Vail Resorts Reduces Earnings Outlook

Vail Resorts Inc. lowering its earnings guidance for its fiscal year ending July 31, 2019, primarily due to the disappointing results from destination visitation in the pre-holiday period and also due to shortfalls from expectations at our Tahoe resorts and Whistler Blackcomb.

Highlights

Net income attributable to Vail Resorts, Inc. was $206.3 million for the second fiscal quarter of 2019 compared to net income attributable to Vail Resorts, Inc. of $235.7 million in the same period in the prior year. As previously disclosed, fiscal 2018 second quarter net income included a one-time, net tax benefit of approximately $64.6 million (or approximately $1.55 earnings per diluted share) related to the U.S. Tax Cuts and Jobs Act.

Resort Reported EBITDA was $358.0 million for the second fiscal quarter of 2019, which includes the operations of Triple Peaks and Stevens Pass and $2.9 million of acquisition and integration related expenses. In the same period in the prior year, Resort Reported EBITDA was $308.9 million, which included $1.4 million of acquisition and integration related expenses.

The company updated its fiscal 2019 guidance range and is now expecting Resort Reported EBITDA to be between $690 million and $710 million. The updated guidance incorporates $12 million of acquisition and integration expenses, including $2 million for the recently-announced Falls Creek and Hotham resorts transaction 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, of which nearly half has been realized year to date. The guidance does not incorporate any expected results or stamp duty payments for Falls Creek and Hotham.

The company’s Board of Directors approved a 20 percent increase in the quarterly cash dividend to $1.76 per share from $1.47 per share beginning with the dividend payable on April 11, 2019 to shareholders of record as of March 27, 2019.

On February 21, 2019, the company announced that it entered into an agreement to acquire Falls Creek and Hotham resorts in Victoria, Australia. The company expects the acquisition to close prior to the commencement of the Australian ski season in June 2019.

Commenting on the company’s fiscal 2019 second quarter results, Rob Katz, Chief Executive Officer, said, “We are pleased with our overall results for the quarter, with strong growth in visitation and spending compared to the prior year. In the pre-holiday period, destination guest visitation at our U.S. resorts was less than expected, which we attribute to guest concerns after two prior years of poor pre-holiday conditions. Our destination guest visitation was largely in line with expectations during the key holiday weeks and through the remainder of January. Throughout the quarter, with the favorable conditions at our U.S. resorts, we saw strong visitation growth among our local guests, who are primarily pass purchasers.

“Our Colorado and Utah resorts experienced strong visitation during the holidays and through the remainder of the quarter that aligned with our expectations. Our Tahoe resorts and Whistler Blackcomb saw periods of strong visitation in the holiday and post-holiday periods, but have also been impacted by numerous weather events that have negatively impacted their results. In addition, international visitation at Whistler Blackcomb was below the prior year throughout the quarter. Our Northeast resorts are off to a great start to the season as we continue to benefit from good conditions and the first season with Okemo and Mount Sunapee as a part of our network. Conditions across the network are set up well for the remainder of the season.

“Including results from Triple Peaks and Stevens Pass in the second quarter of fiscal 2019, total lift revenue increased 17.2 percent, driven by a 27.0 percent growth in skier visitation. Total effective ticket price (“ETP”) decreased 7.8 percent in the second quarter compared to the prior year, primarily due to higher skier visitation by season pass holders and the impact of 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 8.3 percent compared to the prior year. The strong rebound in visitation and spending compared to the prior year, along with the addition of Triple Peaks and Stevens Pass, drove a 15.1 percent increase in ski school revenue, a 21.3 percent increase in dining revenue and an 11.3 percent increase in retail/rental revenue compared to the prior year.”

Regarding the company’s Lodging segment, Katz said, “Our lodging results for the second fiscal quarter were positive, with revenue (excluding payroll cost reimbursements) increasing 16.1 percent compared to the prior year primarily due to the incremental operations of Triple Peaks. The average daily rate (“ADR”) 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 ADR as compared to our broader Lodging segment.”

Regarding the company’s outlook, Katz said, “As noted in our January press release, we are lowering our guidance for fiscal 2019, primarily due to the disappointing results from destination visitation in the pre-holiday period and also due to shortfalls from expectations at our Tahoe resorts and Whistler Blackcomb. We now expect net income attributable to Vail Resorts, Inc. for fiscal 2019 to be between $268 million and $300 million, and Resort Reported EBITDA for fiscal 2019 to be between $690 million and $710 million, which remains generally consistent with our commentary on guidance in January. Our guidance is predicated on current Canadian and Australian foreign exchange rates of $0.75 and $0.71, respectively, for each currency to the U.S. dollar for the remainder of the fiscal year, which represents an estimated $4 million reduction in Resort Reported EBITDA from the currency rates included in the guidance we issued in September 2018, of which nearly half has been realized year to date. The updated guidance incorporates $12 million of acquisition and integration expenses, including $2 million for the Falls Creek and Hotham resorts transaction. The guidance does not incorporate any expected operating results or stamp duty payments for Falls Creek and Hotham, which we plan to update following the closing of the transaction. Our guidance assumes normal conditions at our resorts and a stable economic environment for the remainder of the fiscal year.”

Regarding capital allocation, Katz said, “We remain confident in the strong cash flow generation and stability of our business model. We will continue to be disciplined stewards of our capital and remain committed to strategic, high-return capital projects, continuous investment in our people, strategic acquisition opportunities and returning capital to our shareholders through our quarterly dividend and share repurchase programs. We are pleased to announce that the Board of Directors has approved a 20 percent increase to our quarterly dividend and declared a quarterly cash dividend on Vail Resorts’ common stock of $1.76 per share, payable on April 11, 2019 to shareholders of record on March 27, 2019. Additionally, during the second quarter we repurchased 155,111 shares of our common stock at an average price of $225.64 for a total of approximately $35.0 million.” Katz added, “Our balance sheet remains very strong. We ended the second quarter with $158.6 million of cash on hand and our Net Debt was 1.9 times trailing twelve months Total Reported EBITDA.”

Epic Pass

Eleven years ago, the Epic Pass transformed the ski industry by offering guests unlimited skiing at the best resorts in the world, for a previously unheard of low price, making skiing and riding more accessible and affordable. The 2019/2020 season pass lineup takes another transformational leap by offering season pass level discounts to all guests with the introduction of “Epic for Everyone.” As part of this introduction, the company is now offering the new Epic Day Pass, a customizable pass for skiers and riders who may not need the unlimited skiing offered by traditional season passes. Guests can create their own pass by selecting the number of days they plan to ski or ride, from one day to seven days, and whether or not to add holiday access. The Epic Day Pass, with a starting price of just $106, allows guests to receive a discount of nearly 50 percent off of lift ticket window prices by purchasing in advance of the ski season, providing all of our guests with the value, flexibility and convenience that come with being a pass holder. The season pass program has grown to comprise 47 percent of fiscal 2018 lift revenue; however, those guests using a daily lift ticket skied, on average, an estimated 2.3 days during the season. Epic for Everyone provides all of our guests with the opportunity to participate in season pass discounts, and provides first time and occasional skiers greater access to our resorts, giving us the opportunity to expand the sport and grow the entire industry.

This past year, we launched the new Military Epic Pass which delivered nearly 100,000 new pass holders to our program, representing an incredible opportunity for our company to make our resorts more accessible to those who have served their countries in the armed forces as well as their families. For the 2019/2020 season, we will continue offering the Military Epic Pass at a compelling price of $129.

The company is also introducing a new season pass, the Keystone Plus Pass, providing unlimited access to Keystone with holiday restrictions, unlimited spring skiing at Breckenridge after April 1 and five days at Crested Butte, with holiday restrictions, at a starting price of $369 for adults and $259 for kids. With Keystone’s plan to be the first resort open in the U.S. and Breckenridge planning to stay open until Memorial Day, the two Summit County resorts will offer one of the longest ski seasons in the country. Also new for 2019/2020 is that guests who purchase a season pass before our spring selling deadline will receive ten discounted “Buddy Tickets”, up from six the year before. We are also pleased to begin our new pass partnerships with Sun Valley and Snow Basin, as well as Rusutsu in Hokkaido, Japan.

Falls Creek and Hotham Acquisition

As previously announced on February 21, 2019, the company entered into an agreement to acquire the ski resorts at Falls Creek Alpine Resort and Hotham Alpine Resort in Victoria, Australia from Living and Leisure Australia Group, a subsidiary of Merlin Entertainments, for a purchase price of approximately AU$174 million, subject to certain adjustments at closing, including an increase (or reduction) in the price for operating losses (or gains) incurred for the period from December 29, 2018 through closing. The company also expects to pay a stamp duty, which we estimate will be approximately AU$4 million, associated with the closing of the transaction. Falls Creek and Hotham are expected to generate incremental Resort Reported EBITDA of approximately AU$18 million (approximately US$13 million) during its first twelve months of operation following the acquisition, excluding any integration expense. After the closing of the transaction, annual ongoing capital expenditures are expected to increase by approximately AU$4 million to AU$5 million (approximately US$3 million to US$4 million) to support the addition of these two resorts. Specific to this transaction, we anticipate fiscal 2019 acquisition related expenses of approximately US$2 million. The transaction is subject to certain regulatory approvals and we anticipate that the closing will occur prior to the commencement of the Australian ski season in June 2019.

Operating Results

The following are segment highlights:

Mountain Segment

• Total lift revenue increased $65.6 million, or 17.2 percent, compared to the same period in the prior year, to $447.6 million for the three months ended January 31, 2019, primarily due to strong North American pass sales growth for the 2018/2019 North American ski season, increased non-pass skier visitation at our western U.S. resorts and incremental revenue from Triple Peaks and Stevens Pass.
• Ski school revenue increased $12.1 million, or 15.1 percent, and dining revenue increased $11.5 million, or 21.3 percent, for the three months ended January 31, 2019 compared to the prior year, primarily as a result of incremental revenue from Triple Peaks and Stevens Pass and increased revenue at our other U.S. resorts as a result of higher skier visitation.
• Retail/rental revenue increased $13.0 million, or 11.3 percent, for the three months ended January 31, 2019 compared to the same period in the prior year, primarily due to higher sales volumes at stores proximate to our western U.S. resorts and other stores in Colorado, as well as incremental revenue from Triple Peaks and Stevens Pass.
• Operating expense increased $58.4 million, or 16.0 percent, which includes incremental operating expenses from Triple Peaks and Stevens Pass.
• Mountain Reported EBITDA increased $47.0 million, or 15.4 percent, for the fiscal quarter compared to the same period in the prior year, which includes $4.3 million of stock-based compensation expense for the three months ended January 31, 2019 compared to $4.0 million in the same period in the prior year.

Lodging Segment

• Lodging segment net revenue (excluding payroll cost reimbursements) for the three months ended January 31, 2019 increased $9.7 million, or 16.1 percent, as compared to the same period in the prior year, primarily due to incremental revenue from the Triple Peaks resorts, as well as revenue from incremental managed Tahoe lodging properties that we did not manage in the prior year.
• For the three months ended January 31, 2019, ADR decreased 4.3 percent at the company’s owned hotels and managed condominiums compared to the same period in the prior year primarily as a result of the inclusion of 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 ADR as compared to our broader Lodging segment.
• Lodging Reported EBITDA for the three months ended January 31, 2019 increased $2.1 million, or 57.0 percent, compared to the same period in the prior year, which includes $0.8 million of stock-based compensation expense for the both the three months ended January 31, 2019 and 2018.

Resort – Combination of Mountain and Lodging Segments

• Resort net revenue increased $114.9 million, or 15.6 percent, compared to the same period in the prior year, to $849.3 million for the three months ended January 31, 2019, primarily due to increased visitation and spending at our U.S. resorts, strong North American pass sales growth for the 2018/2019 North American ski season and incremental revenue from Triple Peaks and Stevens Pass.
• Resort Reported EBITDA was $358.0 million for the three months ended January 31, 2019, an increase of $49.1 million, or 15.9 percent, compared to the same period in the prior year, which includes $2.9 million of acquisition and integration related expenses and approximately $3 million of headwind from currency translation primarily related to operations at Whistler Blackcomb, which the company calculated on a constant currency basis by applying current period foreign exchange rates to the prior period results.

Total Performance

• Total net revenue increased $115.0 million, or 15.7 percent, to $849.6 million for the three months ended January 31, 2019 as compared to the same period in the prior year.
• Net income attributable to Vail Resorts, Inc. was $206.3 million, or $5.02 per diluted share, for the second quarter of fiscal 2019 compared to net income attributable to Vail Resorts, Inc. of $235.7 million, or $5.67 per diluted share, in the second fiscal quarter of the prior year. Included in net income attributable to Vail Resorts, Inc. for the three months ended January 31, 2018 was a one-time, provisional net tax benefit related to U.S. tax reform legislation, estimated to be approximately $64.6 million, or $1.55 per diluted share, which was recognized as a discrete item and recorded within (provision) benefit from income taxes on our Consolidated Condensed Statement of Operations during the three months ended January 31, 2018. Additionally, fiscal 2019 second quarter net income included the after-tax effect of acquisition and integration related expenses of $2.2 million and approximately $1 million of headwind from 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.

Season-to-Date Metrics through March 3, 2019

The company announced ski season-to-date metrics for the comparative periods from the beginning of the ski season through Sunday, March 3, 2019, and for the prior year period through Sunday, March 4, 2018. The reported ski season metrics are for our North American mountain resorts, and the metrics exclude results from Perisher and our urban ski areas in both periods. The reported ski season metrics include growth for season pass revenue based on estimated fiscal 2019 North American season pass sales compared to fiscal 2018 North American season pass sales, and the metrics are adjusted as if Steven Pass and Triple Peaks, LLC were owned 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’s results. The data mentioned in this release is interim period data and is subject to fiscal quarter end review and adjustments.

• Season-to-date total lift ticket revenue at the company’s North American mountain resorts, including an allocated portion of season pass revenue for each applicable period, was up 9.6 percent compared to the prior year season-to-date period.
• Season-to-date ski school revenue was up 7.4 percent and dining revenue was up 7.9 percent compared to the prior year season-to-date period. Retail/rental revenue for North American resort store locations was up 7.3 percent compared to the prior year season-to-date period.
• Season-to-date total skier visits for the company’s North American mountain resorts were up 7.9 percent compared to the prior year season-to-date period.

Calendar Year 2019 Capital Expenditures

Regarding calendar year 2019 capital expenditures, Katz said, “We remain committed to reinvesting in our resorts, creating an experience of a lifetime for our guests and generating strong returns for our shareholders. The company expects to invest approximately $139 million to $143 million, excluding one-time items associated with integrations, the one-time Triple Peaks and Stevens Pass transformation plan, summer capital, real estate related capital and reimbursable investments.

“As previously announced, the calendar year 2019 capital plan includes a significant investment in our snowmaking systems in Colorado that will transform the early-season terrain experience at Vail, Keystone and Beaver Creek. We will also be investing in a new permanent Tombstone BBQ restaurant at Park City, improvements to the Peak 8 base area at Breckenridge where we are planning to make a one-time investment to transform the guest experience at the base of Peak 8 with new ski school and childcare facilities, as well as an improved ticket and retail/rental experience, and a full renovation of the Beaver Creek children’s ski school facilities. We remain highly focused on investments that will substantially improve the guest experience across our resorts, including a new mobile lift ticket express fulfillment technology capacity. We will be completing the final stage of our point of sale modernization project and investing in technology to automate our data-driven marketing efforts. We also plan to make significant one-time 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 and on-mountain restaurant upgrades at Okemo. We now expect to spend $14 million in calendar 2019 of the total two year plan of $35 million at the acquired resorts. We plan to spend approximately $7 million on integration activities as well across the recently acquired resorts, excluding any spending for Falls Creek and Hotham.

“Including investments related to integration and acquisitions, summer capital, real estate related projects and approximately $13 million of reimbursable investments associated with insurance recoveries and tenant improvements, our total capital plan will be approximately $180 million to $185 million.”

Return of Capital

The company declared a quarterly cash dividend of $1.76 per share of Vail Resorts common stock that will be payable on April 11, 2019 to shareholders of record on March 27, 2019. Additionally, a Canadian dollar equivalent dividend on the exchangeable shares of Whistler Blackcomb Holdings Inc. will be payable on April 11, 2019 to shareholders of record on March 27, 2019. The exchangeable shares were issued to certain Canadian persons in connection with our acquisition of Whistler Blackcomb Holdings Inc. In the second quarter of fiscal 2019, the company repurchased 155,111 shares of our common stock at an average price of $225.64 for a total of approximately $35.0 million.

Updated Outlook

• Net income attributable to Vail Resorts, Inc. is expected to be between $268 million and $300 million in fiscal 2019.
• Resort Reported EBITDA is expected to be between $690 million and $710 million for fiscal 2019. The updated guidance includes $12 million of acquisition and integration expenses, including $2 million for the Falls Creek and Hotham resorts transaction, and $4 million of unfavorable foreign exchange as a result of the U.S. Dollar strengthening relative to the initial guidance issued in September 2018, of which nearly half has been realized year to date. The guidance does not incorporate any expected operating results or stamp duty payments for Falls Creek and Hotham. The updated outlook for fiscal year 2019 is predicated on current Canadian and Australian foreign exchange rates, conditions and terrain availability remaining relatively consistent with their current status and a stable economic environment through the remainder of the ski season.
• Resort EBITDA Margin is expected to be approximately 31.1 percent in fiscal 2019, at the midpoint of our guidance range.
• Fiscal 2019 Real Estate Reported EBITDA is expected to be between negative $7 million and negative $3 million.

Previously, net income attributable to Vail Resorts, Inc. was expected to be between $288 million and $335 million in fiscal 2019. Resort Reported EBITDA for fiscal 2019 was projected to be between $718 million and $750 million. Resort EBITDA Margin was expected to be approximately 31.5 percent in fiscal 2019, using the midpoint of the guidance range. fiscal 2019 Real Estate Reported EBITDA was expected to be between negative $3 million and $3 million.

Image courtesy Vail Resorts