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Edited Transcript of MTN earnings conference call or presentation 26-Sep-19 9:00pm GMT

Q4 2019 Vail Resorts Inc Earnings Call

BROOMFIELD Sep 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Vail Resorts Inc earnings conference call or presentation Thursday, September 26, 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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* Alexander Rocco Maroccia

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

* Brad J. Boyer

Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst

* Charles Patrick Scholes

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

* Chris Jon Woronka

Deutsche Bank AG, Research Division - Research Analyst

* David Brian Katz

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

* Felicia Rae Kantor Hendrix

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

* Marc J. Torrente

Wells Fargo Securities, LLC, Research Division - Associate Analyst

* Ryan Ingemar Sundby

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

* Shaun Clisby Kelley

BofA Merrill Lynch, Research Division - MD

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Presentation

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Operator [1]

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Good day and welcome to the Vail Resorts Fourth Quarter Fiscal 2019 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Katz. Please go ahead.

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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 2019 year-end 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 that 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, September 26, 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 annual report on Form 10-K, were filed this afternoon with the SEC, and are also available on the Investor Relations section of our website at www.vailresorts.com.

Before I jump into our results, I would like to send a special welcome to the Peak Resorts team. We are thrilled to bring the 17 resorts and their employees into the Vail Resorts family. With this significant expansion of our network, we are able to create a much stronger connection directly with guests in some of the largest population centers in the United States, making skiing and riding more accessible in North America and around the world.

So with that said, let's turn to our fiscal 2019 results. We are pleased with our overall results for the year with strong growth in visitation and spending compared to the prior year, including a strong finish to the season with good conditions across our U.S. resorts. After the challenging early season period for destination visitation, our results for the remainder of the year were largely in line with our original expectations. Our results throughout fiscal 2019 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 supported by favorable conditions across the western U.S. The company experienced relative weakness in international visitation throughout the year compared to the prior year, particularly at Whistler Blackcomb.

In Australia, fiscal 2019 results were strong, supported by the addition of Falls Creek and Hotham and continued pass sales momentum. Our fourth quarter fiscal 2019 summer results were in line with our expectations with strong continued momentum at Whistler Blackcomb offset by a slow start to the Epic Discovery season in Colorado and Heavenly due to late snowfall and cold temperatures in June.

Turning now to our 2019-2020 season pass sales. We are very pleased with the results for our season pass sales to date. Through September 22, 2019, North American ski season pass sales increased approximately 14% in units and 15% in sales dollars as compared to the period in the prior year through September 23, 2018, including Military Pass sales in both periods, excluding pass sales from Peak Resorts in both periods and adjusted to eliminate the impact of foreign currency by applying current period exchange rates to the prior period for Whistler Blackcomb pass sales.

Excluding sales of Military Passes, season pass sales increased approximately 13% in units and 14% in sales dollars over the comparable period in the prior year. Our pass sales growth was modestly ahead of our expectations through this point in the season with strong results in our destination markets. In particular, we have seen 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 included on the Epic and Epic Local Pass products and the improved impact of the expanded guest data and insight we now have in that region.

Our broader destination markets continue to perform well through our enhanced ability to reach destination guests with our data-driven marketing. Our local markets continue to show solid 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, partially offset by more modest sales growth in our Colorado local market. The vast majority of our growth came from our Epic and Epic Local products, and we are also driving material contributions from Epic day pass and Military Pass products. We anticipate that the majority of the sales of the new Epic day pass product will be concentrated in the remainder of the selling period.

We are very pleased with the performance of our pass sales efforts to date especially given the increased size and scale of the program. As we enter the final period for season pass sales, we expect our December 2019 nonmilitary season pass sales growth rate will be modestly lower than the growth rates reported today, primarily driven by the inclusion of Peak Resorts passes in our current and prior year reporting and the impact of our success in moving purchasers early in the selling cycle, partially offset by the ramp-up of Epic day pass sales.

Our Epic Australia pass sales launched on August 15, 2019, for next season and are off to a very strong start with growth of approximately 23% in sales dollars through September 22, 2019, compared to the prior year period ended September 23, 2018, though it is important to note that it remains early in the Australian sales cycle. We are pleased with our sales results in Victoria with the addition of Hotham and Falls Creek, which, together with Perisher, offer a very compelling product for our Australian guests who can ski locally at our 3 Australian resorts as well as experience our growing network in North America and at Rusutsu in Hakuba Valley in Japan. Pass sales will continue through the Australian off season leading up to the 2020 season.

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 very pleased with the results from fiscal 2019. With the strong base of high-end consumers, we're continuing to leverage our growing network of resorts and sophisticated marketing strategies to drive guest spending across our Mountain segment. For fiscal 2019, total Mountain net revenue increased 13.5% to approximately $2 billion. Total skier visits increased 21.5% primarily as a result of the addition of Triple Peaks, Stevens Pass, Falls Creek and Hotham, which we collectively refer to as the acquired resorts, and the favorable conditions across our U.S. resorts.

Total effective ticket price, or ETP, decreased 3.4% compared to the prior year, primarily due to higher skier visitation by season pass holders, lower ETP from the acquired resorts and the new Military Epic Pass, partially offset by price increases in both our lift ticket and season pass products. Excluding season pass holders, ETP increased 4.9% compared to the prior year.

Resort net revenue was $2.3 billion, an increase of 13.1% compared to the prior year. Resort Reported EBITDA was $706.7 million, an increase of $90.1 million or 14.6% compared to the prior year. Fiscal 2019 Resort Reported EBITDA includes $16.4 million of acquisition and integration-related expenses and approximately $8 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. We estimate that fiscal 2019 Resort Reported EBITDA benefited by approximately $4 million in Resort Reported EBITDA from not owning Triple Peaks and Stevens Pass during a portion of the months of August and September, a period that those resorts operate at a loss.

Net income attributable to Vail Resorts was $301.2 million or $7.32 per diluted share compared to $379.9 million or $9.13 per diluted share in the prior fiscal year. Net income attributable to Vail Resorts for fiscal 2019 included a tax benefit of approximately $12.9 million related to the employee exercises of equity awards primarily related to the CEO's exercise of stock appreciation rights. Additionally, fiscal 2019 net income attributable to Vail Resorts included the after-tax effect of acquisition and integration-related expenses of approximately $12.1 million and approximately $4 million of unfavorability from currency translation, which the company calculated by applying current period foreign exchange rates to the prior period results.

Our balance sheet remains strong, and the business continues to generate robust cash flow. We ended the fiscal year with $108.9 million of cash on hand, and our net debt was 2.1x fiscal 2019 total reported EBITDA. On September 23, 2019, the company entered into the second amendment to the eighth amended and restated credit agreement. The amended agreement provides for a term loan facility in an aggregate principal amount of $1.25 billion, increase from the previous term loan facility of $914.4 million as of July 31, 2019. The incremental term loan proceeds were used to fund the Peak Resorts acquisition and to prepay certain portions of the debt assumed in connection with the acquisition.

I'm 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 October 25, 2019, to shareholders of record on October 8, 2019.

Turning now to our outlook for fiscal 2020. Net income attributable to Vail Resorts is expected to be between $293 million and $353 million for fiscal 2020. We estimate Resort Reported EBITDA for fiscal 2020 will be between $778 million and $818 million. Our Resort Reported EBITDA guidance includes an estimated contribution of $53 million for Peak Resorts operations, which includes an estimated $6 million benefit from not incurring off-season losses from August 1, 2019, through the closing date of September 24, 2019. The company expects to incur approximately $20 million of acquisition and integration-related expenses in fiscal 2020 related to the acquisitions of Peak Resorts, Falls Creek and Hotham.

We will be completing significant integration of Peak Resorts in fiscal 2020, but we do expect integration activities to continue into fiscal 2021 as we prepare the resorts for the 2020-2021 ski season opening. We expect Resort EBITDA margin for fiscal 2020 to be approximately 31% using the midpoint of our guidance range, which is an estimated 10 basis point decrease compared to fiscal 2019, primarily driven by transaction and integration expenses; the inclusion of Peak Resorts, which historically generated lower margins as a stand-alone business; and the full year impact of the acquired resorts, including all off-season losses. We estimate real estate reported EBITDA for fiscal 2020 will be between negative $2 million and positive $4 million.

All of these estimates are predicated on the assumption of normal weather conditions throughout the ski season, no significant recovery in early season performance, a continuation of the current economic environment in which we have seen relative weakness in international visitation, an exchange rate of $0.75 between the Canadian dollar and U.S. dollar related to the operations of Whistler Blackcomb in Canada and an exchange rate of $0.68 between the Australian dollar and U.S. dollar related to the operations of Perisher, Falls Creek and Hotham in Australia. Fiscal 2020 guidance does not include any payroll tax impacts or income tax benefits related to the potential exercise of CEO stock appreciation awards.

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. Our commitment to reinvesting in our resorts and the guest experience remains one of our highest priorities. As previously announced, we will be completing a number of important strategic capital projects prior to the start of the ski season 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, a 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 fully 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 childcare 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 purchase their tickets in advance.

We also expect to complete the final stage of our point-of-sale modernization project, and we are investing in technology to automate our data-driven marketing efforts. We also plan to make significant onetime investments across the 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 upgrade at Okemo.

In closing, I would like to thank our employees for their commitments throughout the last year to deliver on our promise of providing an experience of a lifetime to our guests, and we're looking forward to working together to create a great ski season this coming winter.

At this time, Michael and I will 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) We'll take our first question from Mr. Chris Woronka from -- Pardon, we'll take our first question from Felicia Hendrix from Barclays.

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

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Just wanted -- there seems to be a lot of focus by the investment community on your organic growth, so just kind of making some adjustments to your numbers. It looks like it, for guidance, implies about 6%. So I was just wondering if you could touch for a moment upon how you think about organic growth. And is it kind of proper or the correct thing to do to look at that growth rate relative to your season pass sales where it seems to grow faster?

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

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Yes. No, I think we do -- we're obviously very focused on our organic growth, and we think we're obviously entering into a time period after a number of years of very strong growth where we think overall revenue growth probably moderates a bit, continued cost pressures. And we think that that's kind of a little bit based on, I would say, the broader economy and what we expect going forward. I think that our pass sales growth, including Epic Day Pass, yes, we would expect to be certainly in excess of our overall growth and largely because in part, right, we're moving many of our guests from buying single-day lift tickets to buying season passes or Epic Day Passes in advance. Sometimes, right, we'll see price pressure on that because we're making this trade, but the increase in loyalty, reduced -- reduction in churn rate, the data, the relationship that we have to the guests, we think, provides such a strong long-term business value for us. That's been at the core of how we'd been driving value and stability and growth over the last decade. That's an expectation that we have for every year. That part of our season pass sales growth will absolutely grow this -- that year's EBITDA, and then a part of it is really about the stability and long-term kind of lifetime value of the guest.

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

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And then just like for future modeling purposes, and I'm not really asking you to give guidance, although you might think I am, just that kind of mid-single-digit rate, is that fair to think about into maybe your near-term perpetuity for organic growth?

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

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Yes, again, you're right. That sounds like maybe we're talking about guidance. So yes, not -- I'm not going to comment on that. I think -- but I would say our goal, obviously, is to use, right, our data-driven marketing, the sophistication we apply to the rest of the business, the strength of our resort portfolio to outperform the broader travel industry. And -- but that said, we're always going to be bound somewhat by the broader trends in the travel industry. But we think we have a number of both internal and structural reasons why we absolutely can come out ahead but again, somewhat depends on all the other factors that we all see in the economy.

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

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Great. And then just my follow-up is just on Peak, and congratulations on closing that. The EBITDA that you've given us for 2020 is just a tad higher than what I was expecting even if you adjust for the $6 million benefit. So just -- I know you just closed. But is there anything that you saw that made you more optimistic than you might have originally thought? And along those lines, do you still expect the $60 million in synergies in 2021 -- sorry, $60 million in EBITDA including the synergies in 2021?

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

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Yes. So I think the -- for this year, as you mentioned, we have this stub period benefit of about $6 million, which was included in the $53 million that we included. When you back that out, it's modest growth over the prior year. We do anticipate that we'll get some level of cost synergies but certainly not the full benefit of that as we go through the full integration process this year. And then, yes, we would look at next year as kind of the first full year where it's fully integrated and has a full pass sales season when we'd start to see the real benefits of that.

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Operator [8]

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(Operator Instructions) Next, we'll go with Shaun Kelley from Bank of America.

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

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Maybe just a question to go back to the kind of the core earnings growth that you guys are sort of looking for when we strip back some of these layers. Can you just tell us at a high level how you thought about lapping or including some of the issues from last season? I mean, Rob, these are pretty well documented throughout the Analyst Day in terms of some of the timing of snowfall being a challenge and then obviously the early season period. So can you just help us like kind of -- or at least frame for us a little bit how you thought about balancing some of those in terms of what you incorporated in the guidance that we just received?

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

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Sure. I think we certainly factored in last year as we thought about this year and the growth rates, and I -- no doubt that there was very strong season in the U.S., a little bit softer season in Whistler Blackcomb. And I think as we look forward, yes, there's no doubt that probably a little bit stronger growth probably coming from Whistler Blackcomb, a little bit slower growth coming from the U.S.

That said, I think to the discussion earlier about pass sales, we feel like there are a lot of drivers, right, that we leverage, right, to be able to grow even off of a strong season last year. And I think our -- the guidance really includes, at the best we can tell, about what a normal season would look like, which, no doubt, would be a little bit less robust in the U.S. in terms of strength of conditions and a little bit better in Canada.

And I'd say that those things are in there, and I'd say then there's broader economic pictures in there as well. So I think that you've got all of that, which kind of aligns it along with all the different initiatives that we have for this year in terms of how we think we can drive growth, whether that's obviously on pass sales, which we've talked about, whether that's using a lot of our more sophisticated approaches to driving lift ticket revenue, to driving ski school, to driving food, much of which we did talk about at the investor conference last year. And so a lot of that discussion about things that were in the works, we now feel like we can really put into action this year, and that offloads into the core growth rate, many of which we think absolutely give us a boost over what might have been a slower growth rate just because last year was so high. But given the number of things that we have going into this year that we feel like can actually showcase benefit, that's what gives us the confidence in the guidance range that we put out.

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

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Great. And as we sort of think about the product lineup, I mean we obviously still get some questions, although not nearly as many as a year ago, on the broader competitive landscape and pricing environment out there. Can you help us think about -- I think it seems like you saw growth in virtually every region and then some particularly strong growth in some of the destination areas. But any areas on the pricing side or the competitive side that surprised you? And specifically, is Colorado being impacted at all by the loss of a basin? Or any comments or call outs there?

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

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I would say that the -- nothing has necessarily surprised us. I think the pricing structure for most of the preexisting products are largely in line with certainly ours are, and we haven't really made any huge changes to that. Of course, obviously, we expanded the product line with Epic Day Pass, and we have seen good success with that even in this early part of the selling season. So I think that's clearly been a positive.

And I think our Colorado -- we had a pretty strong year last year in Colorado. So I think there's always this lapping component with some of our geographies. And so I think we're seeing a little bit softer growth because of that. There's no doubt, I'm sure, that there are some folks who were not renewing because of a basin. We would expect that. Obviously a great resort. Obviously, that will be offset, which is baked into our guidance, with some of our total partnership payments.

But in total, I think we feel like -- as we said, we're quite pleased with the results we're seeing. I think given the size of our program and the growth that we've had over so many years, I think to be able to continue to showcase the revenue growth that we're putting up, we feel like really speaks to both, yes, the options we're giving guests in terms of the resorts, the options that we're giving them in terms of products and then the personalization and the constant improvement on how we actually sell and communicate to the guest.

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

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Great. And last thing for me would just be, given the lodging guidance, came in a little bit better than what we were actually expecting, but it does include -- I think there is some lodging contribution from Peak. Can you help us think about just sort of what you're seeing on the hotel bookings front or what kind of core trend you're seeing underneath it that kind of underlines the guidance in lodging? That's it for me.

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

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So I think we -- I'm not going to put out new information per se, but I guess I'd say more broadly that, obviously, that guidance is baked into the numbers that we have. We do think that, generally speaking, we can outperform in our Lodging business also a lot of the broader travel trends because we have more unique markets, the positioning of where our markets are, all predicated obviously on the economic environment continuing. But we feel good about this year on the lodging front and the number we actually -- even beyond Peak, number of new properties that we've taken under management, which we think will help. So all of that kind of flows into the numbers that you're seeing.

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Operator [15]

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We'll next go with Chris Woronka from Deutsche Bank.

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Chris Jon Woronka, Deutsche Bank AG, Research Division - Research Analyst [16]

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One is drill down maybe a little bit on your comments about international but more forward looking. Is there anything you can tell from looking out as to how your international, your destination visitors are going to look during the kind of the peak winter periods? Or anything you can look at to tell us it's going to be better or worse than last year?

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

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I guess what -- well, what I'd say on the international front is that we think there's still challenges on the international front. I think a combination of factors. Certainly, the U.K. continues to seem softer, currency issues, visa issues in certain areas. So I think we would imagine, I think as we go in, that we have tried to bake that into our guidance, and so I think that will hopefully largely be factored in. And -- but I would say that, yes, a lot of our business, and especially over the broader company, will certainly be more of a North American-based driver in terms of our results for this year. I think on the margin, there's no doubt, international can help or hurt based on guidance, but I think we're factoring in a continued soft environment on that front.

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Chris Jon Woronka, Deutsche Bank AG, Research Division - Research Analyst [18]

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Okay. Fair enough. And then as we think about the impact of the day pass, how do you guys kind of internally underwrite? How's that going to kind of break down 1 day, 2 day, 3 day, 4 day, 5 days? Is there any way -- do you guys have kind of an algo to try to figure that out based on some of your marketing or your prior trends?

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

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I would say, we -- yes, absolutely, we went into this thinking through all the different components of the product and with estimates and ranges on how the product would come in, in terms of the various days. Probably, the biggest area of unknown, I would say, is that 1- and 2-day product. Lower frequency, obviously, that's the biggest. Obviously, we -- kind of the higher frequency products is a market that we've been in for a while. We've now just offered up a lot more choices on that front, and so we know that that's really helping that business. But certainly on the lower frequency side, that's probably a business that'll come in mostly toward the end. And yes, I think that's something we're probably going to learn the most about as we go through October and November, and then we'll probably have more to say about that in December.

But there's no doubt, I think what I can say is the product is really performing largely along how we expected to this point, which, in our minds, is a good thing. Given that there are so many unknowns launching a new product, we feel really pleased that it is playing out with all of the major trends in terms of uptake, in terms of trade up or trade down, all of that actually really aligning with expectation, which, again, gives us good confidence that this is a powerful product. Of course, it will take a number of years to fully get integrated into the market but obviously speaks to, I think, a real group, core group of the skiing public that is looking for less than a full season and wants more choice and many -- and more options in terms of how to pick and choose how they want to access the mountain. And so they can now do all that, and we can still be getting the commitment stability and the loyalty of the advanced purchase.

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Chris Jon Woronka, Deutsche Bank AG, Research Division - Research Analyst [20]

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Okay. That's great color. And then just I guess on Peaks, as you kind of look forward a little bit, I know this is a multiyear kind of process. But are there -- do you see many opportunities kind of on the revenue side or, I should say, on the ancillary side? I know these are not same kind of resorts you have in Colorado, Whistler and such. But do you -- are there opportunities on the ancillary side at all over time?

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

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Yes, I think we see a lot of opportunity with Peak. I wouldn't say we're necessarily calling out a specific line of business. But when you look at the resorts and how complementary the resort network is that Peak built so successfully over the years and integrating that in with our network, what it's really going to do is give some of the major population centers in the U.S. access to local and regional skiing on the same pass that they can access destination resorts within our network. And so we think that there's going to be a lot of opportunity from the data side in terms of working with the teams there on the experiences, investments we can make there as well as just push -- putting people onto the pass that we think is going to wind up having a lot of benefits network-wide. So yes, we're very -- yes, very optimistic about the impact that Peak's going to have over the years.

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Operator [22]

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We'll next go with Ryan Sundby from William Blair.

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Ryan Ingemar Sundby, William Blair & Company L.L.C., Research Division - Research Analyst [23]

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Congrats on a strong finish to the year there.

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Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [24]

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Thanks.

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Ryan Ingemar Sundby, William Blair & Company L.L.C., Research Division - Research Analyst [25]

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I guess 2 questions for either Rob or Michael. Can you maybe talk about where you outperformed on pass sales? Because it seemed like last call you thought growth might slow over the summer and then pick up again at the end of the year, and now it seems to have flipped. And then second, I guess given what sounds like quite strong growth in the Northeast, can you dig in there on that market a little bit? Do you feel like the resorts you've added there are helping drive kind of broader overall pass adoption? Or do you feel like you're -- it's more of a function of recapturing maybe some prior Epic holders that might have tried Icon out and are switching back to you now that you've beefed up your holdings there?

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

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Yes, on the performance, I would say, on the pass sale program, I would say really outperformance somewhat across the board. I wouldn't say necessarily every single market or geo or segment but certainly, just an overall stronger Labor Day performance than we were expecting and I think likewise, saw stronger Memorial Day performance. So I think it speaks a little bit to the -- both the approach on marketing, how we're engaging with people. I think the Epic Day Pass absolutely helping. I think Military Pass is, right, absolutely helping and this opportunity that we're always looking at, which is how do we move people to buy their pass earlier in the cycle.

So I think to your point about the flipping, it's true. And I think just also just saw a real success with moving people earlier in the cycle, and we're always cautious about knowing that we kind of have growth targets for the overall year, and when we see some of that move up, that's a great sign, usually gives us more confidence but at the same time, doesn't necessarily mean that we can grow on top of that because we know we're pulling some of that forward. Again, whether that's people who were new earlier, new people who were kind of maybe estimating will buy in the October deadline now seeing them in that Labor Day deadline.

So all of those factors really go into that, and we have a number -- it's important to point out. We have a lot of different components to the program now, a fair amount of complexity, I think, that's allowing us to grow the program and broaden it, deepen it with our guests and at the same time, obviously, makes it a little tougher to have perfect precision on forecasting given the number of products, different markets that we're now selling to.

And on the Northeast, I would say, yes, I can't speak to the Icon point, but I certainly could say absolutely. We think that having the resorts is a big benefit, but one of the things we tried to call out was it's not just the resort. I know that tends to be what everyone focuses on, "Oh, great, you've got this resort. Therefore, it makes the pass better." And that's true, but there's a multiyear impact of having the data, right? So all the guests that went to these resorts last year, where we were able to capture their data, those are all opportunities for us to make a more informed and direct pitch to people. And when we can send somebody an e-mail and we have some information on them and therefore, we can personalize it, make it more relevant to them, that just far outperforms running an ad in a newspaper or even on a website or certainly all the other kind of more broad-based marketing efforts. So we've seen this with Park City and Canyons. We saw this with Whistler. We're seeing this with these acquisitions, right? That data piece is a huge component of how we drive long-term growth in the program. And a lot of that data comes from people who buy lift tickets at these resorts, so it's that combination that we think is helping.

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Operator [27]

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(Operator Instructions) We'll next go with Mr. Alex Maroccia from Berenberg.

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Alexander Rocco Maroccia, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [28]

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So I know that you ran a conversion opportunity for people who had the Peak pass prior to the acquisition. Did you or Peak see any type of delayed purchasing due to potential issues with the acquisition? And then how many people did end up converting their passes from the Peak to the Epic?

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Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [29]

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So I think what you mean is, yes, that we're going to allow people who had a Peak pass to make a choice if they want to, to exchange their Peak Pass for an Epic Pass, and that's a process that actually did not start until closing. And actually, we've kind of guided a lot of those folks that there's no rush for them to try and get in to this way because it'll take time for our customer service folks to support them. So we've actually, in fact, advised them to maybe even wait till after our next deadline in mid-October. So we don't have insight at this point on those conversions and what that will look like. And honestly, it's hard for us to tell too because, as you point out, you're right, there are some people who bought the Peak pass, other people who would have bought the Peak pass and maybe -- or haven't yet and now they're buying Epic, some people who would have bought in the fall no matter what.

So again, hard for us to really have insight into any of those trends or dynamics. And on the Peak side, we literally just got access to Peak, obviously, a couple of days ago so really have not had a chance to do any kind of deep dive on their information, on their pass program. So that's still to come. We obviously are quite hopeful though about, yes, that this will -- the opportunity for a lot of the -- either both Peak customers who are in passes or Peak customers who tend -- who would have been lift ticket buyers that they will give a close look to all of our Epic products and -- but understanding that this year is the first year, so it'll -- and we haven't really had a chance to put a full marketing campaign behind it.

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Alexander Rocco Maroccia, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [30]

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Okay. Great. That's helpful. And then just the second one, just looking at partnerships globally long term, you had a competitor recently get into Europe with one of the bigger resorts over there. I guess what are you seeing right now in terms of potential for you to partner with other resorts not necessarily on the M&A front but with the thing you've done in Japan and elsewhere, both here in the U.S. and in Europe and Asia?

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

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Yes, I think certainly something we're always having conversations about. We're pretty selective about which partners to bring in and the kind of relationships that we want. We want to make sure that any partner that we're bringing in is additive to our existing partners. We don't like to see duplication. Our partners don't like to see that kind of duplication. I think we feel good about the coverage that we have right now in North America, in Europe, in Japan on this front. So we'll always continue to have dialogue, but I'm not sure that new partners per se are going to be a major driver. I think, obviously, our hope longer term is to have a deeper relationship with some of these resorts, acquisitions, investments, stronger alliances whether in Japan or Asia or in Europe, and those I think actually have an opportunity to really take up a notch the kind of benefit and the kind of impact that we can have. Obviously, also going into this year, in addition to the Europe piece, which we've had for a number of years, we have Sun Valley and Snowbasin that have been added and Rusutsu that have been added in Japan, all of which we think will be quite a benefit for our pass holders and impactful to the program.

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Operator [32]

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We'll next go with Patrick Scholes from SunTrust.

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Charles Patrick Scholes, SunTrust Robinson Humphrey, Inc., Research Division - MD of Lodging, Gaming and Leisure Equity Research and Analyst [33]

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A question for you on snowmaking upgrades in light of what you're doing in Colorado. What's -- would you be sort of rolling that out to other western resorts as far as upgrading snowmaking and making more consistent product for the -- especially for the early season?

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

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Yes, I would say I think that if we think about Vail, which is where most of the investment, biggest changes happening, I would say Vail historically probably have had less snowmaking coverage than many of our other resorts. And also the location of the coverage, which was set up many, many, many years ago at the base of the mountain in Lionshead, I think just over time, it's just -- I'm not sure that's the most efficient or impactful place, really, to start our season. And so one of the main reasons why we've made this investment is to bring that up to the top of the mountain, into the mid-Vail Chair 4 area, and we feel like that's just going to be a much, much better product. And yes, because of the higher elevation, we'll be able to get it open earlier. So I would say that's probably more unique.

I think each resort, like a Keystone, we're looking to have Keystone being absolutely one of the first resorts to open in the U.S. I'm not sure that, that would be the same strategy or approach for every one of our resorts. And so I don't know that that's necessarily an opportunity that we'll look at, at a lot of our other western resorts. In Beaver Creek, more of a unique opportunity there to take a certain area, then really kind of improve what we can offer.

So what I would say is the Vail, I think, probably stands out, some of the Keystone piece because we want to be -- one of those first resorts to open in the U.S. I think those are probably more unique. Other situations will probably be more of one-off. I don't know that you're going to see -- I don't know if this is an indication of a much larger scale snowmaking investment going forward. I think the -- probably each resort had its own unique reason why we thought this would be very impactful this year.

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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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And just a quick follow-up and I apologize if you've already said this on past earnings calls. What is the cost of those upgrades in Colorado with snowmaking?

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

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I don't think -- we've not released the individual cost for any of our snowmaking efforts, so -- but no doubt, the Vail investment was a significant part of our discretionary capital this year, but I can't provide more details at this point.

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Operator [37]

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(Operator Instructions) We'll next take David Katz from Jefferies.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [38]

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Congrats on a great year. I wanted to ask about the urban strategy as you've discussed it and the Peaks deal. And when we look at the theoretical value of customers that are being captured, new entrants to the system, how is that sort of theoretical value capture trending? And I suppose what I'm getting at is are there customers within those systems that average lower? Or are you, in some respects, cherry picking the ones that sort of fit the system the best?

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

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I think there's a mix for sure. So I think, obviously, there's -- especially for the true urbans, a lot of visitation that come from the local markets and a large percentage of those folks are probably never going to ski out west and never ski at any of our other resorts. And so those folks would have probably the lowest value in terms of system value. But that said, right, that may be in the first year that they come to the resort. But of course, right, if we can get them to come back to, let's call it, let's take Mt. Brighton, if we can get somebody to go to Mt. Brighton, then come back another year for Mt. Brighton, take their kids, all of a sudden, they may move into the -- could be 2 years, 3 years where all of a sudden that person is now taking a trip out west. So we do see, even if in the first year, right, the value is not as high. We do see this kind of lifetime value from these guests.

And then we do have folks absolutely who are -- take trips out west all the time but like to maybe do 1 or 2 days or more in their local resort. And the ability to use the local resort, to get them into our pass program, to get them into our data system and now allow us to make personal relationship with them, that has huge value to our system.

The other piece I would say is that we now have really 2 -- a couple of different opportunities. We've got this urban opportunity for the people who just go to the local resort. We have that opportunity now to have them come out west. And now we have an opportunity to have some of these folks in the mid-Atlantic and Midwest region actually go up to the Northeast. So right, so we now have a number of good destination resorts in the Northeast. So we really see this as like a migration pattern that can go on a multitude of direction. But it all starts, in our mind, with us having this relationship, understanding somebody's skiing behavior, understanding who they ski with, how often and then being able to promote to them the right product that gets them to, yes, broaden their relationship with our company.

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David Brian Katz, Jefferies LLC, Research Division - MD and Senior Equity Analyst of Gaming, Lodging & Leisure [40]

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And one last follow-up. As you look at growing, particularly internationally, thinking about just bringing in partnerships versus the opportunities to own the mountain, should we continue to think more about the partnership model versus investing in real estate internationally? How does that landscape look?

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

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Yes, I think we still have a strong interest in investing -- I don't know that I'd say real estate, but let's call it assets, right, so there's no doubt that we would still have an interest, a strong interest in having investments in these resorts, having a component of the operating opportunity. I think there's no doubt that, like in many businesses for us, having these partnerships is a good first step. Potentially even if we had an ownership stake, we may still have local partners to help and to support the operation of the business, and that's something that, yes, I think has to be on our radar screen for -- in a lot of these markets. But I think we do think that it's -- the deeper the partnership, which often comes with a financial investment, the more impact we can have on the resort, the local resort or resorts and at the same time, the bigger impact that they can have on our pass program. So obviously, our willingness to be more aggressive on these partnerships changes if we've got an investment, certainly if we own the resort, obviously, if we've got a big investment in the resort.

So in my mind, I think we still would like to see the opportunities migrate from partnerships to operating opportunities or investment opportunities. But it does take time, right? And there's a limited number of opportunities, and we have to wait for the right ones.

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Operator [42]

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We'll next take Brad Boyer from Stifel.

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Brad J. Boyer, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [43]

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Just a quick one for me. Having followed Peak for several years, it's no big surprise the access to reasonably priced capital wasn't necessarily their strongest suit. Just curious, as you assess their 17 resorts, is there anywhere you see an opportunity to inject a decent amount of capital to really transform the EBITDA productivity of a particular asset?

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

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I think that's something that we're going to spend time on this year assessing. Obviously, really no opportunity to spend significant dollars on kind of discretionary projects at the resorts before this season. But I think that's something we're going to look at and it'll absolutely be focused, as you said, on where we can get the biggest benefit, where we can drive the highest return. Some of that will be about the resort itself. Some of that will be about how we broaden the market share for that resorts that we can bring more people into our pass programs. So I think we'll kind of look at all of that. And I think -- also, I think they were able to spend certainly like amount snow, have actually put in a significant amount of capital in snowmaking, water and base lodge, things like that. So I think we feel good about that. I think a lot of capital has been put into a number of the snow time resorts. And I think they just didn't -- had done -- certainly, from what we can see from a bit of a distance, have done a good job maintaining the resorts. So I don't know that any one of these resorts is a Park City or Whistler in terms of size of capital that we go in, but there's no doubt that there's probably maybe smaller dollar amounts that could have a nice impact at a nice inflection point in terms of the kind of connection that they have with their guests.

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Brad J. Boyer, Stifel, Nicolaus & Company, Incorporated, Research Division - Analyst [45]

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That's helpful. And then just lastly just on the labor front. I mean obviously we all follow these businesses that are dependent upon seasonal labor. We all know the challenges that are facing that market. Can you just give us a sense of any initiatives that you've put in place to help sort of mitigate any pressures you might be feeling on the labor front? And that's all for me.

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

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Yes, I would say on the labor front, we absolutely -- we're operating in a fairly low unemployment environment. Many of our resort communities are at the lowest numbers we've ever seen in terms of -- so finding help is challenging. Affordable housing makes that even more difficult in terms of the scarcity of that, which is why it's critical that we, as a company, remain aggressive in trying to push forward on affordable housing projects anywhere we can because those -- it's just critical I think for the overall health of the communities.

And I think what we're doing on the labor side, really, is around talent acquisition and making sure that we remain aggressive on reaching out to as many people as possible using many of the same techniques that we use on the marketing side at a more basic level but still using a lot of those things to go out and recruit. And it's -- I think when I look at the last couple of years and our ability to still provide a very high-level experience at our resorts even with this labor market, a lot of that is because of more sophisticated recruiting and centralized recruiting so that we can find the right people, match them up with the right jobs and the right resorts and levers that in the best possible way. I think, candidly, there's more that we can do. There's a lot -- there are a number of great technological solutions to how to be more systematized with seasonal labor in general but certainly seasonal labor, and I think that's something you'll probably hear us talk more about in terms of how, again, we can use sophistication to -- even once they're here, how we maximize the opportunity that everybody has to get the most hours in the most efficient way possible.

So in our minds, it's obviously the overall economy could shift, but we're not planning for that. We're planning to use technology, data, systems to be more skillful and more successful on the talent front.

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Operator [47]

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And for our final question, we'll take Marc Torrente from Wells Fargo.

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Marc J. Torrente, Wells Fargo Securities, LLC, Research Division - Associate Analyst [48]

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Just going off some of the earlier questions on Peak contributions to the season pass program and recognizing that you just got access to the company. But any sense of the quality of their data capture? Is that something that will need to be improved?

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Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [49]

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I don't know that we -- yes, I don't think we have a great sense of that. I think on the season pass side, again, we just got in there, but certainly, our assumption would be that they've got good data on that. I think probably a mixture of how their resorts are capturing data and then leveraging that, I think, certainly not -- they don't have the same systems that we have or the same operating procedure, so I think we see that as a real opportunity. Just given when we're closing, when the deal is announced, unfortunately not something we're going to be able to radically change for this year. But we're going to do certainly our best to do whatever improvements we can to their data capture, but it is something that I think will be a long-term big opportunity for us.

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Marc J. Torrente, Wells Fargo Securities, LLC, Research Division - Associate Analyst [50]

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Okay. Great. And then lastly on Epic Discovery, slow start to the season given late snowfall. But once the season did start for Discovery, how did it perform versus your expectations this year? And where are you, I guess, against your original targets for that program? Or maybe where do you see that contribution going over time?

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Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [51]

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Yes, I would say I think as the summer progressed, results from Epic Discovery actually just got better and better, and I think that was a little bit of the story. I think we had a combination of, right, snow literally up through almost July 4 and beyond in many areas and very cold temperatures to a lot of June, so I think which held back some of the bookings that we would normally see that I think impacted the overall business not just Epic Discovery activities but impacted lodging, impacted retail up there, again, obviously, on the other hand, provided a strong finish to the ski season, so a little bit of a balance there.

I think broadly on Epic Discovery, I think absolutely, it's below, I think, some of our original hopes for the program. I think the -- all of the things that we've invested in, we feel like, are very good ROI, very great flow-through opportunities. But ultimately, getting the pivot to both the maximum flow-through, the maximum kind of how do we get people up out of the resorts, I think we haven't completely turned the corner on that, and we're still going to be focused on that. And a bit of a piece for us around -- takes long to build like a fully thriving stable business, takes a long time and that's I think the path we're on there. The good news is, is that the resorts in total remain very, very strong over the summer in terms of overall visitation. And obviously, Whistler Blackcomb's summer business continues to exceed expectations. I think maybe in every single year that so far under our ownership, we have been constantly impressed and surprised with -- yes, just with their -- the ability for them to drive visitation, the experience they provide and the financial results that we get from it. So that's been a bit of an offset to maybe slower growth that we might have wanted in the U.S. and a very strong growth in Whistler Blackcomb.

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Operator [52]

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At this moment, there are no further questions. I would like to turn the conference over to the moderators.

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Robert A. Katz, Vail Resorts, Inc. - Chairman & CEO [53]

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Thank you, operator. This concludes our fiscal 2019 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 [54]

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This concludes today's call. Thank you for your participation. You may now disconnect.