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Edited Transcript of MTN earnings conference call or presentation 6-Jun-19 9:00pm GMT

Q3 2019 Vail Resorts Inc Earnings Call

BROOMFIELD Jun 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Vail Resorts Inc earnings conference call or presentation Thursday, June 6, 2019 at 9:00:00pm 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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* Brennan James Matthews

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

* 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

* 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, ladies and gentlemen, and welcome to today's Vail Resorts Third Quarter Fiscal 2019 Earnings Call. Just as a quick reminder, today's program is being recorded.

And at this time, I'd like to turn the floor over to Mr. Rob Katz.

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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 third quarter fiscal 2019 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 6, 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 a quarterly report on Form 10-Q, are 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 2019 results. We are pleased with our overall results for the quarter and for the full 2018-2019 North American ski season, with strong growth in visitation and spending compared to the prior year, including a strong finish to the season with good conditions across our Western U.S. destination resorts.

After the challenging early-season period for destination visitation, our results for the remainder of the season were largely in line with our original expectations. Our results throughout the 2018-2019 North American ski season highlight the growth and stability resulting from our season pass, the benefit of our geographic diversification, the investments we make in our resorts and the success of our sophisticated data-driven marketing efforts.

Our Colorado, Utah and Tahoe Resorts experienced strong local and destination visitation throughout the third fiscal quarter, supported by favorable conditions across the Western U.S., which also allowed for an extension of the ski season for select resorts in Colorado and Tahoe.

The company continued experiencing relative weakness in international visitation compared to the prior year, particularly at Whistler Blackcomb. Total lift revenue increased 16.4%, driven by a 14.3% growth in skier visitation primarily from Triple Peaks and Stevens Pass. Total effective ticket price, or ETP, increased 1.8% in the third quarter compared to the prior year primarily due to price increases in both our lift ticket and season pass products, partially offset by: higher skier visitation by season pass holders; lower ETP from the acquired Triple Peaks and Stevens Pass resorts; and the new military Epic Pass.

Excluding season pass holders, ETP increased 5.5% compared to the prior year. The growth in visitation and spending compared to the prior year, along with the addition of Triple Peaks and Stevens Pass, drove a 9.4% increase in ski school revenue and 11.7% increase in dining revenue and a 9.5% increase in retail rental revenue compared to the prior year.

Now I would like to turn the call over to Michael to further discuss our financial results and our updated 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 third quarter performance, with strong growth in visitation and spending compared to the prior year. Resort net revenue was $957.7 million, an increase of 13.8% compared to the prior year. Resort Reported EBITDA was $480.7 million, an increase of 14.5% compared to the prior year. Mountain revenue was $877.9 million, up 13.6% from the prior year, and Mountain Reported EBITDA was $468.1 million for the third quarter, up 14.4% from the prior year.

Our lodging results for the third fiscal quarter were positive, with revenue, excluding payroll cost reimbursements, increasing 16.8% compared to the prior year, primarily due to the incremental operations of Triple Peaks. The average daily rate decreased compared to the prior year, primarily as a result of the inclusion of the Triple Peaks Resorts as well as incremental managed Tahoe lodging properties that we did not manage in the prior year, all of which generate a lower average daily rate as compared to the our broader Lodging segment.

Net income attributable to Vail Resorts, Inc. was $292.1 million or $7.12 per diluted share for the third quarter fiscal 2019 compared to net income of $256.3 million or $6.17 per diluted share in the third fiscal quarter of the prior year. Additionally, fiscal 2019 third quarter net income included the after-tax effect of acquisition and integration-related expenses of approximately $4.1 million and approximately $1 million of unfavorable currency translation, primarily related to operations at Whistler Blackcomb, which the company calculated by applying current period foreign exchange rates to the prior period results.

Our balance sheet remained strong and the business continues to generate robust cash flow. We ended the quarter with $59.6 million of cash on hand, and our net debt was 1.8x trailing 12 months total reported EBITDA.

I am also very pleased to announce that our Board of Directors has declared a quarterly cash dividend on Vail Resorts' common stock. The quarterly dividend will be $1.76 per share of common stock and will be payable on July 11, 2019 to shareholders of record on June 26, 2019.

Given the strong finish to the season, our successful season extensions and our continued focus on cost discipline, we now expect Resort Reported EBITDA on a comparable basis with our prior guidance issued March 8, 2019, which excluded the expected Resort Reported EBITDA contribution from the Falls Creek and Hotham Resorts, to be between $700 million and $710 million. For fiscal 2019, Falls Creek and Hotham Resorts are expected to contribute approximately $2 million of Resort Reported EBITDA, including a $3 million stamp duty payment and $1 million of integration expenses.

Including the impact of Falls Creek and Hotham, the company expects net income for fiscal 2019 to be between $277 million and $297 million, and Resort Reported EBITDA to be between $702 million and $712 million, which includes an estimated $16 million of acquisition, stamp duty and integration-related expenses and $4 million of unfavorable foreign exchange as a result of the U.S. dollar strengthening relative to the time of our initial guidance issued in September 2018.

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

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

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Thanks, Michael. We are very pleased with the results of our season pass sales to date, which showed strong growth over the record pass sales results we saw last spring, with particular strength over the Memorial Day deadline.

Pass sales through May 28, 2019 for the upcoming 2019-2020 North American ski season increased approximately 9% in units and 13% in sales dollars as compared to the prior-year period through May 29, 2018, excluding sales of all military pass products in both periods, including Stevens Pass and Triple Peaks pass sales in both periods and adjusted to eliminate the impact of foreign currency by applying an exchange rate of $0.74 between the Canadian dollar and the U.S. dollar to the current period and the prior period for Whistler Blackcomb pass sales. Military pass sales are off to a strong start, but remain in our verification period, and we will plan to provide further updates on sales trends as the selling season progresses.

Our pass sales growth was primarily driven by strong results in our destination markets. In particular, we had very strong growth in our northeast markets, which are benefiting from the first full year of pass sales with Stowe, Okemo and Mount Sunapee included with unlimited access on the Epic and Epic Local Pass products. Our broader destination markets continue to perform well as we expand the resorts available on our network, including the recent addition of Sun Valley and Rusutsu, and enhanced our ability to reach destination guests with our data-driven marketing.

Our local markets continued to show solid growth, driven by favorable results among our local guests in the Whistler Blackcomb region, with particular strength in Seattle with the first full pass sales season, including access to Stevens Pass. We are also seeing strong results from our Northern California and Utah guests, partially offset by more modest sales growth in our Colorado local market. As expected, removing access to Arapahoe Basin on our pass products; lowered our renewal rate on the Summit Value and Keystone Plus Pass products, but we expect any loss of revenue to be more than offset by the elimination of our partnership payments to Arapahoe Basin. We have seen good growth from our new Epic Day Pass, though it was not material to our overall pass sales dollar growth in the spring and we anticipate that sales of this new product will be primarily concentrated in the fall.

It is important to note that as we drive more guests to purchase passes in the spring, we believe the full year pass sales growth dollar rate, excluding military pass sales, will be lower than our spring growth rate with stronger relative performance in late fall versus Labor Day due to the introduction of Epic Day Pass.

The 2019 Australia ski season kicked off early at Perisher, and we are very pleased with the ongoing sales of the Epic Australia Pass, which end on June 18, 2019, and are up approximately 19% in units through June 2, 2019 as compared to the prior-year period through June 3, 2018, representing another significant year of growth and over 65% growth in the past 3 years. This year, Epic Australia Pass sales have benefited from the addition of Rusutsu in Japan. Given the timing of the Falls Creek and Hotham transaction closing in April, we won't see the full benefit of the Falls Creek and Hotham acquisitions until next year, but we are pleased to report that we received the final requisite approval this week to include unlimited access at Hotham on the Epic Australia Pass for the current 2019 ski season in Australia.

Our commitment to reinvesting in our resorts and the guest experience remains one of our highest priorities. As previously announced, this summer and fall, we'll be completing important strategic capital projects, including a significant investment in our snowmaking systems in Colorado that we expect will transform the early-season terrain experience at Vail, Keystone and Beaver Creek. At Park City, we plan to transform the Tombstone Express area with a new permanent Tombstone BBQ restaurant and the new 4-person Over and Out lift that will provide a quicker, more direct route for skiers and riders to access Canyons Village from the center of the resort.

In addition, we plan to invest in 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 child care facilities as well as an improved ticket and retail and rental experience. We remain highly focused on investments that we believe will substantially improve the guest experience across our resorts, including a new mobile lift ticket express fulfillment technology, that will eliminate the ticket window for guests who purchased their tickets in advance.

We also expect to complete the final stage of our point-of-sale modernization project and are investing in technology to automate our data-driven marketing efforts. We also plan to make significant onetime investments across the recently acquired resorts of Crested Butte, Okemo, Mount Sunapee and Stevens Pass, which will include 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.

As we transition to summer operations at our North American resorts, I would like to take a moment to thank all of our employees for their passion and tireless dedication to delivering experiences of a lifetime to our guests during the 2018-2019 North American ski season.

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 first from Barclays, we have Felicia Hendrix.

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

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So Rob, overall, your season pass sales were better than I think most people were expecting. And also the spread between units and sales increased as well. And so we're all well-versed in your data-driven strategy, but I think given the continued concerns about Icon and the competition there, I was wondering if you could just dig into what you think was driving that strength. And then also just on the cadence for the rest of the year, you did spell it out in the release and you just repeated it in the prepared remarks, but just wondering if you could kind of dig into that a bit more as well. It just sounds like sales could slow on a relative basis in the next quarter as the Day Pass sales really kick in, but then perhaps you can see an acceleration at the end of the selling season as last minute folks come in, so I'm just wondering if that was an appropriate way to think about it.

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

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Sure, yes. I would say we are really pleased with what we saw so far in the selling season. I think our destination markets performed very, very well. Obviously, we highlighted particular strength in the northeast. I think having that first full year and a strong spring opportunity to really kind of connect to those guests in the northeast with a different resort portfolio, obviously, having more data, more sophisticated approaches to how we're marketing people, all of that I think is -- are benefiting the kind of engagement and kind of support we're seeing from our guests across the board. So we feel really good about that.

I think we also wanted to acknowledge that what we've seen over a couple of years is that we have driven a lot of our unit growth more in the spring necessarily than in the fall. And so even as we go into the fall selling season, we will typically see that growth rate come down based on some of the trends that we're seeing and expect. And then as between the 2 selling seasons in the fall, we do see that the Epic Day Pass sales will absolutely provide a boost in the late fall period. Now obviously, it's a new product for us so, of course, we have less precision on exactly what that impact will be. But we're expecting to see an acceleration in the fall. But in that kind of Labor Day time period, we'll probably, yes, be our lowest growth point and then kind of pick up before you see the December numbers that we publish at the end of the season.

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

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Okay, that's helpful. And then just in Colorado, you used the word modest to describe the season pass sales growth there. Is that mostly the 8 Basin effect? Or was there something else?

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

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Well, I would say, probably 2 things. One thing, last year, we saw pretty strong growth in Colorado. It was one of our strongest years that we've seen. So I think we're lapping that growth this year. And so I think that probably is -- weighs down the growth rate a little bit. And then yes, there's a portion of it that we saw kind of as expected, slightly lower renewal rates on 2 critical -- pass product that had A-Basin on it. There's no doubt A-Basin is a terrific resort, but this is all kind of what we expected for the season and more than made up by, we expect, from elimination of the partnership payment to them.

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

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Okay, great. And just one final one, on the international weakness at Whistler, is there any way to mitigate that?

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

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Yes. I think -- I feel like Whistler has been on an incredible growth trajectory. If you look over the last 4 to 5 years, especially since after we acquired the resort, both their visits to the resort, revenue and profitability, all of that has been incredibly strong. I think we saw kind of a moderation of that. And which I think in the end is important because we want to see -- we want to make sure that we manage the growth at Whistler appropriately so we protect the experience there.

That said, we absolutely -- the international business at Whistler is critical to us. And so we have a number of plans that will be in place for next year to kind of bring back some of that business that may not have come this year, and we've got a lot of different avenues to be able to do that. Obviously, even just adding Hotham and Falls Creek in Australia will be huge in terms of connecting with that Melbourne market and now providing them with the local pass option that will also provide Whistler access to them.

And so we think that's a terrific opportunity for us to try and build that and the number of strategies also to build the U.K. market, the Germany market, both were Whistler, by the way, but also across our U.S. resorts. Unfortunately, it's been a little bit of a downward trend on international. Obviously, more than made up for by domestic business both in the U.S. and Canada. But it's a critical part of the business, and so we absolutely intend to see that rebound next year.

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Operator [8]

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Moving on, we have Shaun Kelley with Bank of America.

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

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Maybe just to stick with season passes to start. Rob, you did call out particular strength over Memorial Day and kind of right into the deadline there. Was there any change in promotion or specific call to action you think drove that? Or just any color you have on the consumer experience as to why that was that. I think the actual -- the biggest Buddy Pass discount actually ended decently earlier so just kind of curious on why, maybe, you saw the behavior that you did.

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

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Yes. I think we did see real strength over that deadline. I think, certainly, a piece of it could be the extended seasons that we've had in a number of our resorts. I think we've got a very competitive price offering right now in terms of looking at the price of our products versus a lot of our competitors. I think it's a pretty -- just on the value side, a very compelling opportunity, I think, for guests right now who are interested in getting kind of the best value and best experience for next year. And I think that really did show up through that Memorial Day deadline. It's actually not that far away since we -- since the deadline ended, so we don't have all of the detailed analysis of it. But it was -- we were very pleased to see such a strong end to that spring selling season.

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

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Great. And then the other question on pass I had was just mentioned Epic Day Pass didn't sound particularly material for the dollar number, but I was actually curious on the unit side. Was it impactful or large enough at all to move materially the kind of price spread that we did experience between units and dollars, you did show here being roughly 4% between the 9% and the 13%?

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

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Yes. What I would say is the -- obviously, we didn't put a comment out there about its impact on units. But obviously, it's impact on units is going to be bigger than its impact on revenue given that it's a lower dollar kind of cost item per unit. Overall, I would say yes, not -- it didn't change the direction of any of the numbers that we put out there. With that said, saw I think within the product itself, pretty strong growth. But even if you looked last year in the spring, the Epic 4-Day and Epic 7-Day are prime -- were historically a fall product. And so, in other words,we saw great growth, but that's not going to be necessarily material to our overall results for the season because we're just starting at a small base.

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

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Right. And then just 2 small ones as we sort of think about the cadence moving into the fall. So one is just, I wanted to just ask specifically, obviously, you are now up to, I think, $16 million total of integration expenses between all of the different moving pieces. Just as we started thinking about the fall and the '19-'20 season for sort of our bridges, should all of those integration expenses be largely coming out as we get to sort of -- are we at a clean slate? Or is there anything that's expected to continue as we think about the coming season given that's subject to change if acquisitions were to occur?

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Michael Z. Barkin, Vail Resorts, Inc. - Executive VP & CFO [14]

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Yes. I think certainly this year was a big year with Triple Peaks, Stevens Pass and the integrations going on there and then of course, the announcement of Hotham and Falls Creek and the associated acquisition expenses there. We did call out that one of the big pieces that goes with Hotham and Falls Creek is $3 million of stamp duty that clearly is tied to the acquisition actually getting closed. So those pieces would go away in the absence of any deals.

There will be integration expenses associated with Hotham and Falls Creek given that we just closed those deals, and they're going into their season. We've not yet sized that, but certainly will when we provide additional guidance for next year.

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

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Okay, great. And then just sort of one other one to sort of loop all this together as we're looking ahead. So obviously, looking back on it, pretty much everything experienced since that early part of the season has been very much in line with expectation. As we look ahead, you're coming off of a pretty fantastic snowfall season overall. It had its lumps, but it usually was probably because of too much snow. So as we think about that specifically that early-season period for next year, just any kind of thought or view on would that be a group -- or would that be a customer segment or something that you think will possibly bounce back? Or is this an area where, just given the behavior that we saw we maybe, sort of, should expect that this is a little bit of a new pattern or behavior to kind of move forward? I know it's a little early to be talking about guidance, but I'm just sort of thinking about that specific pattern of behavior that was obviously different for the season.

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

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Yes, I think, certainly, our -- going into this early season, our assumption was that we would see more of a rebound. I think there's an opportunity for us to see more of a rebound next year. I think as people, maybe their confidence in the early part of the season is stronger given the conditions from this year, given the investment we're making in snowmaking on a number of our resorts. But that said, I think it is certainly too early to make any predictions about that. And I think given our -- the experience we had this year I think we're going to be cautious before predicting that we're going to see a rebound to where the early season might've been a few years ago.

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Operator [17]

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Our next question comes from Brett Andress with KeyBanc Capital Markets.

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Brett Richard Andress, KeyBanc Capital Markets Inc., Research Division - Associate VP [18]

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So following up on the past questions, the full year is expected to slow from the current 13%. But how are you thinking about the magnitude of that slowdown? Are you expecting it to be more modest because, presumably, you have the Epic Day Pass tailwinds at the end of the season? Or I guess is the amount of pull-forward similar to last year, right, where we start at 19% and I think slowed to plus 10%? So just any additional color on how you're thinking about the magnitude of that.

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

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Yes, I think I -- we're not providing guidance beyond the commentary that's in the release. I think it's tough for me to comment on that. We felt like we wanted to provide some directional color and then some directional color between the 2 upcoming deadlines and the 2 earnings releases that we'll put out there, but I think at this point we're not prepared to provide more precision around that.

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Brett Richard Andress, KeyBanc Capital Markets Inc., Research Division - Associate VP [20]

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Fair enough. And then a question on the Epic Day Pass, I know it's early and those sales come later. But so far, what are you seeing among the customers who had a of 4- or a 7-Day Pass last year? Are they opting for higher frequency, lower frequency options now they have a choice?

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Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [21]

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I think, I guess, what I would say is that we're seeing, I'd say, good strength in terms of new people coming into that product, which is terrific. And it is a product that historically has been for new pass holders -- it's a great kind of entry point for them into our pass portfolio. And we're seeing some of those trends this spring and we're certainly seeing, I think, good engagement. Actually, across the line up, strength, I think in higher frequency products, which is not surprising for the spring. And we'll probably see, right, strength in lower frequency products as we get later into the fall. We're seeing real interest in some of the restricted product options, which, again, not surprising to us, since that provides a lower price point, but also it's a great opportunity for us in terms of helping to build the nonpeak parts of the season.

So right now, I would say that a lot of our results are very much in line with what we would have expected and what we would've hoped. And of course, it's pretty early. So we have a long part of the selling season yet to go, and obviously, the most important part of the selling season in terms of that product.

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Brett Richard Andress, KeyBanc Capital Markets Inc., Research Division - Associate VP [22]

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Understood. And the last one I have, so last selling season, you had softness in Northern California, in Utah. You called that out, it's strong today. So I'm just curious what's driving that. Are you doing anything different in those markets this year, any different marketing strategy? Or are those markets just stronger in general?

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

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Hard to say. Obviously, Northern California had a very strong winter, had a very strong spring. I'm sure that, that's helping. I think the competitive dynamic, again, as I mentioned, we feel like we're in a terrific competitive position in terms of providing that value and the best experience. And I think that, that will ultimately help. And I just think in the end, there's -- we have a long track record of just continuing to broaden the reach of our pass program. And I would expect certainly for us to be able to continue that as more and more people understand the benefit that the pass provides.

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Operator [24]

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Next question will come from Chris Woronka with Deutsche Bank.

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Chris Jon Woronka, Deutsche Bank AG, Research Division - Research Analyst [25]

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I wanted to ask about what you're seeing from some of the more recent acquisitions, the Triple Peaks and Stevens Pass, in terms of as you kind of scrub the early-season results from them, are they apt to buy the premium passes in the same way that you might have expected when you underwrote them?

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

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I think, again, we're quite pleased with what we're seeing there in terms of the expectations that we have for the benefit that the resorts would provide and the new access. I think there's always a combination of factors, though. It's both us getting better and better at how we target people, having more data and getting more skilled in our communication approach to be able to bring people into the program. And of course, it's, yes, having additional resort access.

We also certainly have access to whatever data those resorts had in terms of their customer list. So obviously, bringing that into our database as well. So it's really all 3 components. And yes, again, right now, yes, I feel really good about what we're seeing in terms of trends there.

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

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Okay. And then just on the military passes, now that you have a full ski season of data to look at, is the total spend, or, I guess, I should say the ancillary spend about as you expected? Or is it higher or lower?

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

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I would say I think we've seen good engagement. I'd say 2 things. One, obviously, the spend from that guest as a pass holder, what -- if you were comparing either [local], but particularly destination is lower. And that's completely aligned with our expectations. We've seen pretty good frequency from that guest. And so I think we've been -- I think we feel really good that, that -- we're seeing that guest really engage with our resorts. And so that is getting us, right, that ancillary spend, even though, on a per visit basis, it's lower than some of our other pass holders groups, it's still really additive, right, to our bottom line and especially because such a huge percentage of those pass holders are -- were new pass holders, and certainly not folks that we had in our database before. So we really view that as a great opportunity for us to make the strong connection and provide access to such an important group, right, in all of these countries, in terms of folks who have served their countries. But at the same time, also a real incremental opportunity from the business side.

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

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Great. And then I just -- one last one from me, and that's you've had this -- you've had the urban strategy for, what now, 7 or 8 years, I think, maybe more. And as you kind of sit back, you've done a bunch of, or several acquisitions since the initial ones. Do the results that you're seeing from those and the network effect, does it make you want to do more of those to the extent that they're available? Or how do you look at acquisitions right now?

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

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We -- I think that's been -- I think we shared at our investor conference some information on some of the benefits that we've seen from those acquisitions. And they've driven strong engagement in those markets on the pass side in terms of driving more visitation to our Western destination resorts. And so we think it's a strategy that is absolutely played out for us, and we feel good about.. In terms of future acquisitions, obviously, it will be based on the opportunity and all the other terms and factors that go into when you have the right fit and the right moment.

But we're still absolutely aggressive on looking for additional resorts that we think really add to our network and make the experience that we provide our guests better. And we're going to be disciplined about that. And if the stars don't align, we're obviously going to be patient.

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Operator [31]

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Next from Berenberg, we have Brennan Matthews.

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Brennan James Matthews, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [32]

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I wanted to ask a little bit about the Hakuba Valley partnership. I know this was the first season you guys had them, but any interesting initial learnings there? I know Japan has been a market you've been kind of looking at for some time, and just maybe if you -- did you see a lot of Epic pass holders maybe visit there? Just anything you kind of took away from your first season with them being a partner.

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Michael Z. Barkin, Vail Resorts, Inc. - Executive VP & CFO [33]

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Yes, I think -- very pleased with the Hakuba partnership in its first year. I think it's been a great working relationship with the resorts over there, and I think importantly, like we talked about, when we established that partnership, a big piece of that was the level of engagement that we felt like we could accomplish with our guests in Australia and the folks who were considering the Epic Australia Pass and the benefit of being able to have access, both in North America and then at one of the premier resort groups in Japan. Yes, we thought it would add a significant value to that pass from their perspective.

And as we noted in terms of the multiyear growth of the Epic Australia Pass, we certainly see the partnership with Hakuba being a driver of that. And then certainly adding Rusutsu this year, we think, will be another benefit for our Australian pass holders in particular. So yes, we feel very good about that partnership and establishing the Rusutsu partnership for the coming year.

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Operator [34]

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Next, we will hear from Patrick Scholes. He's 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 [35]

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I'm wondering -- a couple of questions. I'm wondering if you could talk a little bit about trends in sales for your Epic Pass product as it relates to international guests, specifically, how has it been trending for South American and Latin American guests versus North American?

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

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Well, I -- we're not providing specific commentary on that, but what I would say, right, it's obviously very different markets, right? So our North American market is by far the dominant component of our program outside of obviously Australia is another large component of it. And our pass penetration in Mexico, or other parts of Latin America is much smaller. Mexico would be certainly the biggest market within that. I'd say we feel good about the results we're seeing there. I don't know that Latin America or the results in Mexico are driving materiality in terms of any kind of the trends that we see in the overall program. But we feel good about the engagement down there, particularly in the Mexican market.

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Charles Patrick Scholes, SunTrust Robinson Humphrey, Inc., Research Division - MD of Lodging, Gaming and Leisure Equity Research and Analyst [37]

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Okay. The reason I asked that is on my holiday, December Christmas trip, there's a lot of Spanish being spoken and certainly, that's a peak season. So I was just curious on that guest. Two more questions. The season extension in Colorado, was that material on earnings at all?

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

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Yes. I think the season extension was definitely a success for us. I think certainly oriented more to our local guests who could make that near-end decision and seeing the conditions extended into May, certainly was a positive relative to earnings. But yes, clearly also not a substantive part of the overall season.

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Charles Patrick Scholes, SunTrust Robinson Humphrey, Inc., Research Division - MD of Lodging, Gaming and Leisure Equity Research and Analyst [39]

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Okay. And then one last question. This is sort of a high level question. Have you folks thought about doing a cobranded credit card with, say, Amex? Certainly, you have a fairly sizable critical mass with resorts and we've certainly seen those types of relationships be very profitable for hotel companies. Any thoughts on that nature, on that regard?

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Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [40]

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Yes, actually, it is something that we are looking into. I think some of the more successful cobranded programs that are out there, typically, the kind of customer size or transaction size is more significant, I would say. One of the challenges, obviously, we have is that a lot of our transactions are occurring in the winter, and then we have much more limited transactions in the summer and then even less transactions a couple of other months of the year. So we have to kind of create the right program with the right partner, that kind of reflects that. And -- but we do think, to your point, we have seen other people be successful with that. And we think that, that is an opportunity for us, especially as we're reaching more scale in terms of the size of the company and our overall kind of customer reach.

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Operator [41]

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Moving on, we'll go to David Katz with Jefferies.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [42]

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I wanted to ask about the sort of M&A environment. And one of the observations that I've made in the past is that given the scale you have and just the magnitude of skier visits in Europe, are there any specific gating factors or any issues related to the European market that you -- that would prevent you from participating there? And then I have one other quick question.

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Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [43]

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No. I don't -- I mean, I'm not aware of any structural reason why our company couldn't be in Europe. And in fact, I think we've been quite open about our interest in participating in that market for quite some time. The business in Europe is quite different than the business in the U.S. And so certainly, if we were to do anything in Europe, it would have to be -- we would be taking different approaches to the approach that we're taking in North America. That would be true if we were to operate in Japan as well, again the business there is somewhat different.

I think the European market is both the biggest opportunity that is out there in terms of the size of the number of skier visits, the breadth of the number of resorts throughout all the different countries in Europe. And I think, we feel like we need to find the right opportunity where we believe that we can really add value to whatever it is that we do there and whatever opportunity we have adds value to our existing network and our existing business approach where we're respectful of the local community that's there and whatever partners or other kind of components need to come together to really make it a kind of successful effort for us. And so as much as we've, over the years, talked about how impactful it could be, we've also, just like any of our acquisition opportunities, we're also going to be disciplined and patient to find just the right connection of all the different factors to make sure that it's a success.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [44]

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If I can just follow that up. As a longtime follower, the amount of value the company has added to what it's acquired I think speaks for itself. When you look at the globe and the opportunities out there to acquire more stuff, are you finding that the bigger issue today is identifying targets? Or just pricing? Or the environment overall? How would you sort of rank order those issues as you look at acquisition targets?

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Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [45]

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I would say that what makes maybe this industry slightly different than some of the other parts of travel is that there's not a lot of owners of ski resorts that are active sellers. So if you would look at the hotel market, there's obviously a pretty robust market of people buying and selling hotels, where, in ski resorts, you can go a long time without seeing a transaction in a particular market. And I think outside of our company and then obviously, some of the recent activity by Alterra, but you look back over the last 10 years, and we've had a pretty methodical approach both here, in Canada and Australia. But we have -- I think, one of the hallmarks of our success is that we've been very thoughtful each time and we don't tend to just run off and do a lot, because we want to make sure that anything that we bring into Vail Resorts is something that will be forever a part of the Vail Resorts' family, and so that's kind of the approach we take.

And I think on the side of the companies themselves with the other resorts, yes, there's an amazing passion and connection that every owner or group of owners feels for their resorts. And so it usually takes quite a bit of time to get to the right opportunity in the right way with the right people. And we're comfortable waiting for that. It's more -- those are usually our hurdles rather than necessarily on price.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [46]

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Got it. And if I can just clarify one detail because I know it's been discussed, is when we look at the past sales, so far, and I know that we don't entirely look at it this way at all. If we took out the sales that we may attribute to new mountains, would the pass sales still have been up versus last year?

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Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [47]

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Yes. So what I would say is that we don't really have -- we talk about kind of markets in terms of where people live, but we're not really talking about -- we don't -- I mean, when somebody in New York buys one of our products that gives access to Stowe or Okemo, we don't know that, that was the reason why they bought it.

Certainly, in terms of, I mean just to clarify this, the pre-existing pass sales at any of our acquired resorts are included in the prior year in addition to this year. So we're not -- when you look at our -- at the numbers we're giving for pass sales, that is a kind of more of a pro forma, so to speak, in terms of we're not just adding new pass sales that were pre-existing in those resorts. Does that help?

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [48]

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Absolutely.

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Operator [49]

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And ladies and gentlemen, at this time, there's no further questions from the audience. I'll turn the floor back to management for any additional or closing remarks.

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Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [50]

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Thank you, operator. This concludes our fiscal third quarter 2019 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.

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Operator [51]

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Once again, ladies and gentlemen, that concludes our call for today. Thanks for joining us. You may now disconnect.