A-Basin some good positive press. I'm wondering what went into your decision to not open Breckenridge.

--------------------------------------------------------------------------------

Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [25]

--------------------------------------------------------------------------------

Yes. I think we felt -- shared in an email that we knew there'd be tremendous enthusiasm certainly to come back. I personally would love to have gotten back on skis. But we also knew -- and our resorts are some of the most popular resorts, right, in North America. And so we know that when we are going to reopen and let people come back, it's got to be in a moment where both our resort, our employees and the local community, and obviously, at Breckenridge, we're very intertwined there, we have to think that it's the right thing all around. And I think we felt like it was just a little early to do that for us. And we're -- I think A-Basin, very supportive of them providing the experience that they did and good to get some folks back on, obviously, more limited than anybody would have wanted, of course. And I think will ultimately be kind of a shorter experience for any of our resorts. I don't think any of us could have gone deep into June or July this year. So for us, it's really a safety thing. I think we just felt like, given the unique nature of Breckenridge and the community and the dynamic, it was just right for us to not bring that piece on yet and really focus all of our attention on providing a safe and really enjoyable experience for summer, which is going to get going here in just a couple of weeks.

--------------------------------------------------------------------------------

Operator [26]

--------------------------------------------------------------------------------

Next we'll hear from Chris Woronka with Deutsche Bank.

--------------------------------------------------------------------------------

Chris Jon Woronka, Deutsche Bank AG, Research Division - Research Analyst [27]

--------------------------------------------------------------------------------

I know you addressed a couple of questions on the cost structure earlier. But just to maybe hit it one more time. If you guys think longer term, so way post-COVID, which hopefully is really soon, but do you see any changes to the -- what you take away from this situation? How you adjusted the cost model? And also, getting at the cost of labor, do you have a view on where that goes over the next 2 to 3 years, given more slack in the environment? I mean, is it crazy to think you would have higher margins 2, 3 years from now?

--------------------------------------------------------------------------------

Michael Z. Barkin, Vail Resorts, Inc. - Executive VP & CFO [28]

--------------------------------------------------------------------------------

I think at this point, we're not -- we have not made any longer-term decisions on cost. And again, I think that we -- I think to the extent that there's technology or other productivity opportunities to take kind of back-of-the-house cost out of our business, I think we'll always look to do that. We always are doing that before. But in terms of anything that could negatively impact the guest experience, yes, we're not -- that's not on the table. And I think in terms of labor, yes, I don't think we're looking at necessarily any reductions on labor rate. I think that the -- certainly, the market may be easier in terms of hiring. I think the market may be easier in terms of housing in many of our local communities. And so I think that's a small positive in an otherwise very challenging negative environment.

And then I think that's an opportunity for us, and I think we shared some of this a couple of years ago, which is to use this to make sure we stay out ahead of this trend going forward and to ensure that I think probably we will have an easier time fully staffing this year. And now it's the time for us to get out ahead of that to make sure over the next 3 to 5 years, we don't see staffing issues again. And so that's something we're very focused on. But in terms of cost or margin improvement on that front, no, I don't think so. I think we'll be looking on the revenue line for that piece.

--------------------------------------------------------------------------------

Chris Jon Woronka, Deutsche Bank AG, Research Division - Research Analyst [29]

--------------------------------------------------------------------------------

Okay. Fair enough. And then I understand that you'll give us more of an update late summer on the season pass. But is it possible -- are there different scenarios where maybe there's a new kind of pass product that could come into the fold later in the season if you see certain things developing? Or do you kind of think that what's out there is going to stick in its current form?

--------------------------------------------------------------------------------

Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [30]

--------------------------------------------------------------------------------

At this point, yes, we're not expecting any changes. I think we've got a product that we think is -- remains very compelling and is, I think, priced well. Obviously, we've got significant credits for people who bought last year. And we intend to reach out, obviously, not just to our own pass holders, but to new pass holders, again, of course. And we do think that, because we were drive to destination, domestic choice, I think for many people, they know our resorts and they know the experience. I think that will go a long way in providing people comfort. I think they understand that we're going to put safety first, no matter what, and I think that will also go a long way. And so we feel like the path and the relationship we have there, I think, will bode well for us. We're not necessarily seeing anything that we have to change. Obviously, I say that, and of course, in this environment, with so many different changes happening so quickly, who knows. But at this point, again, we're pretty comfortable with the direction that we're going in with our pass program.

--------------------------------------------------------------------------------

Operator [31]

--------------------------------------------------------------------------------

Alex Maroccia with Berenberg has our next question.

--------------------------------------------------------------------------------

Alexander Rocco Maroccia, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [32]

--------------------------------------------------------------------------------

Given the data you have on your customers, can you provide any visibility into your average customer demographics as it pertains to current unemployment and declining wage trends you're seeing in the States and abroad?

--------------------------------------------------------------------------------

Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [33]

--------------------------------------------------------------------------------

I don't have that to share in this moment. I think we've shared before and can certainly get to you some of the demo statistics that we've provided on our guests. Obviously, there were -- our guests are certainly impacted, in part maybe due to unemployment. In other cases, many of our guests do come from major urban areas that have been impacted by COVID and things like that. So I think that's part of what we're going to have to overcome, I think, as we look to next year. But at the same time, we also hear very distinctly from these guests and from all the consumer research that people, yes, have a pent-up desire to travel again. And I think that it's just a matter of making sure that where they go is safe, that they feel comfortable, that they have trust in the location that they're going and the operator of whatever the experience is. And so that's something we're going to be relying on. But in terms of specifics on the unemployment side, I wouldn't have that.

--------------------------------------------------------------------------------

Alexander Rocco Maroccia, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [34]

--------------------------------------------------------------------------------

Okay. Understood. And secondly, I'm sure the weakness this spring and potentially this summer could be impacting some of the smaller resorts around yours a bit more heavily just due to the lower capitalizations from the peers. Can you provide any information about financial distress in the industry currently and how it could benefit your reputation in the market and could potentially present some M&A or partnership opportunities if the cash is there?

--------------------------------------------------------------------------------

Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [35]

--------------------------------------------------------------------------------

Yes. At this point, I think many of the players in the industry, I think, are going to weather the storm, and that's what we want to see. And certainly, in times of previous deep recessions or crisis, it's not typically a time where you see a ton of M&A right away. And I think that would be true for us. And in part, I think right now, we do feel like a lot of our focus is going into -- all of our focus is going into our existing resorts, our existing properties, our existing employees. We think this is a moment that calls for that. I think as we get past COVID, as next winter season starts to ramp up, as there's a bit of a more consistent recovery, often, historically, you see conversations start to happen at that point sometimes. And so we'll certainly be open to that at that point. But right now, I think there's a lot of focus just on making sure that we can provide, yes, just the best experience in terms of both safety and how enjoyable it is.

--------------------------------------------------------------------------------

Operator [36]

--------------------------------------------------------------------------------

Ryan Sundby with William Blair has our next question.

--------------------------------------------------------------------------------

Ryan Ingemar Sundby, William Blair & Company L.L.C., Research Division - Research Analyst [37]

--------------------------------------------------------------------------------

Hope both of you're doing well. Michael, maybe I'll start with you. With the extended Epic Coverage and the operator season passes that (inaudible) next year, does that put restrictions on what you can do with the cash? Do you have to make refunds? And would it work similar to the pass credits where this going to be proportional based on maybe how many days the resort is actually closed?

--------------------------------------------------------------------------------

Michael Z. Barkin, Vail Resorts, Inc. - Executive VP & CFO [38]

--------------------------------------------------------------------------------

Yes. I think I'll take those in too, and I'll probably turn over the Epic Coverage piece to Rob. But I think as it relates to the liquidity piece, obviously, any refunds would be relative to deposits made or purchases made. So our liquidity today, right, is largely ahead of pass sales for next year. So obviously, we would be collecting those payments over the fall and then would have that cash. So our liquidity position and the estimates that we made for kind of the runway would be exclusive of that. And I'm not sure I totally caught the Epic Coverage piece, but Rob, if you did, you can just weigh in.

--------------------------------------------------------------------------------

Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [39]

--------------------------------------------------------------------------------

Yes. I think 2 things. One, I think we made a decision that, obviously, we went through this pass season and we did -- we -- obviously, we were closed early and we decided that we were still going to provide credits, even though the program didn't really provide for that at all. But we were not going to provide refunds, because there's really no way to do that. But for next season, we felt strongly that if there are these kind of closures again that, yes, our guests deserve the refunds. And that's something that as we look to -- we didn't have that program in place going backwards, but we are going to have it going forward. And yes, we will absolutely have the liquidity. It's not an issue for our company in terms of providing refunds should that come up. And obviously, we've shared that even in the absence of any operations, right, we have a pretty long runway on the liquidity side. So we don't see that as an issue.

In terms of providing the refunds, we've outlined a couple of options for our pass holders. To the extent that there is a closure from COVID or something like that, then there's really 2 options for our pass holders. One is that they can choose, before the season, a particular week of the season that they're kind of protecting. And this way -- and if the resort is closed during that week, then they would get a full refund. And again, I'm summarizing. There's a lot of details on this, of course, online. But -- or they could choose the whole season. And then if there was a closure, they would get a proportionate amount of the season that was closed. And we did that, because obviously, there are 2 types of skiers, and I think that was one of the challenges looking backwards to this past year. Some skiers really do want to use the pass start to finish. Other skiers are buying the pass just for a particular week of the season when they're going to come out. And so we designed this coverage to really be flexible to be able to provide both of those guests really the peace of mind to know that they are not at risk one way or the other as they go into next season.

--------------------------------------------------------------------------------

Ryan Ingemar Sundby, William Blair & Company L.L.C., Research Division - Research Analyst [40]

--------------------------------------------------------------------------------

Yes. That's really helpful for analysts out there. And then, I guess just, Rob, once the season kind of starts or kicked off, do you feel obligated to have the mountain open every day? Or do you have the flexibility to do some -- maybe open up on a (inaudible)?

--------------------------------------------------------------------------------

Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [41]

--------------------------------------------------------------------------------

Yes -- no, we would -- we do feel the -- that there -- it's incumbent upon us, I think, to keep our mountains open when we can open them based on weather conditions, and obviously, restrictions from health or whatever COVID-type things. But apart from that, no, we do open our resorts, and we do open our terrain. And we want people who come to get the full experience. And we feel that it's critical to do that for all of our guests, pass holders and otherwise. And that's something we are going to do for next year. So we don't see -- if there's lower demand, then -- and I think if you look back to like the '08-'09 recession, no, we did -- we maintained full terrain, full resorts open, even though we had lower demand. Now it's possible that with COVID, we could see even lower demand. But we think we can absolutely still be profitable once we get into the season and that, that is both the right decision for our guests and the right decision for the business.

--------------------------------------------------------------------------------

Operator [42]

--------------------------------------------------------------------------------

Our final question will come from Marc Torrente with Wells Fargo Securities.

--------------------------------------------------------------------------------

Marc J. Torrente, Wells Fargo Securities, LLC, Research Division - Associate Analyst [43]

--------------------------------------------------------------------------------

In terms of lodging bookings, could you give a little more detail on how those are looking month-to-month time? And if you have any insight into the early fall?

--------------------------------------------------------------------------------

Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [44]

--------------------------------------------------------------------------------

Yes. I think we don't -- we're not giving any specifics on that. I think we're -- I think many of the trends we're seeing are probably similar in terms of our markets as in other markets and that cancellations have begun to -- and again, I'm speaking broadly now, cancellations, it's exciting people are starting to book again. I think there's more confidence out there. But it is coming off of a very low base. So it's important to remember that we went a long while there with no bookings and with full cancellation. So I'd say at the moment, our lodging properties are probably not that different than what you're seeing in a lot of resort communities. I think it will be more telling, obviously, as we get towards the end of the summer. But at this point, probably not a ton of insight from the trends, just given how low of a base we're starting from.

--------------------------------------------------------------------------------

Marc J. Torrente, Wells Fargo Securities, LLC, Research Division - Associate Analyst [45]

--------------------------------------------------------------------------------

Okay. Great. And then could you maybe provide any other detail on your assumptions around these season pass credits? What's the typical renewal rate? What's the average credit look like? Anything else you could provide there would be helpful.

--------------------------------------------------------------------------------

Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [46]

--------------------------------------------------------------------------------

Yes. I'd say, yes, we're not providing those details. I'd say, historically, we haven't provided that level of granularity. And certainly, in this moment, there's a fair amount of uncertainty, and obviously, a fair amount of shift and change. But of course, we do feel that the credit program was designed to solve, I think, 2 opportunities for us. One was to make us feel better about last season. And two was, as we said, to incent renewal for next season. And so the pass is really designed to address both of those and the credit piece. And yes, a little bit unclear where that's going to go. But obviously, for us, somebody with a maybe -- who's getting an 80% credit, let's say, on the one hand, you could see that as a cost. On the other hand, you could really see that as an opportunity to the extent that they were not going to renew for next year if they didn't use their pass last year.

So we really tried to factor both of those things in and be precise. And I would say that, that is the that, that program was designed, I think, was leveraging off of all of this work and time that we've had in terms of understanding and dealing with our guests on a more personal one-to-one basis and the flexibility that we had in our system, the kind of robustness that we had to do the analysis to know that this was a good decision for us, not just for the guest piece, which I think it was, but also from a business perspective. So we feel good about it. And I guess we'll have more to share once we get deeper into the selling cycle.

--------------------------------------------------------------------------------

Operator [47]

--------------------------------------------------------------------------------

That will conclude today's question-and-answer session. I will now turn the conference over to Mr. Katz for any additional or closing remarks.

--------------------------------------------------------------------------------

Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [48]

--------------------------------------------------------------------------------

Thank you, operator. This concludes our fiscal third quarter 2020 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.

--------------------------------------------------------------------------------

Operator [49]

--------------------------------------------------------------------------------

That will conclude today's conference. Thank you for your participation. You may now disconnect.