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Edited Transcript of MTN earnings conference call or presentation 9-Dec-19 10:00pm GMT

Q1 2020 Vail Resorts Inc Earnings Call

BROOMFIELD Dec 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Vail Resorts Inc earnings conference call or presentation Monday, December 9, 2019 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Michael Z. Barkin

Vail Resorts, Inc. - Executive VP & CFO

* Robert A. Katz

Vail Resorts, Inc. - Chairman & CEO

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Conference Call Participants

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* Alexander Rocco Maroccia

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

* Brett Richard Andress

KeyBanc Capital Markets Inc., Research Division - Associate VP

* Charles Patrick Scholes

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

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Presentation

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Operator [1]

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Good day, and welcome to the Vail Resorts First 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.

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

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Thank you. Good afternoon, everyone. Welcome to our fiscal 2020 first quarter 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, December 9, 2019, 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, www.vailresorts.com.

So with that said, let's turn to our fiscal 2020 first quarter results. Overall, we are pleased with our results in the first fiscal quarter. Our Australian resorts delivered a strong performance with another record year at Perisher on an Australian dollar basis and very strong results in our first year of operations at Falls Creek and Hotham. Our strong Epic Australia pass sales, good conditions and the addition of the Leichhardt chairlift at Perisher supported our continued momentum in the Australian market. Our consolidated results from Perisher were negatively impacted by the strong U.S. dollar, which created an approximate $2 million Resort Reported EBITDA headwind from currency translation in the quarter relative to the prior year results.

Whistler Blackcomb's summer business performed very well with strong performance in its world-class mountain biking operations and sightseeing, supported by the addition of the new Cloudraker Skybridge. Our U.S. Epic Discovery business continues to grow and generate strong financial returns. Our lodging business experienced mixed results with continued success from our properties at Grand Teton Lodge Company, partially offset by softer results at our Colorado properties, in part due to weaker group demand in comparison to the prior year period.

Turning now to our 2019/2020 North American pass sales for our resorts and early season indicators. As we approach the end of our selling period, season pass sales for the North American ski season are up approximately 17% in sales dollars and approximately 22% in units through December 2, 2019, compared to the prior year period ended December 3, 2018. The results include military pass sales and peak resorts pass sales in both periods and are adjusted to eliminate the impact of foreign currency by applying an exchange rate of $0.75 between the Canadian dollar and U.S. dollar in both periods for Whistler Blackcomb pass sales. Excluding sales of military passes, season pass sales increased approximately 16% in sales dollars and approximately 22% in units over the comparable prior year period.

As we expected, growth in sales dollars was lower than our unit growth, primarily from the inclusion of our Epic Day Pass products. We are very pleased to see the strong sales growth in our season pass program that exceeded our expectations. We continue to see very strong growth in our Northeast markets, which are benefiting from the first full year of pass sales with unlimited access at Stowe, Okemo and Mount Sunapee, the recent addition of Peak Resorts and the improved impact of the expanded guest data and insight we now have in that region.

Our destination markets outside of the Northeast also saw very strong growth and continued to perform well through our enhanced ability to reach destination guests with our data-driven marketing and the introduction of the Epic Day Pass. Our local markets continue to show solid overall growth, driven by favorable results among our local guests in the Whistler Blackcomb region, with particular strength in Seattle from the first full pass sales season with access to Stevens Pass. We are also seeing strong results from our Northern California and Utah guests.

Sales in our Colorado local market were softer, with solid results in our Epic products offset with declines in certain regional products, which was expected without the Arapahoe Basin on those passes. Those declines will be more than offset by lower partnership payments.

The majority of our sales growth came from our Epic and Epic Local products, where we saw solid growth in new pass holders and renewing pass holders with less trade down to Epic Day Pass than we were expecting. Epic Day Pass was a strong success in its first year with an expanded product offering and was a significant contributor to our overall growth and exceeded our expectations, particularly in the Epic 2- and 3-day products. We believe this bodes very well for the long-term opportunity of Epic Day Pass, as we begin to highlight the incredible value to lower frequency guests. Importantly, the vast majority of Epic Day Pass sales came from new pass holders, with particular success in destination markets.

Our military program delivered strong growth, with the program continuing to generate strong renewal rates while also adding new pass holders. We expect that the total number of guests on all advanced purchase passes this year will exceed 1.2 million, including all U.S., Canadian and Australian passes and Epic Day Pass, representing an incredible group of highly loyal and passionate guests.

Overall, lodging bookings for the season are largely in line with prior year bookings. Based on historical averages, around half of the bookings for the winter season have been made by this time, though it is important to note that our lodging bookings represent a small portion of the overall lodging inventory around our resorts. The early season experience at our resorts has been encouraging with strong conditions across our Colorado, Tahoe and Northeastern resorts. Both Keystone and Vail have benefited from early snow and our recent snowmaking investments, which allowed Keystone to open on October 12 and Vail to open on October 15 and deliver a much improved experience to guests over Thanksgiving.

Our resorts in Tahoe and Utah have opened with typical conditions for this time of year, and our Northeast resorts have started strong with certain resorts opening weeks earlier than in prior years. We are thrilled to welcome guests to all of our resorts as the 2019/2020 North American ski season kicks off with several transformational enhancements to the guest experience at our resorts.

In Colorado, we have made significant investments in our snowmaking systems that have transformed the early-season terrain experience at Vail, Keystone and Beaver Creek. As a result of these investments, Keystone experienced its earliest opening in more than 20 years, and Vail opened earlier than usual with an improved terrain offering available at opening, elevating the experience for our guests.

At Park City, we transformed the Tombstone Express area with a new permanent Tombstone BBQ restaurant and the new 4-person Over and Out lift that provides a quicker, more direct route for skiers and riders to access Canyons Village from the center of the resort. In addition, we completed a full renovation of the Beaver Creek children's ski school facilities and improvements to the Peak 8 base area at Breckenridge with new ski school and childcare facilities as well as an improved ticket and retail and rental experience.

We remain highly focused on investments that will substantially improve the guest experience across our resorts and implemented a new mobile lift ticket fulfillment technology that eliminates the ticket window for guests who purchase their tickets in advance. We also completed one of the final stages of our point-of-sale modernization project, invested in technology to automate our data-driven marketing efforts. We completed significant onetime investments across the acquired resorts of Crested Butte, Okemo and Stevens Pass, which included replacing and upgrading the Daisy and Brooks lifts at Stevens Pass and the Teocalli lift at Crested Butte as well as on-mountain restaurant upgrades at Okemo.

Now I would like to turn the call over to Michael to further discuss our financial results and our fiscal 2020 outlook.

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

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Thanks, Rob, and good afternoon, everyone.

As Rob mentioned, we are pleased with our first quarter performance. Resort net revenue was $263.6 million in the first fiscal quarter, an increase of $43.7 million compared to the prior year. Resort Reported EBITDA was a loss of $76.7 million in the first fiscal quarter, which compares to a Resort Reported EBITDA loss of $72.5 million in the same period in the prior year. Fiscal 2020 first quarter Resort Reported EBITDA included $9 million of acquisition- and integration-related expenses and approximately $2 million of unfavorability from currency translation, which the company calculated on a constant currency basis by applying current period foreign exchange rates to the prior period results.

Net loss attributable to Vail Resorts was $106.5 million for the first quarter of fiscal 2020 or a loss of $2.64 per diluted share as compared to a net loss of $107.8 million or a loss of $2.66 per diluted share for the same period in the prior year. The net loss for the first quarter of fiscal 2020 included the after-tax effect of acquisition- and integration-related expenses of $6.8 million and approximately $1 million of unfavorability from currency translation, which the company calculated on a constant currency basis by applying current period foreign exchange rates to the prior period results.

Our balance sheet at quarter end remains strong. We ended the quarter with $136.3 million of cash on hand and $1.9 billion of net debt. As part of the Peak Resorts acquisition, we expanded our existing term loan facility by approximately $336 million and assumed a portion of Peak Resorts' debt. Our net debt was 2.8x trailing 12 months total reported EBITDA, though it is important to note that this ratio only includes Peak Resorts' results for the loss period between closing and quarter end, and we do expect that ratio to decline as we incorporate the full season of Peak Resorts' results.

I'm also very pleased to announce that our Board of Directors has declared a quarterly cash dividend on Vail Resorts' common stock of $1.76 per share payable on January 9, 2020, to shareholders of record on December 26, 2019. Additionally, the company repurchased approximately $21.4 million of stock during the quarter at an average price of $224.28.

Now turning to our outlook for fiscal 2020. Given our first quarter results and the indicators we are seeing for the upcoming season, we are reiterating our Resort Reported EBITDA guidance for fiscal 2020 that was included in our September earnings release, which is based on the assumptions incorporated at that time, including foreign currency exchange rates. While pass sales results to date have been encouraging, it is important to remember that the North American ski season has just begun with our primary earnings period still in front of us. As always, the upcoming holiday period is a key period of the ski season, and we plan to publicly report certain ski -- certain season-to-date ski season metrics on January 17, 2020.

I'll now turn the call back to Rob.

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

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Thanks, Michael. We remain committed to reinvesting in our resorts, creating an experience of a lifetime for our guests and generating strong returns for our shareholders. We will announce our complete capital plan for calendar year 2020 in March 2020, but we are pleased to announce our signature investments planned for the 2020/2021 season.

We are excited to announce a 250-acre lift-served terrain expansion in the signature McCoy Park area of Beaver Creek. This new lift accessed beginner and intermediate bowl experience is a rare opportunity to expand with highly accessible terrain in one of the most idyllic settings in Colorado and will further differentiate the high-end, family-focused experience at Beaver Creek.

At Breckenridge, we plan to install a new 4-person high-speed lift to serve the popular Peak 7. This additional lift will further enhance the guest experience at the most visited resort in the U.S. and will significantly increase guest access and circulation for the intermediate terrain on Peaks 6 and 7. Subject to government approvals, at Keystone, we plan to replace the 4-person Peru lift with a 6-person high-speed chairlift in order to increase capacity out of a key base area of the resort and improve guest access, circulation and the experience in one of the top-performing resorts in the U.S.

At Whistler Blackcomb, we intend to significantly increase the seating capacity at the Rendezvous Lodge Restaurant on Blackcomb Mountain. The expansion will add 250 seats at a critical on-mountain restaurant, further enhancing the experience at North America's largest resort.

Our capital plan includes several key investments that will continue to further our company-wide data-driven approach. We are now in the second phase of implementing our automated digital marketing platform that will allow us to aggregate a more holistic view of the guest that will drive improvements in personalization and engagement across all lines of business, including ski school and rentals. We will also be investing to completely revamp and upgrade our digital ski rental online platforms to provide a more seamless advanced purchasing process and to allow more dynamic pricing and discounting to broaden access during off-peak times. Finally, we will be launching a completely revamped EpicMix mobile app that will offer new functionality and an improved user experience.

We will continue to invest in corporate infrastructure and technology to improve our scalability and efficiency as we work to optimize our processes, business analytics and cost discipline across our network. This will include the implementation of an automated workforce planning system to optimize our labor scheduling and improved financial systems to enhance business analytics.

For the recently acquired resorts of Crested Butte, Okemo and Stevens Pass, we are planning to complete the second and final phase of a 2-year, $35 million investment program. Subject to government approvals, we plan to complete a transformational investment at Okemo, including upgrading the Quantum lift from a 4-person to a 6-person high-speed chairlift, relocating the existing 4-person Quantum lift to replace the Green Ridge 3-person fixed-grip chairlift and improving the base area experience through a renovation of the Base 68 restaurant, expansion and renovation of the children's ski school facility and enhancement of the guest arrival experience.

We plan to spend approximately $24 million on integration activities primarily related to Peak Resorts.

Our capital plan for calendar 2020 includes onetime real estate investments of approximately $3 million, which are related to and funded by land sales completed in calendar 2019 with third-party developers at the Keystone One River Run site and Breckenridge East Peak 8 site. While we expect these projects to occur in calendar 2020, these investments remain subject to municipal approvals of those development projects, creating timing uncertainty.

Our capital plan for calendar 2020 will be approximately $155 million to $160 million, excluding onetime items associated with integrations, the onetime Triple Peaks and Stevens Pass transformation plan, onetime Peak Resorts capital improvements, real estate-related capital and $4 million of reimbursable investments associated with insurance recoveries that we had originally expected to occur in calendar 2019. Including these onetime items, our total capital plan will be approximately $210 million to $215 million. We will be providing further detail on our calendar year 2020 capital plan in March 2020.

Our attention to service and our commitment to delivering an outstanding guest experience across our network continue to be the focus of our company's efforts, and we are thrilled to welcome our pass holders to the 17 Peak Resorts ski areas this year.

I would like to thank all of our employees for their passion, hard work and commitment to creating the experience of a lifetime for our guests, which, as always, lies at the center of our success. We hope that you all enjoy a fun and safe season ahead.

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

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Questions and Answers

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Operator [1]

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

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

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So your season pass sales were great. Congratulations on a strong year there. Wondering if by any chance you guys could help us understand what percentage of the Peak folks converted to Epic? And considering that I don't really think you're going to answer that question, maybe that you can kind of frame it and was it kind of better, in line or worse than what you expected?

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

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Yes. I would say, we're not sharing that and -- for 2 reasons. One, we typically don't share that kind of detail. But also, we're just in the process of actually bringing the 2 databases together. And so at this point, we couldn't even say because we haven't had a chance to really fully look at the results from -- that just ended a little while ago. I would say, yes, I think we've been quite pleased with the results from Peak, obviously, including Peak's program. Obviously, just because they have a base of passes that most of you could see in their public results from us here. Obviously, that depresses our growth rate modestly. But then, obviously, there's an incremental opportunity by having Peak in the program, both in terms of the people who might convert or upgrade over to our passes, but also, obviously, new people coming in from the different destinations where Peak has a resort. So we feel very good about it. Again, in the first year, we haven't had a full opportunity yet to really market to those guests to do all of our data collection and capture. So we believe there's still a very strong opportunity on that front for next year.

And I think we are also quite pleased that a lot of the strong trends that we saw on the destination side in the Northeast, we saw across our network. So just, I think, felt very confident in everything that we laid out for the season pass effort this year and seeing it come to fruition, including Peak.

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

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That's really helpful. And then you did mention both in the press release and in your prepared remarks that you didn't see much trading down, and you did see new entrants to the program. So I was just wondering why you didn't see as much trade down as you expected. Kind of maybe you can give a little bit more color on the complexion of the sales there. And then can you also tell if you were able to recapture folks who are on Epic in the past but left the program because it didn't fit their needs and now they're coming back?

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

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Yes. I think on the trade down, what I would say broadly, I think, one, there's a lot of loyalty, obviously, to our Epic and Epic Local Pass holders into those products, a lot of loyalty from even the Epic 4 and Epic 7 holders in that -- in those higher-volume products. And I think, obviously, as we offered -- broadened kind of the number of options at lower price points, we assumed we might see a little bit more trade down, which didn't happen, which I think speaks very well for the kind of connection that we have to those guests. I think it's also -- it's a program that will take time over time to -- just like when we first introduced the Epic Pass, one of the things that was our biggest challenge was just convincing people who didn't live near the ski resort that a season pass was a potential option for them. Now I think we're really on a new journey, which is convincing these 1-, 2-, 3-, 4-day skiers that actually a pass product is right for them, gives them a great discount. The economics makes sense clearly, but obviously, getting that message out takes a number of years and all the marketing effort that we put into it. So I think that, in our minds, is -- still kind of lies ahead, I think, for the overall program and the opportunity with Epic Day Pass.

Yes, I can't really comment on the specifics of that in terms of some of the trading, but we absolutely saw, I think, a benefit in terms of both bringing people back into the program, but most importantly, introducing new people to the program. So that was the predominant, I think, success that we saw with Epic Day Pass, both in terms of people who were previously on lift tickets and prospects, people who were not necessarily in our database before. So I think all of those are good signs for the future.

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

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And then just my final question is just on Whistler. I think some folks are concerned that this was getting a slow start. How are you thinking about the demand patterns that you're seeing there?

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Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [7]

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Yes, I think conditions at Whistler are definitely more challenging than probably anywhere else in our network. And I think, obviously, we're hopeful that we're going to see that turnaround, obviously, before the key Christmas holiday. I think, certainly, the data points on Whistler, I think, generally, look fine, again, largely in line with what we would expect. But obviously, that -- in part, that's going to -- some of our results will depend, of course, upon the actual conditions when people come certainly for the holidays and beyond. I think one of the good things about Whistler, obviously, is that you have a lot of people who book with longer lead times. And so -- I think so long as kind of conditions come before the holidays, I think that still gives us a good opportunity to essentially have, I think, still a strong holiday period. But that said, obviously, yes, some of this is still going to be dependent on what the conditions are at the time.

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Operator [8]

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

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

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Rob or Michael, maybe just to start in kind of talking about the day pass in a different variety. Can you maybe help us just think about how the launch has gone off relative to some of the initial results you either saw from the Epic 4-day product or the military product? I think from the outsider perspective, military was kind of huge adoption upfront, pretty close to like 100,000 units. Day pass -- or the 4-day took -- it was an introduction, but probably more incremental and took some time to build. Maybe without giving specifics because I know you won't, maybe give us just some color about how relative to those products, what kind of behaviors you saw with the day pass?

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

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Yes. I would say, definitely more in line with the 4 day, I mean, just broadly, not specific by specific, but more broadly, definitely different than military. Obviously, military was a product that was discounted very, very significantly and really changed kind of how we provided access to those who served in the armed forces. So I would say that, that was obviously a much more quick adoption, but I certainly think -- we mentioned in our remarks, we're quite pleased to see the results in the second year and seeing both the loyalty and this improvement, obviously, in the revenue from the program. I think on Epic Day Pass, my belief is that it will take a number of years to continue to broaden, I think especially in those lower-frequency pass products, and that is where, I think we said that it certainly exceeded our expectations in part because a little unclear to us as we -- when we launched and designed the product, how long it would take us to begin to get adoption on that. And so we're very pleased that to start off on such a strong foot. But like Epic 4 and 7, it will take a number of years, I'm sure, for us to come close to where the maturity could be for that product.

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

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And you noted both throughout, I think, a lot of the commentary the strength in destination and then also obviously seeing new guests, and I think there was some skew towards destination markets even for new sign-ups around the day pass. Why aren't we seeing like a similar movement on the lodging side? I know the lodging business is going to depend probably more market to market and maybe a little bit lumpier. But I would think if you're seeing such great activity from destination, they're likely to have longer lead times that might be like what you'd see in lodging. So just any kind of observation on why that may not -- why that pattern may be a little different?

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

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Well, I think you're looking at different dynamics that are going on. I think if we're talking about "lodging bookings into the season," if that's what we're looking at, then I think, obviously, although we're making great strides on the Epic Day Pass, still obviously doesn't represent a huge percentage of the total, right, in terms of how many people ultimately come to the resort. And I think we feel good about where we see lodging bookings and obviously feel like they support our overall guidance for the year. And the over-delivery on Epic Day Pass, I think, certainly built our confidence. But I don't know that it's yet enough to -- that it would really change the total lodging drivers for any of our resorts. And again, especially a lot of our -- the lodging bookings that we're talking about in the release speak to our owned and operated managed properties, that, right, is also a smaller percentage, right, of the overall market.

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

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And then last question for me would be, just -- I think you may have alluded to this in answer to Felicia's question. But just when we think about the contribution from Peak overall, did -- and again, I apologize if I missed it, did Peak -- what was the overall impact to growth rate now that we've put it in the base? Was the -- that was the core Peak trend accretive to the total growth kind of in line with, did it move it at all? Or was it less than that or did it sort of dilute the total growth rate as you think about what you saw overall?

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

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Yes. I think, again, it's hard for us to be precise around that because there are so many different things happening at the same time when you include Peak, and we can't track any of them necessarily with precision. So obviously, including Peak in our program pulls down the growth rate because it increases the base. Then you have people who actually moved from Peak passes to Epic passes, and as I mentioned, we feel good about that, but we haven't been able to do all the analysis to kind of bump those 2 databases piece by piece. But then there's -- in every pass program, certainly for Peak, certainly for us, there's -- there are people who come in and out every year. And so it's a little bit hard for us to fully understand, right, when we see pickup in markets around Peak, is that people who were going to Peak? Is it because of Peak? Is it -- were they on the verge of buying before and Peak just pushed them over the edge? I mean, all of those things, I think, we try and assess. Now overall, I think we feel like absolutely Peak was a positive, not the primary driver of our results by any stretch, but absolutely a positive for this year and I think a first step in the kind of impact that I think Peak can make. And again, I think -- we think we'll see a bigger impact next year. So I think in line and kind of it's largely to what we expected, but it's unfortunately not possible to truly parse it out.

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Operator [15]

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We'll now hear from David Baron with Baron Capital. We'll hear from Alex Maroccia with Berenberg.

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Alexander Rocco Maroccia, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [16]

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Just one for me. I'm looking at some of the political unrest down in South America right now. I'm just wondering what you're seeing year-over-year in the early buys and season pass sales to some of those international customers.

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Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [17]

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Yes, I don't -- I think at this point, obviously, Mexico is a very important market for us. I think outside of Mexico, the other markets in Latin America are a little bit less important, especially over the last couple of years because Brazil has become a little less important. Some of the other countries have receded a bit, both with the strong U.S. dollar and some of the challenges, I think, that we've seen in those economies over the last couple of years. So we don't -- I don't think in -- outside of Mexico, I don't think we see some of those other countries as being overall material at this point to present a trend. So we're watching the same thing, but a little bit of a smaller impact probably to the company in the upcoming year.

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Operator [18]

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We'll now hear from Brent -- Brett Andress with KeyBanc Capital Markets.

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Brett Richard Andress, KeyBanc Capital Markets Inc., Research Division - Associate VP [19]

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Just a quick question for me. On the December period, the one that caught most of us off-guard last year, do you have any leading indicators that give you confidence that the early holiday period this year could improve, if not stabilize, versus last year?

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Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [20]

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Yes. I think, obviously, we stare at that and obviously include whatever indicators we have on that certainly in the decision we make about reaffirming guidance. But at the same time, I would say we don't have perfect information. As we said, we have different lodging indicators. But in some cases, they don't represent the totality of -- by any stretch of the market. Obviously, the pass sale piece, we certainly feel good about. And on conditions, we feel good, but those are always going to be variable. So what I'd say is, yes, we obviously have taken the experience from last year and incorporated that in our thinking as we put out -- reaffirmed guidance this year. But of course, there's always going to be uncertainty no matter what.

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Operator [21]

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Next, we'll hear from Patrick Scholes with SunTrust.

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Charles Patrick Scholes, SunTrust Robinson Humphrey, Inc., Research Division - MD of Lodging, Gaming and Leisure Equity Research and Analyst [22]

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Just a point -- a question on clarification. You talked about overall lodging bookings for the season coming up are largely in line with prior year bookings. To be specific, is that just occupancy on the books? And how does room rate, ADR, look for those bookings?

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Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [23]

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So that -- yes, that comment is just about occupancy and room nights on the books and does not -- we're not commenting on rate.

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Operator [24]

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Our next question will come from David Katz with Jefferies.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [25]

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Congrats on the quarter. I wanted to ask about kind of a longer-term growth. We have many discussions about what's -- what lies ahead on the M&A front, in particular. And we've talked in the past about maybe Europe, maybe Asia, and we've seen the acquisitions that you've made very productively in the domestic market. Where is your focus in terms of M&A going forward?

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Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [26]

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Yes. Well, one, I just would add, I think not only, I think, have we been successful with our acquisitions domestically in North America, but I think we've been very successful with the acquisitions in Australia that have been huge contributors, I think, to incremental growth, certainly in the summer months. And I think the pass opportunity in Australia has also been quite strong. I think there are going to be select opportunities in North America where we feel like we can continue to bolster the network. And then I think we are focused in Asia, particularly in Japan and certainly in Europe. And I think we've been quite open that those are, obviously, tougher markets obviously to enter into, and we'll probably have to ultimately be more flexible in terms of our approach. But we also feel like there are both short-term and long-term opportunities in those markets from passes, from using data in a better way, from the collaboration and partnership that I think we could bring to any of the resorts in those markets. So no doubt it takes longer. And no doubt also, we've been preoccupied with a lot of things that we've been doing in North America over the last number of years. But as we look to the future, we certainly see more ultimately on the opportunity front coming from outside North America.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [27]

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Got it. And I did not intend to suggest that the international acquisitions haven't been -- all of the acquisitions have been very productive. Rob, the last quarter, we went through the transcripts, as I recall, and counted references to the economy. Irrespective and not asking you for a broad call on the economy, but what are your perceptions from what you are seeing in Vail's business in terms of just consumer appetite, strength, weakness versus where it was 90 days ago?

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Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [28]

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I don't know. I think in the U.S., I'm not sure we're seeing a discernible change. I mean, I think that inside our business -- obviously, I'm reading the same stories and research reports that everybody is. But in terms of inside our business, I'm not sure that we've seen necessarily a discernible change. So -- and I still think we feel certainly quite good about the trends that we're seeing in the U.S. I think on the international front, it's a little tougher, obviously, with the stronger U.S. dollar, with what -- with some instability in terms of what was mentioned earlier elsewhere in Europe. So on that front, I think a little bit more unclear but certainly are not seeing, I think, a big enough change since the September call that it has affected our outlook for the season.

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Operator [29]

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Next, we'll hear from Ryan Sundby with William Blair.

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Ryan Ingemar Sundby, William Blair & Company L.L.C., Research Division - Research Analyst [30]

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Congrats on the quarter. Rob, I guess, as you've kind of doubled your pass base, it feels like, over the last handful of years or so, are you starting to see any kind of on-mountain or maybe it's even off-mountain capacity constraints that are kind of preventing you from selling more passes going forward? And then I guess, second, when you look at kind of pass sales exceeding expectations for the year, could you maybe just point out to what you thought was maybe the biggest upside driver or maybe kind of 1 or 2 biggest upside drivers for the -- where that upside came from? That would be great.

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Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [31]

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Sure. We're not seeing capacity constraints. I think in terms of on-mountain, I think there are only a handful of days typically in any year that we really feel like we run into true capacity issues. And often, especially on the destination side, really the capacity limiter is lodging and places for people to stay. And so at the moment, I'm not -- we're not concerned about that being something that would constrict our growth in the short term on the capacity side. I do think, though, obviously, that having dramatically grown the pass program has really added tremendous stability and loyalty to our company, and that's something that I think bodes quite well for the long term.

On the biggest upside driver, I would say probably 2 different pieces. One, I think we've already talked about, which is we certainly saw great strength on the Epic 2 and Epic 3-day, particularly, obviously, later in the selling cycle, which we knew was the potential opportunity. I think a lot of new people, both new to the pass program, prospects coming into the program, all of that was quite positive. And I think the other piece was real strength in the Epic and Epic Local products. So the fact that we saw both of those do quite well this year, yes, again, I think speaks volumes to both the experience we offer, the design of the product and how we marketed and communicated with our guests about it. So yes, all of those were strong positives this year.

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Operator [32]

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

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Marc J. Torrente, Wells Fargo Securities, LLC, Research Division - Associate Analyst [33]

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Congrats on the quarter. With Epic Day, any more detail you can provide on the makeup of those product sales, maybe days purchased, local versus destination, consumer type compared to your expectations originally? And then are you able to tell of those who previously purchased lift tickets, are they buying more days on that product since it's more affordable?

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Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [34]

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Yes. I would say on -- mostly aligned with what I've been sharing earlier, I think that the -- that obviously, the -- in terms of versus our expectation, I would say pleasantly surprised by the -- just the strength of the prospect market for that product. Obviously, you just don't know when you go out the new product, how many people will come in who you don't have currently in your database. So I think between that, people who are then just new to the pass program, all of that was a real positive. The strength of Epic Day Pass is very much in the destination markets, much more so than in the local markets. I think that, that may represent an opportunity as we go forward, and again, as we continue to craft our marketing approach. But right now, it's very much a destination product, which is good, because that's exactly where it was targeted towards. And we are seeing increases, but hard to say. I think we'll kind of -- probably have better insight on kind of the overall frequency improvement as we see the season play out. But right now, again, feeling good about the opportunity that we've provided people and the opportunity that it's given the company.

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Marc J. Torrente, Wells Fargo Securities, LLC, Research Division - Associate Analyst [35]

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Okay. Great. And then just one more. Now that you've owned Peak for a few additional months, what have you learned in terms of their strengths, weaknesses, needs, their pass program, data, et cetera?

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Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [36]

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I think, we've been, one, really impressed with the people. I think they've got a terrific employee base, incredibly passionate, very committed. Obviously, it's a big, big challenge to go through a transition like this. And I think they've been totally committed to the experience on the mountain and the guests. So I think that was great to see. Their operations, right, their snowmaking expertise, also quite strong, obviously very critical for many of their resorts. And so no surprise they have a real strength there. And I think absolutely, opportunities around data, I think they are -- had a very good first couple of years with their new pass program but obviously are still early in that effort. And so I think that's an opportunity, especially for us for next year as we can use a little bit of our tools that we have at our disposal and the team that we have here to use data better, capture data on a much more rigorous basis and really broaden the kind of impact that they can have in the local markets that they serve. So I think, very much aligned with our expectations. Good resorts, run well. I think that they'll be a great addition to our broader mountain team and then a real opportunity for us to use a little bit more sophisticated approaches on the data, marketing and many of the corporate functions. Obviously, we just have -- just a little bit more history right behind us that we think can help to drive value.

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Operator [37]

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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.

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Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [38]

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Thank you, operator. This concludes our fiscal 2020 first quarter earnings call. Thanks to everyone who joined us 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.

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Operator [39]

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